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Oil Field Closure Could Force Open Emergency Reserve
Monday, August 07, 2006


WASHINGTON — The Energy Department is prepared to provide oil from the government's emergency supplies if a refinery requests it because of the disruption of supplies from Alaska, a department spokesman said Monday.

"We're taking a very serious look at this," said spokesman Craig Stevens, referring to the loss of nearly half of oil shipments from Alaska's North Slope because of a pipeline corrosion problem.

Stevens said the department will be in contact with BP Exploration Alaska Inc. and West Coast refiners later in Monday to assess the situation. "If there is a request for oil we'll certainly take a serious look at that," he said.

The Strategic Petroleum Reserve is the nation's emergency stockpile of crude oil. It was created after the 1973 oil embargo when Arab countries halted petroleum exports to protest U.S. support for Israel.

The reserve has about 700 million barrels in storage on the Gulf Coast to be used in case of a serious supply disruption. The Energy Department in the past has lent SPR oil to refineries when there were disruptions because of pipeline or other problems.

Most of Alaska's oil goes to refineries on the West Coast. It was unclear how those refineries would be supplied with oil on the Gulf Coast. However any oil put into the market to replace lost Alaska oil would tend to ease prices, market experts say.

Oil prices jumped by more than $1 a barrel Monday following a production shutdown at an Alaskan oil field that accounts for about 8 percent of U.S. production.

BP Exploration Alaska Inc. began shutting down oil production Sunday at Prudhoe Bay due to severe pipeline corrosion.

Once the field is shut down, in a process expected to take days, BP said oil production would be reduced by 400,000 barrels a day. BP officials said they didn't know how long the Prudhoe Bay field would be off line.

The nation's petroleum reserve was created in legislation signed by President Ford in December 1975, which made it U.S. policy to create a reserve capable of holding up to 1 billion barrels of oil as an insurance policy against future supply disruptions.

Oil companies contribute to the supply in lieu of paying cash royalties for oil pumped on federally owned land.