Analysis: Alaska pipe restart could be fast, but risks remain

NEW YORK Mon Jan 10, 2011 4:08pm EST

NEW YORK (Reuters) - The shutdown of Alaska's main oil pipeline poses only a minor threat to U.S. crude supplies, but any snag delaying its restart could send West Coast refiners scrambling for substitute crude and drive up prices.

The 800-mile Trans Alaska Pipeline System (TAPS), which carries over 600,000 barrels per day (bpd) or 12 percent of U.S. oil output, was shut on Saturday after a 10 barrel leak was discovered in a pump station.

A small leak usually means TAPS can restart quickly. Regulators and experts a bypass to install a replacement pipe may take 5 days if things go smoothly.

Pipeline operator Alyeska has set no restart date. An Alaskan environmental official, Tom DeRuyter, said the line would resume operation after a bypass, but offered no timeline.

Federal pipeline regulator PHMSA said it would not require Alyeska to seek U.S. government approval before restart. This eliminates one possible delay.

"It may well be a minor issue, but we just don't know yet and the silence so far could mean it's a bigger deal," said Mark Routt, an oil consultant at KBC in Houston.

"It looks like there's an abundance of caution."

Most expect a prompt restart. One source at a major refiner with operations on the West Coast said he understood shipments would resume this week. But experts also cited factors that could delay the line and cause supply disruptions.

These included corrosion that may affect a larger expanse of pipeline, or cold temperatures that can complicate a restart if TAPS is idle for more than several days.

JP Morgan analysts said the spill appeared minor, although regulators may want the line to be closely examined before restart.

"From an engineering perspective, we would doubt that any shutdown will last more than two to three days," the bank said in a note.

Last May, after a spill of several thousand barrels at a pump station, the line was shut for three days. Even large spills in the three decade-old line have rarely led to shutdowns longer than two days.

Since Alaska's Valdez oil terminal has capacity to store more than 9 million barrels of oil, short outages should have little impact on oil markets or a U.S. West Coast refining market that relies heavily on Alaskan North Slope crude.

Crude prices rose more than 1 percent to top $89 a barrel on Monday. Analysts said gains would have been higher if the outage had stirred big supply worries.

WEST COAST WORRIES

Brent rose faster than U.S. benchmark West Texas Intermediate on Monday, in part because West Coast refiners would have to substitute Alaskan oil supplies with cargoes from the Pacific Coast of Asia or South America. Crudes from those regions are typically priced directly or indirectly against Brent, justifying its growing premium to WTI.

"If I'm a West Coast refiner, I don't have the luxury to wait more than a few days to see how this pans out," said Routt. "If there's a chance for a long disruption, they'll have to cover for it soon, and aggressively."

A Houston-based pipeline consultant, who asked not to be named, said the outage won't last long unless it's linked to bigger problems.

"One has to look at corrosion as a possible explanation," he said.

Federal pipeline safety regulator PHMSA said it is working with Alyeska to restart the pipeline. A spokesman for BP, which partially owns the line, declined comment.

BP's New York-traded ADR shares (BP.N) fell more than 1 percent but then recovered most of those losses in later trade. Shell and Tesoro, which take Alaskan oil, declined comment on how long the outage would last.

After a leak in 2006, corrosion was discovered on a separate set of lines operated by BP Plc (BP.L) and serving Alaska's Prudhoe Bay oilfield. That led to months of intermittent outages affecting Alaska's oil output. TAPS itself has not faced similar problems.

Assuming equipment is readily available, a bypass line takes two days to construct, and could take another three days to transport to the site of the leak and weld into place, a former Alaskan pipeline inspector said, requesting anonymity.

COLD CONCERNS

The above-ground spill is tiny but it's not yet clear whether more oil has leaked underground from a stretch of the line, or what caused the leak.

"There is no oil on the ground. What we do not know is if there is oil in the ground," said DeRuyter, the on-scene coordinator for the Alaska Department of Environmental Conservation.

During Alaska's cold winter months, the temperature of the pipeline and its contents, including crude oil and a small portion of water, can affect the restart. A so-called "cold restart" can be problematic if the contents of the pipe begin to freeze after being shut for days or weeks.

"The longer the pipeline doesn't flow, the colder and thicker its contents become, and the greater the risk of a much longer disruption," said the former pipeline inspector.

(Additional reporting by Yereth Rosen, Janet McGurty and Bruce Nichols; Editing by David Gregorio)

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.