Oil shutdown likely to affect gas prices - East Valley Tribune: Business

Oil shutdown likely to affect gas prices

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Posted: Sunday, August 13, 2006 7:48 am | Updated: 4:51 pm, Fri Oct 7, 2011.

NEW YORK - Should you see rising costs next time you fill up your car with gas, send your thanks to BP, which just shut down one of its largest oil fields. This mess didn’t have to happen. BP, whose earnings topped $22 billion last year, has acknowledged slacking off on maintenance of feeder pipelines at the Prudhoe Bay field in Alaska that accounts for 8 percent of U.S. oil output.

That closure is already bumping up oil prices, which could mean higher costs at the gas pump. And as Americans’ wallets get further pinched, don’t expect the same for BP — it’s expected to walk away virtually unscathed.

‘‘Drivers will pay through the nose for this very preventable emergency, while oil companies will boost their already record profits even further,’’ said Judy Dugan, research director at the Foundation for Taxpayer and Consumer Rights, a consumer watchdog group.

BP began shutting down the nation’s largest oil field Sunday after an inspection detected heavy corrosion and a small leak in a critical pipeline in Prudhoe Bay. It plans to replace 16 miles of feeder pipelines in the coming months at the largest producing oil field in the United States.

That news pushed crude markets sharply higher, given that supplies were already tight. And many analysts expect gasoline prices to shoot higher in the final month of the peak summer driving season. Since the shutdown was announced, the current national average for unleaded gas has hovered around $3.036 a gallon, though bigger increases are already being seen on the West Coast and diesel fuel prices are topping records in some markets.

It is too early to tell where they go from there, but some of the most pessimistic talk has included predictions of $4-a-gallon gas in California.

A more conservative view from Tom Kloza, chief oil analyst with Oil Price Information Service in Wall, N.J., forecasts the national average price for regular unleaded gasoline would rise 5 cents or more, which could put in reach of the record of $3.057, set after hurricanes Katrina and Rita hit in September.

That could sting already strapped consumers, who are dealing with worries over huge debt burdens, a moderating housing market and a weak employment outlook. Should they crimp their spending much more, it could rock the overall economy, which derives two-thirds of its activity from consumer buying.

The irony here is that BP might not walk away as financially bruised, relatively speaking. Sure, this is a full-fledged public relations disaster for the company, but it may not be a wrecking ball to its bottom line.

Big gains in oil prices — which have nearly doubled in the last two years — have offset lower output, and have helped profits surge to record levels. In the second quarter that ended June 30, BP’s profits grew by 30 percent from a year earlier to $7.3 billion, with revenues topping $73 billion.

But those soaring profits have also opened BP up to much criticism over why it hasn’t dedicated ample funds toward safety and maintenance — yet has plunged about $36 billion into stock buybacks since 2000.

This week’s news confirms what many have chided the company for lately: an explosion last year at BP’s Texas City, Texas, refinery that killed 15; a large oil spill at Prudhoe Bay earlier this year that has become part of a criminal investigation; and allegations of energy-market manipulation by BP traders this summer. BP has said it will fight that in court.

Last month, BP CEO John Browne promised to add $1 billion to the $6 billion that had already been earmarked to be spent over the next four years to improve safety at its U.S. refineries and upgrading Alaskan pipelines. The company also created a new advisory board that will be responsible for monitoring BP’s U.S. operations, with a particular focus on compliance, safety and regulatory affairs.

But even with all the money that BP has had to shell out to deal with its recent troubles, its profits have soared — and that’s something that probably won’t end anytime soon.

While much rests on how long and to what extent the pipeline remains shut down, analysts on Wall Street don’t seem too concerned about whether it will really hurt the company’s business over the long term.

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