Gas blast threatens mines

Industrial users across Australia's biggest mining region were hunting for alternative fuels after an explosion at an offshore gas plant knocked out more than a third of normal gas supplies.

Industrial users across Australia’s biggest mining region were hunting for alternative fuels after an explosion at an offshore gas plant knocked out more than a third of normal gas supplies.

The biggest gas users, including Rio Tinto Ltd and Alcoa Inc, said they were so far keeping up with production by conserving gas and using other suppliers or in some cases switching to diesel.

Others, such as nickel miner Minara Resources Ltd and zircon miner Iluka Resources Ltd said they had been forced to immediately trim operations.

“At first, you cut non-essential activities, switch some operations to diesel and do what you can to keep things going,” a Minara spokesman said.

Minara, Australia’s second-largest nickel producer after BHP, was using the down time caused by the disruption to perform plant maintenance.

The gas was cut off to Western Australia after two pipelines feeding offshore gas ruptured, causing an explosion at the Varanus Island gas processing plant operated by Apache Energy, a unit of US-based Apache Corp.

Apache has since invoked a force majeure clause in its contracts, relinquishing its obligation to supply customers during the crisis.

Apache Energy’s managing director Tim Wall said everyone got off the island safely.

A small fire was still burning at the facility, meaning it would take a further several days before a clear picture of damage emerged.

“Once you find the pipe you can get a repair fairly quickly I would think, but we have to get in and make sure there is no other damage,” Wall said.

Varanus Island sits about 97 kilometres off Australia’s west coast.

Western Australia is one of the world’s biggest suppliers of iron ore, nickel and alumina, much of which is fed to burgeoning Asian industrial and consumer markets. It also accounts for 80% or more of the nearly 300 tonnes of gold mined each year in Australia.

Australia has largely averted economic troubles afflicting the United States and Europe due to massive demand for its natural resources from a raw materials-hungry China.

BHP produces tens of millions of tonnes of iron ore and about 100,000 tonnes of nickel from mines in the state each year.

“At this stage we’re operating as normal. However, we’ll continue to assess the situation as we get more information,” a BHP Billiton spokeswoman said in an e-mail.

Alumina Ltd, which has three joint ventures producing alumina with Alcoa, said the gas outage should not affect its output of 8 million tonnes a year.

“Production hasn’t been cut back,” spokesman Ken Dean said.

“The Alcoa World Alumina joint venture gets about 25% of its gas supply from the Varanus plant but can replace that with diesel,” he said.

“It will have a marginal cost impact, because the cost of diesel is higher than for the contracted gas,” Dean said.

Rio Tinto spokesman Gervase Greene said contingency plans to maintain operations at its iron ore mines, rail lines and port facilities had been activated.

Like BHP, Rio relies on gas to run power stations and operate outback rail lines hauling ore to the coast.

Newcrest Mining Ltd said it was trying to minimise the impact on its giant Telfer gold and copper mine by drawing down diesel fuel stocks, but warned it only had limited diesel stocks on site.

Woodside Petroleum, another gas supplier, said it would try to help cover some of the shortfall.

About 330 million cubic feet of gas and 8,000 barrels of oil are typically produced daily at Varanus Island. Apache’s share of the total is about 200 million cubic feet of gas and 5,000 barrels of oil.

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