Elderly US pipeline network in need of updating: analyst

New York (Platts)--10Aug2006

BP's aging and leaking pipeline system at the Prudhoe Bay field it
operates in Alaska, causing a shutdown of the 400,000 b/d facility on Sunday
and pushing crude prices to fresh all-time highs earlier in the week,
highlights a problem of an aging oil, products and gas pipeline infrastructure
that is in urgent need of repair, a steel analyst said Tuesday.

Charles Bradford, an independent steel analyst that follows the major
publicly-listed North American steel producers, told Platts that much of the
pipeline networks, such as the one that carries oil and gas from Texas to the
US northeast was 50 or 60 years old. "It was built in the 1940s and 50s with
steel that is much less corrosive resistant than the types of steel that are
available today, and it's long overdue for replacement," he said. But with the
thousands of miles of pipeline involved and sky high steel prices seen this
year, the repair bill could cost "at least several hundreds of millions of
dollars."

Bradford said that BP had underestimated the corrosive effects of the oil
it was producing in Alaska on its pipeline network, believing that the low
moisture content of the oil was low enough not to be a cause for concern.
Products carried in other pipeline systems were likely to have higher moisture
contents and be more corrosive, Bradford said.

He said that he had briefed the then new Bush administration in the White
House five years ago on the perils of the aging wider US pipeline
infrastructure but was ignored at the time.

"The BP problem--and there was an incident in Arizona that killed 12
people--highlights the problem," Bradford said. He predicted more such
incidents would occur, some of which were likely to be fatal, until the
problem of pipe renewals was addressed. "People are going to get killed.
There's no doubt about it," he said.

Bradford also noted that there were few US steel manufacturers capable of
building large diameter pipe suitable for these applications, which would
require imports. The most logical choice of overseas supplier would be Japan's
Nippon Steel and JFE Steel. For the pipe replacement requirements in Alaska,
the Japanese suppliers were the closest overseas steel makers to Alaska
geographically, he said, which was a consideration given high ocean freight
rates.

BP has ordered 21,000 ft (4 miles) of pipe from Nippon Steel, that is
scheduled for delivery in Alaska by December, the oil major said Tuesday. It
also has an order with US steel for 30,000 ft of pipe and an additional 52,000
ft (10 miles) of 18-inch diameter and an additional 30,000 ft of 24-inch
pipeline was likely to be required for the full replacement at Prudhoe Bay.

--Anthony Poole, anthony_poole@platts.com

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