Chairman Domenici's Opening Statement from BP Hearing

September 12, 2006
02:48 PM

Good morning.  Five weeks ago, BP announced a suspension of production in its Prudhoe Bay oil field as a result of a pipeline failure in Alaska.  Initial reports estimated that this shutdown could mean the loss of as much as 400,000 barrels of oil per day, about 8 percent of total U.S. oil production and 2.6 percent of U.S. supply.  As Americans prepared to take to the roads at the height of holiday driving season, as tensions in Lebanon drove up fears of larger Middle East unrest, and as militant attacks and kidnappings continued to depress oil production in and exportation from Nigeria  -- the news of a disruption in our own domestic supply of oil came at a most inopportune time.

 The effects of this news were felt immediately in boardrooms and breakfast tables around the country, and at trading desks in New York and hearing rooms in Washington.  On the day of the announcement, U.S. light crude futures increased sharply by $2.13 to $76.89 a barrel on the NYMEX.  Financial analysts and energy policymakers took to the airwaves announcing the potential for the very worst and Americans demanded answers to the following: 
• First, how could this happen? 
• And, second, what did this mean for the price that they would now pay at the pump? 

Five weeks later, we do not have a sufficient answer to the first question.  I trust that this Committee will gain some adequate insight into this over the course of the morning.  For the record, I find this incident inexcusable.  I am not in the oil business, but this much I know—the cost of running the appropriate  standard maintenance on energy infrastructure is greatly outweighed by the costs that this incident has brought to bear in real dollars, in good-will, and in a business brand name.  This is a black eye on BP and the American people and this Committee demands answers today. 

The second question may be refined since many of our initial fears from five weeks ago were thankfully not realized.  Perhaps that question is better phrased today as—what could have happened to prices at the pump if we had lost all of the oil that was initially anticipated for an extended time period.  Finally—a third question faces this committee—what can be done and what is, at present, being done to ensure that we do not face this problem again.  By way of background, it is important to note that this severe pipeline corrosion and the resulting oil spill was discovered only because of inspections ordered by Federal regulators following a March 2006 spill of approximately 5,000 barrels of oil from pipelines operated by BP.  The March and August spills are allegedly the result of years of failures by BP to conduct the most basic of corrosion inspection techniques.  I find this distressing. 
This time, we were fortunate.  The environmental damage was relatively minimal and no persons were

injured as a result of these spills.  And, actual production from Alaska never dropped below 510,000 barrels….. but that’s still well under the 800,000 barrels to which the U.S. markets are accustomed.  As of today, production has returned to approximately 650,000 barrels per day.  The correlation that we all feared between prices at the pump and BP’s actions thankfully did not materialize.  Nevertheless, this state of affairs was a wake-up call to the fact that improper maintenance of our domestic facilities could be just as serious a threat to our economy as a foreign country turning off the spigot or a Gulf hurricane shutting down producing wells.  It’s one thing for this country to be adversely affected by events over which it has little or no control.  It’s quite another to have adverse consequences -- that could have been prevented – inflicted on it by companies like BP.  That is simply egregious.

At our hearing today, we are primarily addressing four issues:
• We need to learn more about what happened on BP’s pipelines and the effects that this type of disruption could have on supply and price.
• We need to gain assurances that our Alaska North Slope oil delivery system will remain secure and reliable.
• We need to know when full production will resume, and
• We need to know what actions are being taken to ensure this doesn’t happen again.

I look forward to the witnesses’ testimony.    We have a large number of witnesses, and we want to have time for all Members’ questions, so I encourage Members to keep opening remarks brief.   Your full statements will, of course, be included in the record.