Anything but time

August 8, 2006

“ASK ME for anything,” said Napoleon to his lieutenant. “Anything but time.”

With those three words, Napoleon was referring to the binding agent of operational military art, the concept of “Time, Space, and Force.” What Napoleon was saying to his subordinate was that in the context of war, there are always setbacks. Terrain, for example, is sometimes captured and lost to the enemy, but lost terrain can be regained. And forces are lost in combat but can be rebuilt and reconstituted from the strategic reserve. But lost time? Once it has passed, time is lost forever. You will never see it again, and no general, however great, can win it back.

“An Orderly and Phased Shutdown”

“Anything but time,” he said. I thought of Napoleon’s comment instantly when I heard of the announcement by BP that the company was shutting down its operations at Prudhoe Bay, Alaska. Here is the key paragraph of what BP released:

“BP to Shut Down Prudhoe Bay Oil Field. Release date: 07 August 2006.
ANCHORAGE — BP Exploration Alaska, Inc. has begun an orderly and phased shutdown of the Prudhoe Bay oil field following the discovery of unexpectedly severe corrosion and a small spill from a Prudhoe Bay oil transit line. Shutting down the field will take days to complete. Over time, these actions will reduce Alaska North Slope oil production by an estimated 400,000 barrels per day.”

BP’s announcement stated that the decision to shut down the oil field followed the receipt on Friday, Aug. 4, of data from a “smart pig” run through portions of its pipeline called “transit lines,” conducted in late July. Transit lines move the oil to flow and pumping stations for transport down the Trans Alaska Pipeline System for shipment 800 miles south to Valdez, where the oil is then shipped to the lower 48 states aboard tankers.

A “smart pig” is a device that is inserted inside a pipeline, and which travels through the conduit, measuring various properties of the internal dynamics and metallic structure of the pipe wall. BP’s analysis of the data revealed 16 anomalies in 12 locations in an oil transit line on the eastern side of the largest working oil field in the U.S. Prompted by the inspection data, BP conducted follow-up inspections of anomalies where pipeline wall thinning, caused by internal corrosion, appeared to exceed criteria for continued safe operations. During these follow-up inspections, BP personnel discovered a leak and small spill estimated at 4-5 barrels, which has now been contained and clean up has commenced.

According to BP, the pipeline was shut down at 6:30 a.m. Sunday, Aug. 6. BP notified state and federal officials of the decision and promised to work closely with the U.S. Department of Transportation and the Alaska Department of Environmental Conservation, among others. BP stated on Monday, Aug. 7, that it will replace 73% of the pipelines in the affected transit lines. Thus, a significant portion of the oil production from the largest oil field in the U.S. could be offline for many weeks or months.

“We regret that it is necessary to take this action, and we apologize to the nation and the State of Alaska for the adverse impacts it will cause,” said BP America Chairman and President Bob Malone. “However, the discovery of this leak and the unexpected results of this most recent smart pig run have called into question the condition of the oil transit lines at Prudhoe Bay. We will not resume operation of the field until we and government regulators are satisfied that they can be operated safely and pose no threat to the environment.”

400,000 Barrels per Day Just Not Available Anymore

Some crude oil from Prudhoe Bay is still moving through the Alyeska Pipeline to loading terminals in Valdez. That pipeline delivered an average 891,104 barrels per day of crude oil to its southern terminal during 2005.

However, this rate of movement will no longer be the case. A BP spokesman stated on Sunday night that the eastern side of the Prudhoe Bay oil field would be shut down first, an operation anticipated to take 24-36 hours. BP will then move to shut down the west side, in an action that will shut in more than 1,000 Prudhoe Bay oil wells.

According to The New York Times, “Oil prices shot up this morning as BP began shutting down the huge Prudhoe Bay oil field in northern Alaska…” The shutdown by BP will reduce domestic U.S. oil extraction by 400,000 barrels per day, or 8% of domestic output. This is equivalent to about one-third of the oil that the U.S. imports on a daily basis from Venezuela.

The sudden loss of this oil from the daily marketplace raises the possibility that the U.S. Department of Energy may release oil from the nation’s Strategic Petroleum Reserve. There are also reports that Saudi Arabia has announced its intention to increase oil output by an amount equivalent to the 400,000 barrels per day no longer available from Alaska.

But according to The New York Times, immediately after the BP announcement:

“Word of the shutdown rattled global commodities and equities markets. In the U.S., oil prices rose more than a dollar a barrel in early trading. [The] benchmark contract for light, sweet crude delivered next month [quickly rose] above $76 a barrel. In London, spot prices rose as much as 2% on the news, to nearly $78 a barrel. Stocks, meanwhile, fell as the American trading day began. Markets slid across Europe, with the major indexes in Britain, Germany, and France all posting substantial declines.”

No One Saw This Coming

The potential for disruption of oil extraction and shipment from Alaska’s North Slope was not previously among major concerns of world oil markets. Oil traders tended to concentrate on the threat of hurricanes in the Gulf of Mexico, and violence in the Middle East. To the extent that people focused on the unavailability of oil from Alaska, most concern was centered on the possibility of terrorism against the 800-mile-long Trans Alaska Pipeline System (TAPS). To this end, the U.S. Department of Defense has elaborate plans for protecting TAPS in time of war.

And protecting TAPS is no small feat. TAPS (as distinct from the BP gathering system) is one of the largest pipeline systems in the world. TAPS crosses three major mountain ranges and 34 major rivers. TAPS stretches from Prudhoe Bay on Alaska’s North Slope through rugged and breathtakingly beautiful terrain, to Valdez, the northernmost ice-free port in North America.

Within the first 166 miles of the length of TAPS, south from the oil fields of Prudhoe Bay, a series of pumps pushes and lifts the oil through a 48-inch pipeline to an elevation of 4,379 feet at Atigun Pass. Thus does the oil cross the first of many mountain ranges along the way. In the interior of Alaska, a series of pumps moves the oil across a set of valleys and smaller mountains. After the 550-mile marker, the oil begins a long push up and over a pass at 3,400 feet elevation, thence down and over more small ranges and down to the Port of Valdez.

Since the pipeline started operations in 1977, Alyeska Pipeline Service Co., the operator of TAPS, has successfully transported over 15 billion barrels of oil. And while sabotage or terrorism was always considered a possibility, few envisioned that significant volumes of Alaskan oil would be shut in due to corrosion. Within the world markets for oil, no one saw this coming.

The Standard & Poor’s Scenario

To the contrary, a recent report by Standard & Poor’s Ratings Services (S&P) looked at four different scenarios of how crude oil prices could be affected by developments in the Middle East, as opposed to developments in Alaska. The S&P review included a “best-case scenario of fighting in Lebanon and northern Israel subsiding,” in which case the price of oil could subside to $70 per barrel by the end of 2006.

A second S&P scenario envisioned fighting spreading to Syria or Iran, but with the critical geographic chokepoint of the Strait of Hormuz remaining open for commerce in oil. “Energy prices still would move higher,” according to S&P, but oil would remain available.

The third S&P scenario was similar to the second, “except that Iran partially closes the Strait of Hormuz.” S&P analyst envisioned that most oil shipments from the Persian Gulf would be “shut down for a period of six months before the vital shipping lane reopens.” This scenario would push energy prices higher still.

In their fourth scenario, the S&P analysts stated: “The Persian Gulf countries join in a selective embargo of the U.S., refusing to export oil to the world’s biggest energy consumer but continuing to supply it at similar volume to Asia, Europe, and other oil-importing regions. Venezuela cooperates with the Arab embargo.” That scenario would cause oil and other energy prices in the U.S. to skyrocket, but not necessarily raise prices to similar levels in the rest of the world.

Any of the S&P scenarios could, of course, still occur. However, now they would occur in a worldwide oil market that lacks 400,000 barrels per day of Alaskan crude to cushion the blow to the global economy.

The Politicians Have Their Say

Just as the BP story was breaking, many of the governors of U.S. states were attending the summer meeting of the National Governors Association. According to a report in The Associated Press, governors from both political parties said the disruption would hopefully spur a willingness to tackle a more ambitious approach to energy.

“Our energy policy for the last 30 years is a joke,” declared Minnesota Gov. Tim Pawlenty, a Republican. “We’ve been asleep at the switch, both Republicans and Democrats.” Pawlenty is known as a strong supporter of alternative fuels such as ethanol, and constructing windmills to generate electricity.

Montana’s Democrat Gov. Brian Schweitzer stated that the disruption in oil from Alaska strengthens his well-known argument for a federal energy policy that encourages greater investment in coal to produce synthetic fuels, particularly in the field of coal-to-liquid.

Democratic Gov. Kathleen Blanco of Louisiana, whose state is at the center of U.S. oil and gas production, refining, and distribution, criticized the federal government for its failure to monitor critical infrastructure. “From our perspective in Louisiana,” said Blanco, “our wetlands are disappearing and that is exposing our network of pipelines. [It is] potentially putting our whole infrastructure at greater risk.”

Democratic members of the U.S. House of Representatives promptly called for the U.S. Congress to hold hearings into BP’s operations in Alaska. “It is appalling that BP let this critical pipeline deteriorate to the point that a major production shutdown was necessary,” said Rep. John Dingell of Michigan, the top-ranking Democrat on the House Energy and Commerce Committee.

To put this in perspective, however, BP’s technical expert on corrosion stated that the Prudhoe Bay transit lines were initially designed to last 25 years, but have now lasted 29 years with many of the lines in “excellent condition.” BP adds millions of gallons per year of corrosion inhibitor to its pipeline system, and the company’s anticorrosion program is intended to prolong the life of the oil field infrastructure for another 50 years so that the system can be used to bring natural gas to U.S. markets. But BP has also chosen to rely for its monitoring program on ultrasonic technology that, apparently, was not focused on the right spots.

Still, Rep. Dingell is making an important point. BP officials said the line where the leak was found was last checked for weakness, using a “smart pig,” in 1992. BP has done very little routine maintenance “pigging” on its transit lines. BP managers did not think it was necessary because those lines carry clean crude oil from which almost all brine water has been removed. Steve Marshall, president of BP Alaska, told Reuters that the company believed ultrasonic testing of pipeline wall thickness was an acceptable substitute on those lines. In hindsight, he said, that has proven not to be sufficient.

“Clearly, we are already in the process of adjusting considerably our corrosion program,” Marshall said, adding that the company will significantly increase its maintenance and surveillance of the transit lines both now and when they are replaced. BP is spending $72 million this year to inhibit corrosion, up from $60 million last year.

The Gathering Economic Storm

The news of the Prudhoe Bay shutdown sent the price of light, sweet crude oil up $2.50, to $77.30 a barrel by early afternoon trading Monday on the New York Mercantile Exchange. The average U.S. retail price of a gallon of unleaded regular gasoline was $3.036 on Monday, not far below its all-time high of $3.057 reached Sept. 5, 2005, after Hurricane Katrina hit the Gulf Coast. Gasoline futures also rose, indicating that the market expects prices at the pump to rise even more.

U.S. shares of BP almost immediately fell $1.19, or 1.6%, to $71.35 in morning trading on the New York Stock Exchange. Shares of BP Prudhoe Bay Royalty Trust, which derives revenue from royalties of BP’s Prudhoe Bay oil, fell $9.12, or an eye-popping 10.4%, to $78.77, on the NYSE.

Napoleon and Time

As I said at the beginning of this article, Napoleon’s words passed through my mind and have been echoing there as I reviewed the reports from the Alaskan front. “Anything but time,” said le general. Because the energy future of the world is all about time, and we have no time to lose. There is no time to lose in controlling the raging demand for oil, no time to lose in focusing on conservation and improved efficiency, no time to lose in switching to alternative energy sources, no time to lose for people to just plain understand Peak Oil. “Ask me for anything. Anything but time.”

Was it a good idea for BP not to test the pipelines earlier, and with different techniques? Evidently not, but I do not want to get into second-guessing the engineering decisions of the BP managers. Leave that to the U.S. Congress, I suppose. The point is that the oil field at Prudhoe Bay now has a bad case of corroded pipes, such that 73% of them will have to be replaced. A tactical mistake leads to lost time, and who has time for that?

The average mileage of the U.S. automobile fleet has hardly budged in 20 years, and is now about half the average mileage of the automobile fleet in Europe and Japan. This means quite a bit for a nation that uses over 9 million barrels of motor fuel per day. And thus, under even ideal circumstances, it will take decades for the largest segment of U.S. oil consumption to catch up with what already exists elsewhere in the world. An operational mistake leads to lost time, and who has time for that?

The U.S has been drifting for years, if not for decades, without a rational policy approach to its energy consumption. The U.S. national attitude toward petroleum is that if the economy needs petroleum to function, we can just go out and buy the stuff from other places, using U.S. dollars. Just think of how many assumptions are implicit in that approach and take a look at where it has led the U.S. as a nation. (OK, if you insist, here is a hint: Think in terms of “debt” and “empire.”) A strategic mistake leads to lost time, and who has time for that?

What will it take to create a workable energy policy in the U.S.? Is it even possible? Are we really just all on the cusp of what some commentators label as the “crackup boom,” the final debauch on the way to the Greater Depression? Can we fix it? But again, a national policy mistake leads to lost time, and who has time for that?

One Last Comment

The U.S., and the West in general, has focused its attention on other people as the source of trouble in the oil markets, with countless hours devoted to worrying about whether or not the Iranians or the Saudis or the Venezuelans will cause trouble. And here we are, an utterly and shamelessly oil-dependent culture, waking up to the fact that rust in the pipelines of Prudhoe Bay has taken down 400,000 barrels of oil in one fell swoop.

It reminds me of the words of Matthew 10:36. “And a man’s foes shall be they of his own household.”

Until we meet again…
Byron W. King

P.S.: I wanted to include the following quotation in this article, from one of my favorite theorists, but I could not find the correct spot to insert it. Hence, I leave you with one more bit of timeless wisdom, with which you may do as you wish:

“During an operation decisions have usually to be made at once: there may be no time to review the situation or even to think it through…Two qualities are indispensable: first, an intellect that, even in the darkest hour, retains some glimmerings of the inner light which leads to truth; and second, the courage to follow this faint light wherever it may lead.”
–Karl von Clausewitz, On War

Tags: Fossil Fuels, Oil