WA gas crisis forces BHP to shut smelter

BHP Billiton has brought forward a four-month shutdown of its Kalgoorlie nickel smelter, freeing up gas supplies for its Worsley aluminium refinery as industry continues to grapple with Western Australia's energy crisis.

And the WA Government has recommissioned a state-owned, coal-fired power station to make up for nearly 10 per cent of the energy supplies lost following the June 3 explosion of Apache Energy's gas plant on Varanus Island off the state's northwest coast.

BHP's shutdown of its Kalgoorlie smelter is expected to cut nickel sales by 25,000 tonnes in the next financial year, plus another 3000 tonnes this financial year. At current nickel prices, the expected production halt equates to a loss of $US65.8 million ($70.3 million).

The rebuild is expected to take about four months and although BHP claims the fast track of the work was not a result of the gas crisis, it is timely, with its gas supplies to be diverted to its Worsley alumina refinery.

John Barkas, head of research at resources advisory firm Metalytics, said BHP bringing forward its shutdown highlighted the seriousness of the situation.

"28,000 tonnes is not enough to send the market from surplus into deficit but it will make it tighter," he said.

The surprise timing of the outage boosted London Metal Exchange nickel prices by around 3 per cent.

West Australian Premier Alan Carpenter has claimed he doubts he will have to evoke emergency powers, giving him authority on the distribution of gas supplies, but he has instructed power station operator Verve Energy to prepare to recommission the Muja AB power station in Collie.

The recommissioning will offset about 7 per cent of the 370 terrajoules of domestic gas supply that was lost when Apache's plant shut down.

Recommissioning the power station will take eight to nine weeks and cost $1.3 million and bring three units into operation, enabling 25 terrajoules of gas to become available each day.

Mr Carpenter said yesterday that the state was dealing with frequently changing information on the gas shortage.

"We have a situation where we are constantly assessing information that is coming in from the business community about what demand they might want for diesel fuels," he said.

"That has to then be given to the fuel companies so that they can make their orders."

On the issue of gas prices, Mr Carpenter said the state was already facing price pressures and the Apache shutdown had not helped the situation.

"The price for gas was never going to go down, there are price pressures coming through and we were going to have to address that and this situation has not made that any easier, that's for certain," the Premier said.

The WA Chamber of Minerals & Energy yesterday revealed that almost half of the 70 per cent of its members who responded to a survey said that while they were not affected by the gas crisis in the short term, they could face long-term costs.

The explosion at Varanus Island cut gas supply to a number of miners, with most now struggling to find alternative sources. The CME said more than one-quarter of survey respondents did not have the capacity to substitute diesel for gas but more than 30 per cent of companies had ordered extra diesel.

CME chief executive Reg Howard-Smith said the issue also had major implications for staffing, and for the many businesses that supplied goods and services to the resources sector.

He said that despite the mining boom, there were still some sectors of the industry doing it tough, and that they would be the hardest hit.

"The sector faces significant staff shortages and it is going to be hard to retain them all," Mr Howard-Smith said.

The survey also revealed that over 40 per cent of respondents were planning or implementing altered staffing arrangements.

A spokesman for Apache Energy told The Australian it had doubled the number of staff on Varanus Island this week to 104 people, including construction personnel, safety engineers and the care and maintenance team.

The spokesman said the investigation and assessment of the site was still continuing and Apache had yet to begin clearing the area in preparation for re-construction.

Apache executives have not updated information on when partial gas supply from Varanus Island is expected to start flowing again.

Last Friday, Apache managing director Tim Wall said it could be more than two months before repairs and re-construction of the plant and the sales pipelines were completed and partial gas sales resumed.

ABN Amro analyst Warren Eddy said in a report yesterday that the gas shortage could also have an impact on explosives availability in WA, forcing miners to source explosives outside current contracts.

US-based Alcoa also revealed this week the financial hit it would take, predicting its second-quarter earnings would be cut by 2c to 3c a share, and declaring a force majeure under its alumina supply contracts.

Newcrest's Telfer mine, which provides 30 per cent of the company's income, was the most severely hit, reporting the gas disruption would cost it about $27 million in revenue.

Justin Walawski, chief executive of the Association of Mining and Exploration Companies, was reluctant to quantify the impact on the industry.

Source: The Australian Business