ALASKA PIPELINE CLOSURE REVIVES ENERGY POLICY DEBATE

by Emad Mekay

(IPS) WASHINGTON -- Despite rhetoric from Washington that the United States must wean itself from dependence on oil, the shutdown of a BP oil field in the state of Alaska has shown how far the country remains from that goal and the lack of a consensus on how beat to achieve it.

BP Exploration Alaska, Inc. announced on Monday that it has begun a phased shutdown of the important Prudhoe Bay oil field, the largest in the U S., following the discovery of unexpectedly severe corrosion and a small spill from a Prudhoe Bay oil transit line. BP operates 22 miles of oil transit pipeline at Prudhoe Bay.

The shutdown will reduce Alaska North Slope oil production by an estimated 400,000 barrels per day, or about eight percent of U.S. production.

Already hit by turmoil in the Middle East and Nigeria, and concerns over Venezuela, world oil futures shot up by about two dollars to 77 dollars a barrel for crude oil. Gas prices in the U.S. have already begun to rise as much as five cents a gallon in some cities.

The U.S. Energy Department is now preparing to tap into the country's strategic petroleum reserves to deal with the shutdown.

Conservatives in the United States and Republicans from President George W. Bush's party have insisted that the solution to future disruptions is to pursue new drilling and exploration, including in the protected Arctic National Wildlife Refuge.

"This problem, like the hurricanes last fall, underscores the pressing need to expand domestic oil and gas production. We are living too close to the supply margins and have been for too long," Senator Pete Domenici, a Republican from New Mexico, said in a statement.

"While both houses are working to expand production, we expect the private sector to sharply step up its investment in its own critical infrastructure," he said.

But a number of civil society groups say that the real debate should center on the need to adopt available technology and mandate a significant increase in fuel economy standards for cars, trucks and utilities. They also propose cutting the record profits of oil companies and channeling the savings to consumers or to investments in alternative energy sources.

According to the Union of Concerned Scientists (UCS), the U.S. will spend at least an additional 24 million dollars a day on oil imports as a result of the price spike, with 10 million dollars going to OPEC, the oil cartel that the U.S. increasingly views with suspicion.

The UCS estimates that if fuel economy standards were tightened to make all U.S. cars and trucks on the road get one extra mile per gallon, the country would not even need the 400,000 barrels per day BP has halted.

"The U.S. would spend $50 million a day less on gasoline priced at three dollars a gallon," said David Friedman, research director of UCS. "Over the course of a year, that would be 18 billion dollars that could be spent strengthening our economy and creating jobs across the country."

Consumer groups say the incident shows the incoherence of U.S. energy policy, which they say penalizes consumers and rewards oil companies. Oil giants Exxon-Mobil, Shell and Chevron all reported record profits this year.

BP alone announced two weeks ago that its second quarter earnings rose 30 percent to a record $7.32 billion.

"As gasoline prices and oil industry profits hit record high levels, so too has public frustration and concern," said Ann Wright, senior policy analyst for the Consumers Union. "The oil companies continue to be the largest benefactors of our nation's energy policy -- not the American public."

The group says that oil companies will make more money this year than they did from 1995 to 1999 combined. Comparing oil industry profits to Standard and Poor's Industrial index, the industry will have $120 billion in excess profits in the 2001-2006 period..

"Cash flow has increased so fast that the industry simply cannot absorb it. Cash flow has exceeded net new investment by 120 billion dollars, yet Congress continues to lavish favours on the industry," said Mark Cooper, director of research at the Consumer Federation of America.

An energy bill signed by President Bush last year provided billions of dollars in new tax breaks, royalty-free drilling rights, and special regulatory exemptions for the oil industry.

On Tuesday, Congressman Edward J. Markey, a Democrat who is also a senior member of the House Energy and Commerce and House Resources Committees, said he wanted to know why BP did not spend its profits to maintain its pipelines.

"We learned yesterday that BP hasn't even spent its bulging profits on basic pipeline maintenance, forcing a complete shutdown of their Prudhoe Bay operations due to a massive buildup of sludge in BP pipelines that have not been cleaned for as long as 15 years," he said.

Some groups have proposed cutting into the industry's huge profits by raising oil drilling fees. The funds would then be invested in expanded use of existing technologies, the development of improved and new technologies, and bringing alternative fuel and energy technologies to the market faster.

In California, proponents say it would direct four billion dollars to reduce California's dependence on gasoline and diesel by 25 percent over the next 10 years. But oil companies are fighting the plan.