Caspian Crude Barely Flowing (BP, CVX, STO, E, TOT, COP, HES)

Oil is trading sharply higher this morning, partly because of oil pipeline and delivery disruptions. Platts reported that crude oil flows through the BTC pipeline have dropped from about 800,000 b/d to 250,000-280,000 b/d. The cause of the reduced flows is the shut-in of about 60% of production in a field operated by BP plc (NYSE:BP). The shut-ins followed the appearance of gas bubbles in the sea around one of the platforms.

The BTC pipeline originates in Baku, Azerbaijan, and can transport upto 1 million b/d of crude to Ceyhan, Turkey, where the crude is loadedon ships for transport. BP owns about 30% of the pipeline andis the pipeline operator. The national oil company of Azerbaijan,SOCAR, owns 25%, and other partners include Chevron (NYSE:CVX, about9%), Statoil/Hydro(NYSE:STO, about 9%), ENI (NYSE:E, 5%), Total(NYSE:TOT, 5%), ConocoPhillips (NYSE:COP, 2.5%), and Hess (NYSE:HES,about 2.4%).

Four unsold cargoes, totaling 3 million barrels, have been canceledso far, and there is no information concerning a resumption of fullproduction. Storage facilities at both ends of the pipeline are verylow and are unlikely to sustain even the reduced shipments.

Taking more than 500,000 b/d off the crude market is far more likely tohave an impact on crude prices than the knock-on effects felt by theindustry last Friday. As we’ve pointed out earlier today, there was norelationship between the proposed US government bank bailout andFriday’s rise in oil industry stocks. That upward move was just arising tide lifting all boats. Falling production from the Caspian isgoing to cause some of those boats to take on real water.

Paul Ausick
September 22, 2008