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BP Pipeline Maintenance Program Draws Scrutiny

RENEE MONTAGNE, Host:

This is MORNING EDITION from NPR News. I'm Renee Montagne.

STEVE INSKEEP, Host:

And I'm Steve Inskeep. Good morning. The list of causes for rising world oil prices just got a little longer. To soaring demand and war and nuclear fears you can now add corrosion. BP is stopping production at the nation's largest oil field. The company discovered corrosion in some of its pipelines around Prudhoe Bay, Alaska. This move temporarily halts the flow of oil that would normally move down the west coast to power millions of California cars, among other things.

In a moment, a California economist will help us sort out this story. We begin with NPR's Scott Horsley.

SCOTT HORSLEY: The corroded pipelines in Prudhoe Bay are just the latest oily black eye for BP. The company was already under criminal investigation for the North Slope's biggest oil spill five months ago. It's also facing scrutiny for a deadly refinery explosion in Texas last year. Energy analyst Phil Flynn of Alaron Trading in Chicago jokes BP has come to stand for Big Problem.

PHIL FLYNN: And their big problem is our big problem, because the longer it takes for them to make up for that oil supply, the more we're going to feel the pain here in the U.S.

HORSLEY: Shutting down Prudhoe Bay will reduce already tight world oil supplies by 400,000 barrels a day. That sent prices on the futures market climbing yesterday by more than $2 a barrel. BP America's chairman acknowledges the shutdown is a drastic move, and he apologized for the adverse impacts. Company spokesman Ronnie Chappell says BP acted after discovering that in some areas, corrosion had eaten through 80 percent of its pipes.

RONNIE CHAPPELL: It's caused us to question our approach to monitoring these lines. A week ago, we thought this line was in good shape. Today we know it's not.

HORSLEY: BP is not the only one questioning its approach. For years, BP whistleblowers have filed complaints to a self-styled watchdog names Charles Hamel. He says BP has been shortchanging pipeline maintenance in Alaska since at least 1999.

CHARLES HAMEL: BP has been playing Russian roulette, and the state has been riding along with it very happy because it hasn't cost them anything. Now it's going to cost them a fortune.

HORSLEY: Alaska Governor Frank Murkowski agreed yesterday that the shutdown leaves his state in a precarious position since ninety percent of Alaska's unrestricted revenue comes from oil.

FRANK MURKOWSKI: I think it's a fair question to try and point where the responsibility lies so that, you know, it can indicate, you know, where corrective action has to be taken.

HORSLEY: At a congressional hearing after the big March oil spill, a federal regulator testified that BP did not regularly scrape its pipelines - even though, she said, most companies do so on a weekly or bi-weekly basis. Massachusetts Democrat Ed Markey blames this week's shutdown on what he calls the company's chronic mismanagement.

ED MARKEY: BP has yet to give a good answer as to why they did not clean out these pipes. It sounds like it's the same reason I gave to my mother for why I didn't clean up my room. She did not find it acceptable, and the American public should not find it acceptable.

HORSLEY: BP's Ronnie Chappell says the company has stepped up spending on pipeline maintenance, but he admits the lines now in the spotlight were not given a high priority. That's because they carry oil that's already had water removed from it.

CHAPPELL: Frankly, we had not expected internal corrosion to be a significant problem in these lines. This is finished oil in these lines, and oil itself isn't corrosive.

HORSLEY: BP acknowledged yesterday it really doesn't understand what's causing the corrosion. It's decided to replace some 16 miles of pipe. BP hopes to get some oil flowing before that time-consuming job is finished, but says it won't restart pumping at Prudhoe Bay until it can do so safely.

Scott Horsley, NPR News. Transcript provided by NPR, Copyright NPR.

Scott Horsley is NPR's Chief Economics Correspondent. He reports on ups and downs in the national economy as well as fault lines between booming and busting communities.
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