Alaskan pipeline leak propels oil higher
By Sheila McNulty in Houston and Gregory Meyer in New York

Published: January 10 2011 19:03 | Last updated: January 10 2011 19:03

Oil prices rose after a leak in a key Alaskan pipeline forced the shutdown of most of the production from North America’s biggest crude oilfield.

Analysts warned the market impact could increase if the outage continued for more than a few days on the Trans-Alaska Pipeline System, which carries oil 800 miles from Prudhoe Bay to the warm-water port of Valdez. A tougher regulatory stance following the Macondo disaster in the Gulf of Mexico could prolong the closure, they said.

“There is far greater scrutiny by regulators before restarting pipelines after unplanned outages,’’ potentially adding a week to the process of restarting the pipeline, said Lawrence Eagles, oil analyst at JPMorgan in New York.

Analysts said if the pipeline problems persisted, US West Coast refineries would be forced to seek out more barrels from South America, Russia and the Middle East, lifting prices at these origins relative to benchmark US West Texas Intermediate, which is far less exposed to global oil flows. As such, the gains of benchmarks such as Brent and Oman outpaced those of WTI on Monday.

In late afternoon trading in London, ICE February Brent jumped $2.07 to $95.38 a barrel. In Dubai, DME March Oman rose $2.27 to $93.59 a barrel. Meanwhile in New York, Nymex February WTI rose $1.25 to $89.28 a barrel. Paul Tossetti, at consultants PFC Energy, said Alaska supplied US west coast refineries with around a quarter of their daily intake. “A 25 per cent hit is not insignificant. But it can be worked around.’’

Alyeska Pipeline Service Company, which operates the pipeline, said inventories at tanks in the port city of Valdez would help to offset the outage. Tesoro, which processes some 550,000 barrels a day at five refineries on the US West Coast, said it had two supertankers loading this week with oil already stored at Valdez.

“Over the short term Tesoro expects to be minimally impacted,” it said.

Although the leak appears small, resulting in only about 10 barrels of spilled oil inside a pumping station, the pipeline is encased in cement and must be excavated before it is repaired. Alyeska is looking at a variety of options to restart the pipeline, including developing a plan to bypass the affected piping.
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