The Western Australian gas crisis is a state-wide natural gas shortage caused by a pipeline explosion at Varanus Island, off the northwest coast of Western Australia, on 3 June 2008. The explosion and fire at Apache Energy's plant reduced WA's energy supply by 35%, which has significantly impacted the state's businesses, especially its booming mining industry, which is likely to lose hundreds of millions of dollars. Major companies have closed, slowed production or are spending more on alternative fuel sources such as diesel, with thousands of workers being stood down or forced to take annual leave.
Apache Energy said the damage to the plant will take up to three months to repair, leading to a public address by the WA Premier, Alan Carpenter, asking businesses and householders to conserve their energy usage. Several parties have criticised the State Government's lack of contingency planning, and the cause of the explosion is still unknown. Investigations are being conducted by Apache Energy, the National Offshore Petroleum Safety Authority and an independent group of fire and forensic experts from Singapore.
Incident
On Tuesday 3 June 2008, Apache Energy's primary natural gas pipeline exploded at Varanus Island, off the northwest coast of Western Australia near Karratha. The pipeline transported gas from the island to mainland Australia, a distance of over 100 kilometres (62 mi).[1] Field superintendent Ross Paton said all of the island's staff were moved to a safety point within 20 minutes of the explosion, and there were no injuries.[1] One hundred and fifty-three staff were evacuated later that day, with 13 staff staying on the island to monitor the situation.[2] Chief Executive Officer G. Steven Farris said, "Our priorities are the safety of our personnel, securing the facilities, assuring that the environmental impact is limited to the island and resuming throughput of oil and gas production...No-one was injured, all personnel are safe, and the rupture and fire appear to be contained on the island."[2]
The explosion and resulting fire reduced Western Australia's supply of energy by up to 35%.[1] Apache's managing director, Tim Wall, said, "It's pretty easy to say there is a lot of damage here and we are looking at alternatives to try to get gas to market as soon as possible but it will be at least several months before we have partial sales."[1] He estimated it would be at least three months until the plant was at least partially operational,[1] when the less-damaged processing plants for John Brookes and East Spar are brought back online.[3] The John Brookes and East Spar plants produce 150-200 terajoules of gas daily, compared to 370 terajoules when all plants, including the significantly damaged Harriet plant, were fully operational.[3] Approximately 80-90% of the island's gas is used by industrial customers, with small amounts provided to Synergy, the state's largest electricity company.[4]
Political response
The explosion is being investigated separately by Apache Energy, the National Offshore Petroleum Safety Authority and an independent group of fire and forensic experts from Singapore.[1] The WA State Opposition called for a Royal Commission, with Energy Spokesperson John Day saying, "It's a matter of making sure that this major disaster, which is now facing WA, does not happen again".[5] Western Australian Premier Alan Carpenter said this was unnecessary because the National Offshore Petroleum Safety Authority was investigating and it could compromise their inquiry. Carpenter said their investigation will take 10-12 weeks to complete and its findings will be released to the public.[5][6] State Opposition Leader, Troy Buswell, said the National Offshore Petroleum Safety Authority had a conflict of interest as it helped perform safety inspections on the island, and therefore "are conducting an investigation which will in part be an investigation into themselves".[6]
Premier Carpenter held a meeting on Sunday 8 June with key stakeholders in WA's gas industry and announced that gas would be sourced from alternative suppliers, and a coal-fired power station, which was shut down for maintenance, would be brought back online. He also asked domestic users to save energy where possible, as the saved energy could be used by industries in need.[7] In response, State Opposition Leader, Troy Buswell, said, "[State Energy] Minister Fran Logan is a person who nobody in the energy sector has any confidence in. It's important that the Premier gets involved... I think the one thing we all need to learn out of this process, is that you need to have effective contingency plans to deal with these sorts of crises. Unfortunately Fran Logan didn't do that and we're now in a situation where business and Government are frantically trying to cobble together plans."[7]
On 11 June 2008, WA Premier Alan Carpenter warned he might need to invoke emergency powers and take control of all of WA's gas and electricity supplies, which would result in rolling stoppages, blackouts and brownouts.[8] Carpenter also said he had discussed accessing emergency diesel supplies stored by the Department of Defence at Garden Island with Acting Prime Minister Julia Gillard. [8] The state's Energy Minister, Fran Logan, said the decommissioned Muja AB coal-fired power station at Collie would be returned to service to supply 25 terajoules of gas to industry.[8] He estimated it would take up to six weeks before operational, and said, "These units are old and not as environmentally friendly as new generators. However, the state is facing a significant gas shortage and we need to look at all avenues".[8]
Power consumption will be reduced from 22 megawatts to four megawatts a day at the State Government's water desalination plant in Kwinana, announced Carpenter on 12 June. He said this "will save around about five to six terajoules of energy a day which can be redirected to where it's needed...The decision will not jeopardise water supplies. We are able to switch the desalination plant back on to full production within a few hours ... four to five hours."[9]
On 17 June, two weeks after the explosion, Carpenter made an unprecedented public address on television and radio.[10]
"Gas is not only a direct fuel source for industry, we use it in our homes and it's used to generate a large proportion of our electricity. While the State Government has the power to guarantee gas supplies to essential services and households, some industries and business have been hit hard. A number of them are being forced to scale back operations and others have temporarily closed.... We need your help. By continuing to work together we can lessen the impact of the gas shortage on our state, on our businesses and our families." – Carpenter, 17 June 2008[10]
David Black, a political analyst, said Carpenter's address shows that the situation is serious: "Probably in terms of the total amount of gas and electricity being used, the community is a relatively small player...But politically, it is so important that they share the burden and that they be aware of the fact that they should be sharing the burden."[10] Opposition Leader Buswell said, " The style over substance approach was highlighted by the Premier's carefully crafted two minute address on television which provided no answers to the crisis, but asked people to turn off their lights, turn down their heaters and take shorter showers", and he called for daily publication of a gas supply allocation for businesses.[11] After Carpenter's address, power consumption fell 2% the next morning, on the coldest day since September 2007.[12] Carpenter said, "The saved consumption was very, very significant, enough to power the city of Geraldton".[12]
On 18 June, Prime Minister Kevin Rudd told Federal Parliament that Premier Carpenter had established a Gas Supply Coordination Group, involving federal government agencies and state government agencies and industry bodies.[13] Rudd said the Royal Australian Navy was supplying six megalitres of diesel fuel to WA, and the Federal Government would consider invoking the Liquid Fuel Emergency Act if necessary, enabling federal Minister for Resources and Energy, Martin Ferguson, to control production, transfer and stock levels of crude oil and other liquid fuel.[14]
"This is a serious matter for Western Australia therefore it is a serious matter for all Australians... We believe that is an appropriate level of coordination between the two governments... I think people in the east have not quite caught up with the severity of the impact which this is having across the WA economy. It is huge... If there is a significant impact on WA economic activity and growth and on exports from that state, given the significance to the overall Australian economy, there will be wash through from us all on this over time." – Rudd, 18 June 2008[13]
On 21 June, it was revealed that State Government-owned energy company Verve Energy continued to use hundreds of terajoules of gas each week, despite having access to diesel power.[15] A spokesperson said the company had not been instructed to cut back its gas usage, and there was "no intention to use very expensive diesel instead of gas, especially when supplies and deliveries of diesel are stretched and Verve Energy continues to receive its supplies of gas from the North West Shelf".[15] Opposition Leader Troy Buswell said, "This is arrogance and hypocrisy of the highest order... They should be substituting gas for diesel, given the fact their plants can run on diesel. Gas could be re-directed to businesses which don't have choice about using gas or diesel." .[15] The State Government had also delayed approval of a new gas processing plant for Apache Energy by over six months, only allowing Apache to proceed after the gas crisis commenced and worsened.[15]
The lack of a State Government contingency plan was criticised by Robert Amin, Curtin University's chair of Petroleum Engineering and chair of the Woodside Research Foundation, who said the Government should have stored enough gas in underground reservoirs to power the state for at least one month, to mitigate a potential crisis. Amin said gas could be stored in parts of the Perth Basin depleted of gas, like Dongara, and companies could be offered tax incentives.[15] Federal Opposition spokesperson for trade, Ian Macfarlane, called for a national audit of all gas pipelines, and highlighted the vulnerability of the single pipeline that carries WA's gas from the North West shelf. Macfarlane said, "At the very least this event comes as a wake-up call for the construction of a second pipeline from the North West shelf to supply gas to industry especially in the south-western part of Western Australia."[16] Professor Dong-ke Zhang, Director of the Centre for Petroleum, Fuels and Energy at the University of Western Australia, said, "I would have thought it was quite silly for a very advanced state like WA that we are not able to cope with an incident like this by not having the ability to divert gas from an LNG plant to the domestic pipeline. At a policy level, the infrastructure needs to be longer term and the Government should encourage major players like Woodside and Chevron to invest in the infrastructure and give the incentives for the industry to come to the party because they get much bigger margins by selling LNG overseas."[17]
Repairs and resolution
A statement released by Apache Energy on 13 June 2008 said the company had sourced from Australia and the United Kingdom the piping material and valves needed to repair the pipeline.[18] Apache said it was increasing the number of staff on the island conducting integrity checks, with over 140 staff expected on site the following week.[18] On 18 June, Apache Energy said demolition and restoration of the damaged pipeline had commenced and it expected the task to be completed by the end of the following week. The piping material was in Karratha and the valves and fittings from the United Kingdom were expected to arrive in early July.[12]
Impact
The gas shortage has had a large impact on Western Australian industries, particularly mining, construction, and hospitality. Some affected companies have declared force majeure, and others are expected to make large insurance claims.[18] If Apache Energy is found responsible for the pipeline explosion, the company could receive compensation claims. [18] State Premier Alan Carpenter said the Government will not offer compensation to businesses affected by the energy shortage, because "I don't think that the ordinary West Australian taxpayer would take too kindly to the State Government taking on a massive compensation bill for an interruption to a supply contract between commercial partners".[19]
A survey of 301 businesses conducted by the Chamber of Commerce and Industry showed on 18 June that nearly 630 employees had already been, or could be, stood down or made redundant - nearly 1% of the workforce surveyed.[11] Almost 50% were affected by the gas shortage, with 11 companies already completely shut down. Up to 15% of companies surveyed could potentially close after three months of energy shortages.[11] Chief Economist John Nicolaou said "To the extent that WA represents about 20 percent of the growth in the national economy over the past year, then that means it is going to have broader implications for the national economy. So it's important people around Australia understand the issue is significant from a national perspective, not just WA's perspective."[11]
Economists for Macquarie Group estimated the energy crisis could reduce gross domestic product growth by 0.25 percentage points in the third quarter, as gas prices increased and the percentage of gas production allocated to export reduced.[20] Natural gas sales were worth $5.2 billion in the 2006/2007 financial year, and its five year trend growth rate is 16.8%.[20] Chief Macquarie economist Richard Gibbs said, "WA supplies the lion's share of the gas exports. The effect on exports is that as there is a shortage of gas in the system, the capability to export will be diminished because the gas that there is will be directed towards domestic use... The gas exports have been pretty healthy. In the next couple of quarters that will be moderated dramatically if not stalled altogether. I think this will have an impact on the broader commodities side and the trade gap could widen".[20]
Mining industry
Western Australian-based mining companies may lose hundreds of millions of dollars,[3] because the state is the world's largest producer of iron ore and one of the largest producers of gold and nickel,[4] exporting $48.4 billion of minerals and energy in 2006.[21] Three days after the blast, the world's largest mining company, BHP Billiton, said it was assessing the gas shortage's impact, but its iron ore mines at Mount Newman and Nickel West were running normally.[21] On 13 June, BHP Billiton brought forward the closure of its nickel smelter in Kalgoorlie by four months, which increased its gas supplies for its Worsley aluminium refinery.[22] A spokesperson for Rio Tinto, the world's third-largest mining company, said the company was prioritising its power usage and using diesel and other alternative fuels for its mines, shipping terminals and railways.[21] The world's third-biggest gold producer, Newmont Mining, said it was "investigating alternative gas and energy sources",[21] and Iluka Resources, the largest zircon producer, shut down its Western Australian operations on 5 June and said it was awaiting advice from power supplier Alinta Gas.[21] Oxiana Limited, soon to be the world's second-largest zinc producer, used standby diesel power at its Golden Grove mine until 6 June, when they obtained an alternative source.[21] Newcrest Mining, a gold mining company located at Telfer, switched to its limited stockpile of diesel fuel.[23] Fonterra Co-operative Group also switched to diesel power.[21] Minara Resources, the country's second-largest nickel producer, was "using the time opportunistically on plant maintenance", as natural gas was its Murrin Murrin mine's only energy source.[4] Minara Resources predicted that its full-year production would be reduced by 8%.[8] Alcoa, which operates bauxite mines and alumina refineries with Alumina, declared force majeure as a precaution on 11 June.[8] A spokesperson said, "We are continuing production, which is down a bit, and we are fuelling our energy needs with diesel supply... we have enough diesel to last us for weeks, but not months".[8] Alcoa's United States parent company said it expects the company's second-quarter earnings to be reduced by $12-17 million due to the extra cost of gas and diesel.[8] Woodside Petroleum's North West Shelf venture is providing its spare gas to meet Apache's shortfall, but Apache's managing director Tim Wall said it was only a small quantity of relief. [3] Premier Carpenter said Woodside was providing an extra 50 terajoules of gas per day into the domestic energy grid.[17]
Other industries, businesses and domestic customers
The construction and hospitality industries were strongly affected by the energy shortage.[8] Brick producers Midland Brick and Austral closed their kilns within the first week after the blast,[1] and on 11 June, the Chamber of Commerce and Industry warned that 14% of local businesses could close.[8] Unions WA said thousands of workers were being stood down or made to take annual leave, [16] and the secretary Dave Robinson said mining, timber, beef, pork, laundries and transport industries workers were worst affected.[24] Supplies of gas and electricity to residential customers are protected by state government legislation introduced in 2006.[8]
There was speculation in the media on whether the AFL football game at Subiaco Oval on 21 June between the West Coast Eagles and Geelong Football Club should be moved from night-time to daytime, to avoid using the oval's lights.[25] According to Western Power, the electricity used by the oval's lights for four hours of operation could power more than 1,300 homes, but a spokesperson from the Office of Energy said, "Effectively the amount of energy used to light a game at night is less than what would be used if those thousands of people were at home with lights and other services operating".[25] WA Trotting Association chief executive, Rob Bovell, said if they were forced to move races at Gloucester Park from night to day, they would "probably lose half a million dollars in turnover and our customers would drop by 70 percent. Clearly this would cause major damage to us financially because our business is set up to race at night time. However if we are using energy that is affecting emergency services we will close down tomorrow."[25]
Fifty representatives from shopping centres and office towers met on 16 June to discuss energy-saving ideas. The WA Property Council said "Non essential power including decorative lighting in shopping centres will be switched off. We'll also be looking at chillers and heating systems to ensure they use less power. At the moment we are in winter mode and they are running to heat the buildings so we will have to lower them, while main buildings will look at switching off non essential lifts".[26] Perth's tallest building, Central Park, turned off its heating on 17 June, with General Manager Tim Ward saying, "We're not expecting anyone to be anything but compliant".[17]
The gas crisis has reduced ammonia production, which is used as a source of carbon dioxide. As a result, industrial gas provider BOC is no longer supplying carbon dioxide to pubs for draft beer and the shortage also threatens WA's wineries, who use carbon dioxide for bottling. BOC has given priority to the health industry, which uses carbon dioxide to sterilise equipment and in anaesthesia. The state's other major carbon dioxide supplier, Air Liquide, has also shut down production, leading to fears that WA's largest pork abattoir will close. [27]
Westpac has offered help to personal customers affected by the gas crisis, by allowing customers to defer home loan repayments for up to three months and restructure loans at no fee, increasing credit card limits and speeding up insurance assessments.[28] Other banks and credit-lenders have also offered similar assistance to their customers.
References
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- ^ a b c Murdoch, Scott (2008-06-19). "WA gas woes to slow economy". BusinessDay. The Age. Retrieved 2008-06-29.
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- ^ "WA gas crisis forces BHP to shut smelter". Business. The Australian. 2008-03-13. Retrieved 2008-06-29.
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