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Crews race to repair Alaska pipeline Add to ...

Workers in Alaska scrambled against time and cold to manufacture a fix for a major pipeline after a multiple-day outage began to affect world crude prices.

Oil shot up more than 2 per cent early Monday as the Trans-Alaska Pipeline System entered its third day of disrupted service. A Saturday leak has forced the pipeline's operator, Alyeska Pipeline Service Co., to shut the pipe and order a 95-per-cent reduction in oil production from North Slope producers, which include BP PLC, ConocoPhillips Co. and ExxonMobil Corp.

With no quick way to fix the leak, which occurred in a pipe encased in cement near a pumping station, engineers and manufacturers scrambled to devise a way to bypass the ruptured section. On Monday, crews worked to fabricate repair parts in Fairbanks which could then be flown to the North Slope.

Neither Alyeska nor Alaska state officials could provide an estimate on how quickly a solution could be installed, creating substantial uncertainty in global crude markets.

Though Alaska production has fallen to 640,000 barrels per day - a decline of 70 per cent from its 1988 peak - it remains a critically important source of crude, supplying nearly 12 per cent of the U.S. market.

But crude prices settled to a more modest increase of 1.4 per cent, to $89.27 (U.S.) per barrel late Monday, as early supply fears were replaced by a more realistic view on the likely impact of the outage.

Alaska crude supplies the U.S. West Coast, a market that operates largely separate from the Midwestern oil hub where the price of West Texas Intermediate (WTI), a global crude benchmark, is set. That means problems in Alaska should be less likely to hurt broader oil prices.

The West Coast "is a bit of an island market. If this were to go on for a while, it would certainly impact refiners on the West Coast. But it would take a very prolonged disruption to have an impact on the wider crude market," said Katherine Spector, commodities strategist with CIBC World Markets.

In fact, she said, the 90,000 barrel-per-day crude flow halted by a fire at Canadian Natural Resources Ltd.'s Horizon oil sands mine, which does feed the Midwest, "would be a bigger event for WTI."

In an update published Monday, The Schork Report on energy markets also pointed out that crude inventories in California and Washington state stand above last year's levels. Refiners "likely have several weeks at least of a cushion," according to the report.

"We do not believe the news as it stands is enough to push crude oil above the $100 barrier. If production is reduced to 5 per cent until March or April, then we'll change our mind."

Energy analysts, however, cast doubt on an outage of that duration - and said the leak, which is the latest in a number of problems to afflict the Alaska line, is not necessarily a sign of anything mechanically worrisome in the 33-year-old line.

"Your car gets oil leaks from time to time, too, and you take it into the garage and get it fixed and you keep driving," said Adam Sieminski, chief energy economist for Deutsche Bank. "There has been a history of problems with the pipeline. But, I mean, it's 800 miles [1,287 kilometres]long. It's mechanical. It's not perfect."

Besides, Mr. Sieminski said, "Alaska needs the revenue, the U.S. needs the oil and the actual spill itself was not that great."

Officials estimated that between nine and ten barrels spilled, all of them inside a pump station building. That's far less than, for example, the 19,500 barrels that flowed into Michigan's Kalamazoo River after a rupture in a pipe owned by Enbridge Inc. last summer.

But the Alaskan climate has added pressure for a speedy fix. The pipeline is designed to operate with warm oil; as temperatures drop, the possibility of frost - which can create safety problems - increases.

With temperatures expected to drop to -12, Alyeska began installing numerous temperature sensors along the length of the pipeline and drafted plans to recirculate oil to keep everything warm. They also refined "cold re-start" procedures designed to get oil flowing again without causing another rupture.

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