Oil price hits all-time high as BP forced to shut Alaskan field

Oil prices surged to an all-time high as BP said a new oil spill would shut off all its production from the biggest oilfield in the United States.

The closure of Prudhoe Bay in Alaska will rob the market of 400,000 barrels of oil a day, about 8 per cent of all the oil produced in the US. That, together with escalating violence in the Middle East, sent crude prices up 3 per cent to a record $78.44 (£41.15).

BP said it was unable to predict how soon it would be able safely to restart production after finding that 16 miles of pipelines were corroded and need to be replaced. Although it held out the prospect that regulators may allow it to reopen parts of the field soon, BP shares fell 13.5p to 622.5p as analysts speculated on whether production would be shut down for weeks or months.

The company also admitted it had found another oil spill in the region, a vast Arctic wilderness which had already suffered its worst on-land spill earlier this year when 200,000 gallons of oil leaked from the BP pipeline.

The discovery of corrosion came at the end of last week when Lord Browne of Madingley, BP's chief executive, had visited Alaska to try to repair its battered reputation in the state.

Already yesterday, politicians were threatening the company and the industry with tougher regulations. John Dingell, the top-ranking Democrat on the House of Representatives energy and commerce committee, said it was appalling that, despite record profits, BP had let a critical pipeline deteriorate. "The United States Congress has an obligation to hold hearings to determine what broke down here and what laws and regulations need to be improved to ensure problem pipelines like these are found and fixed earlier," he said.

BP is facing a criminal investigation by the Environmental Protection Agency over potential lapses in its safety record at Prudhoe Bay. Concerned employees had contacted environmental campaigners and federal authorities to allege the company skirted safety and environmental regulations. Bob Malone, the chairman of BP's American business, apologised to "our nation and the great state of Alaska" for the impact on oil supplies, which is likely to be most keenly felt on the West Coast of the US. The company began turning the taps off on Sunday, but it will take up to another five days for the field to be fully shut down.

The US Energy Department said it would consider loaning oil to refiners from its emergency reserves as it did last year when hurricanes shut a quarter of US crude and fuel output. And Opec - the cartel of oil producing countries, which does not include the US - said it was concerned by the shutdown in Alaska and would consider raising its own output.

Simon Wardell, an oil analyst at Global Insight, said the initial impact of the shutdown on the oil price may be exaggerated, but any fall back from the current record levels would now be delayed. He said: "The loss of 400,000 barrels of crude production at the current time is, to put it mildly, unhelpful. Markets have reacted and will react to this shut-in, which is by itself only just short of the 500,000 bpd shut-in currently being seen in Nigeria as a result of continued civil strife. While it is true that BP has been unable to indicate a time-frame, production will resume once repair work is completed and the situation is not as uncertain as that in Iraq and Nigeria."

The latest Prudhoe Bay spill is a further blow to BP's tarnished reputation in the US. An explosion at one of its oil refineries in Texas killed 15 people last year. The company was fined $21.4m and recently raised its reserves for compensation to the victims' families from $700m to $1.2bn. BP is also facing a criminal investigation into manipulation of the propane market by employees at its trading operations in Houston, Texas.