Analysis: Alaska oil line facing increased risks as output falls

NEW YORK/ANCHORAGE Fri Jan 21, 2011 11:06am EST

A mooring station for oil tankers can be seen at the Trans-Alaska Pipeline Marine Terminal in Valdez, Alaska on August 8, 2008. REUTERS/Lucas Jackson

A mooring station for oil tankers can be seen at the Trans-Alaska Pipeline Marine Terminal in Valdez, Alaska on August 8, 2008.

Credit: Reuters/Lucas Jackson

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NEW YORK/ANCHORAGE (Reuters) - Last week's shutdown of the Trans Alaska Pipeline System, a major artery for U.S. oil, may signal trouble ahead for Alaska's aging oil infrastructure, including more frequent incidents that could damage the environment and cause oil prices to soar.

Workers braved sub-zero temperatures to install a bypass around a small leak at TAPS, allowing the line that ships 12 percent of domestic crude supplies to restart on Monday, and halting the advance of oil prices toward $100 a barrel.

But the smooth fix belies an ominous lesson from last week's near disaster. Officials and experts said shutdowns at TAPS are becoming more likely as declining Alaskan oil output reduces the flow of crude through the line and makes its riskier to operate.

The stakes are highest during Alaska's dark and cold winter when even minor repairs are precarious, and when idle oil or debris could freeze in the line, potentially wreaking havoc.

"Flow is the real problem," said Thomas Barrett, president of TAPS operator Alyeska, in a phone interview. TAPS' "exposure to cold is increasing with every decline we've had in production."

Last week's spill along the 800-mile (1,280 kilometer) line was measured at just 317 barrels, but it provided a glimpse at how a future winter shutdown might snowball into calamity.

The incident quickly led to nearly 5 million barrels of oil being shut in. It was the second-longest outage in the line's history, and the second major unplanned shutdown in eight months, after a much larger spill idled the line last May.

Crude futures rose 4.4 percent in three trading days after the outage, and Brent oil surged to 27-month highs just shy of $100 a barrel.

Pipeline operator Alyeska, whose top stakeholder is BP Plc, faced "major risk" during the incident, Barrett said, but its highly-trained crews responded effectively this time.

Alaskan oil fields, including the largest U.S. oil field, BP-operated Prudhoe Bay, are in decline and now pump less than a third of 1988 peak levels above 2 million barrels a day. That has cut the flow of crude on TAPS by 75 percent since its peak, to around 630,000 bpd this year.

Volumes should thin another 15 percent by 2019 to 524,000 bpd, according to a state government estimate. Some say the decline could be even faster.

Corrosion is one suspected cause of last week's leak, but it may take months to examine the line and know for sure.

"We may have dodged a bullet this time," said Mark Routt, an oil engineer and consultant at KBC in Houston. "But it exposes a very serious problem: Low throughput brings corrosion, and if one section of pipe had this problem, it's likely happening in others."

TAPS plans annual maintenance in summer since winter temperatures average -16 Fahrenheit (-27 Celsius) on the North Slope and darkness prevails 24 hours a day.

LOW FLOW CONUNDRUM

Frigid outside temperatures compound the risks posed by low flow in the pipe. TAPS was designed to ship 1.5 million bpd and its engineers once thought it could withstand winter shutdowns lasting for weeks.

But within two days of last week's leak, Alyeska appealed urgently to regulators to allow the pipeline to resume operations before the leak was fixed, to prevent a freeze up.

The temporary restart occurred ahead of a second, shorter outage to install a bypass line. A pipe freeze could have posed a major threat to infrastructure, environment, and Alaskan oil output worth $55 million a day, officials warned.

Weak flow through the 33 year-old line -- which has already exceeded its planned economic lifespan -- can speed corrosion, freezing and wax build-ups in the line.

Today, oil flows through TAPS at around 2 miles per hour, under half its speed in the 1980s, and falls to much colder temperatures. That allows wax and residue to drop out of the oil, and makes water in the line more likely to freeze. Alyeska runs devices known as pigs through TAPS weekly to scrape away debris, twice as often as they were once needed.

During a winter outage, a pig and the watery, waxy buildup it pushes around could freeze, potentially scuttling restart efforts or putting pump equipment at risk, Barrett said.

Two pigs were inside TAPS last week, and removing one safely was the riskiest part of the response, Barrett said.

Other lines and equipment at Alaskan fields linked to TAPS also faced risks last week. As outside temperatures fell, Alaskan output dipped as low as 35,000 bpd, prompting BP to consider pumping oil into idle wells simply to keep it moving.

Oil dropped as low as 29 degrees Fahrenheit (-2 Celsius) in one stretch of TAPS, thickening as it fell below water's freezing point. Crude enters TAPS at 110 degrees Fahrenheit, but cools as it oozes south for up to 14 days.

At TAPS' end-point in Valdez, oil stocks briefly fell to under 10 percent of storage capacity last week, and BP chartered a rare cargo of Asian crude to the U.S. West Coast, to ensure against shortfalls.

MORE ARCTIC OIL?

Last week's shutdown may lead some U.S. lawmakers to urge the Obama administration to allow more Arctic drilling.

"As we look to the future of TAPS, we know we have to get more oil in the pipeline," Alaskan Senator Mark Begich, a Democrat, said in a release on Tuesday.

Oil majors have long lobbied for more Alaskan access, but last year's Gulf of Mexico spill has made it a harder sell.

A U.S. presidential commission investigating that spill this month cited "serious concerns" about the potential for spills in Arctic waters, where response would be difficult.

Currently on ice are projects like Shell's Beaufort Sea and Chukchi prospects offshore Alaska, where the major hoped to drill this year.

Other lawmakers are more concerned with TAPS' upkeep, and whether Alyeska may be operating it at high risk.

Last week's incident was "reminiscent" of a notorious 2006 leak from a BP pipeline at Prudhoe Bay, caused by corrosion, according to a letter from Edward Markey, the top Democrat in the House Committee on Natural Resources, to Alyeska last week.

Markey ordered Alyeska to provide the House committee with information on corrosion monitoring of TAPS, as well as plans for a so-called "cold restart" during winter.

(Editing by David Gregorio)

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