2008 Western Australian gas crisis
Encyclopedia
Natural gas
Natural gas is a naturally occurring gas mixture consisting primarily of methane, typically with 0–20% higher hydrocarbons . It is found associated with other hydrocarbon fuel, in coal beds, as methane clathrates, and is an important fuel source and a major feedstock for fertilizers.Most natural...
supply in Western Australia
Western Australia
Western Australia is a state of Australia, occupying the entire western third of the Australian continent. It is bounded by the Indian Ocean to the north and west, the Great Australian Bight and Indian Ocean to the south, the Northern Territory to the north-east and South Australia to the south-east...
, caused by the rupture of a corroded
Corrosion
Corrosion is the disintegration of an engineered material into its constituent atoms due to chemical reactions with its surroundings. In the most common use of the word, this means electrochemical oxidation of metals in reaction with an oxidant such as oxygen...
pipeline
Pipeline transport
Pipeline transport is the transportation of goods through a pipe. Most commonly, liquids and gases are sent, but pneumatic tubes that transport solid capsules using compressed air are also used....
and subsequent explosion at a processing plant on Varanus Island
Varanus Island
Varanus Island is the largest of the Lowendal Islands, an archipelago off the north west coast of Western Australia, near Karratha in the Pilbara region...
, off the state's north west
North West Australia
The terms North West Australia, The North West and North Western Australia have been used as a regular label for the region of the North of Western Australia and the West of the Northern Territory.- Early 20th century gold rush:...
coast on 3 June 2008. The plant, operated by Apache Energy
Apache Corporation
Apache Corporation is an American independent oil and gas corporation. It is headquartered in 1 Post Oak Central in the Uptown district of Houston, Texas....
, which normally supplied a third of the state's gas, was shut down for almost two months while a detailed engineering investigation
Forensic engineering
Forensic engineering is the investigation of materials, products, structures or components that fail or do not operate or function as intended, causing personal injury or damage to property. The consequences of failure are dealt with by the law of product liability. The field also deals with...
and major repairs were carried out. Gas supply from the plant partially resumed in late August. By mid-October, gas production was running at two-thirds of normal capacity, with 85% of full output restored by December 2008.
In a state heavily reliant on continuous supply of gas for industrial processing, manufacturing, residential use and electricity generation, the sudden loss of almost 35% of gas supply had immediate social impacts, and significant short and long-term economic effects. Many businesses were forced to curtail or cease operations, resulting in workers being stood down
Layoff
Layoff , also called redundancy in the UK, is the temporary suspension or permanent termination of employment of an employee or a group of employees for business reasons, such as when certain positions are no longer necessary or when a business slow-down occurs...
or forced to take annual leave
Annual leave
Annual leave is paid time off work granted by employers to employees to be used for whatever the employee wishes. Depending on the employer's policies, differing number of days may be offered, and the employee may be required to give a certain amount of advance notice, may have to coordinate with...
, and the government requested that businesses and householders conserve energy usage. An emergency coordination committee of government and industry representatives rationed and redirected remaining gas supply sources. When many large gas users switched to diesel for power generation, the risk of a shortfall in transport fuel led to the federal government authorising the release of emergency fuel reserves stored at the Garden Island
Garden Island (Western Australia)
Garden Island is a slender island about ten kilometres long and one and a half kilometres wide, lying about off the Western Australian coast, to which it is now linked by a man-made causeway....
naval facility
HMAS Stirling
HMAS Stirling is the Royal Australian Navy's primary base on the west coast of Australia. It is located on Garden Island in the state of Western Australia, near the city of Perth...
.
The incident raised significant public and political issues related to energy security, adequacy of existing infrastructure, contingency planning, and the role of regulatory agencies. The plant took three months to repair, although partial supplies were restored within six weeks of the explosion. A major investigation was launched by the National Offshore Petroleum Safety Authority
National Offshore Petroleum Safety Authority
The National Offshore Petroleum Safety Authority is the occupational health and safety regulator for the Australian offshore petroleum industry...
(NOPSA), with separate investigations conducted by the plant operator and several other government agencies. NOPSA's report was published on 10 October 2008, and confirmed early suggestions that the explosion was caused by structural failure of the export pipeline due to significant corrosion. A Senate
Australian Senate
The Senate is the upper house of the bicameral Parliament of Australia, the lower house being the House of Representatives. Senators are popularly elected under a system of proportional representation. Senators are elected for a term that is usually six years; after a double dissolution, however,...
Committee inquiry was established to investigate the economic impacts and the state government's response to the crisis. The committee's report was handed down on 3 December 2008.
Background
Varanus Island
Varanus Island is the largest of the Lowendal Islands, an archipelago off the north west coast of Western Australia, near Karratha in the Pilbara region...
, 70 kilometres (43.5 mi) from the Western Australian coast, has operated as a hub for oil, condensate
Natural gas condensate
Natural-gas condensate is a low-density mixture of hydrocarbon liquids that are present as gaseous components in the raw natural gas produced from many natural gas fields....
and gas gathering infrastructure belonging to several petroleum joint ventures, including Harriet JV and John Brookes JV. The island's facilities include large tanks where condensate is stored prior to being offloaded onto tankers
Oil tanker
An oil tanker, also known as a petroleum tanker, is a merchant ship designed for the bulk transport of oil. There are two basic types of oil tankers: the crude tanker and the product tanker. Crude tankers move large quantities of unrefined crude oil from its point of extraction to refineries...
, and five gas plants. Condensate, water and other impurities are removed from the gas arriving from the offshore platforms connected to the island. Most of the carbon dioxide is removed so the gas can meet the specifications of the onshore pipelines and end users. Gas from the plant is sent via two subsea
Subsea
Subsea is a general term frequently used to refer to equipment, technology, and methods employed in marine biology, undersea geology, offshore oil and gas developments, underwater mining, and offshore wind power industries.- Oil and gas :...
pipelines to the mainland, where the pipelines connect to the Goldfields Gas Pipeline and the Dampier to Bunbury Natural Gas Pipeline
Dampier to Bunbury Natural Gas Pipeline
The Dampier to Bunbury Natural Gas Pipeline is the longest natural gas pipeline in Australia. It is 660mm in diameter, which also makes it one of Australia's largest in terms of transmission capacity...
. Before the incident, the plant produced 365 terajoules of gas per day for the state market.
The gas plant is licensed under the WA Petroleum Pipelines Act 1969. Safety and health regulation under this Act is the responsibility of the Department of Mines and Petroleum (DMP), which engaged National Offshore Petroleum Safety Authority
National Offshore Petroleum Safety Authority
The National Offshore Petroleum Safety Authority is the occupational health and safety regulator for the Australian offshore petroleum industry...
(NOPSA) to provide inspections and reporting.
Incident
At 1:40pm on Tuesday 3 June 2008, an export gas pipeline ruptured near the gas plant, causing a fire in a large section of the plant. No one was injured and all employees on the island were moved to a safety point within 20 minutes of the explosion. One hundred and fifty-three staff were evacuated later that day, with 13 staff staying on the island to monitor the situation. 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."The explosion and resulting fire caused a full plant shutdown, reducing Western Australia's supply of energy by up to 35%. 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." He estimated it would be at least three months until the plant was at least partially operational, when the less-damaged processing plants for John Brookes and East Spar are brought back online. 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. Approximately 80-90% of the island's gas is used by industrial customers, with small amounts provided to Synergy
Synergy (electricity corporation)
Synergy is a corporation owned by the Government of Western Australia. It, Verve Energy, Horizon Power and Western Power were created in 2006 as a result of the breakup of Western Power Corporation. The corporation's official legal name is the "Electricity Retail Corporation"...
, the state's largest electricity retailer.
Political response
The explosion was investigated separately by Apache Energy, the National Offshore Petroleum Safety Authority (NOPSA) and other agencies. The WA State Opposition called for a Royal CommissionRoyal Commission
In Commonwealth realms and other monarchies a Royal Commission is a major ad-hoc formal public inquiry into a defined issue. They have been held in various countries such as the United Kingdom, Australia, Canada, New Zealand, and Saudi Arabia...
, 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". Western Australian Premier
Premier of Western Australia
The Premier of Western Australia is the head of the executive government in the Australian State of Western Australia. The Premier has similar functions in Western Australia to those performed by the Prime Minister of Australia at the national level, subject to the different Constitutions...
Alan Carpenter
Alan Carpenter
Alan John Carpenter is a former Australian politician. He was the 28th Premier of Western Australia, serving from 2006 to 2008. He took office following the resignation of Dr Geoff Gallop...
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. State Opposition Leader
Leader of the Opposition (Western Australia)
The Leader of the Opposition in Western Australia is the leader of the largest minority political party or coalition of parties in the Legislative Assembly of the Parliament of Western Australia. By convention, he or she is generally a member of the Legislative Assembly...
, Troy Buswell
Troy Buswell
Troy Raymond Buswell is currently the Liberal member for the Western Australian Legislative Assembly seat of Vasse, and the Minister for Transport and Minister for Housing. He was Leader of the Opposition for several months in 2008, then served as Treasurer of Western Australia in the Barnett...
, said that NOPSA had a conflict of interest
Conflict of interest
A conflict of interest occurs when an individual or organization is involved in multiple interests, one of which could possibly corrupt the motivation for an act in the other....
as it helped perform safety inspections on the island, and therefore "are conducting an investigation which will in part be an investigation into themselves".
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.
Power outage
A power outage is a short- or long-term loss of the electric power to an area.There are many causes of power failures in an electricity network...
, blackouts
Rolling blackout
A rolling blackout, also referred to as load shedding, is an intentionally-engineered electrical power outage where electricity delivery is stopped for non-overlapping periods of time over geographical regions. Rolling blackouts are a last-resort measure used by an electric utility company in order...
and brownouts
Brownout (electricity)
A brownout is an intentional drop in voltage in an electrical power supply system used for load reduction in an emergency. The reduction lasts for minutes or hours, as opposed to short-term voltage sag or dip. The term brownout comes from the dimming experienced by lighting when the voltage sags...
. He also said he had discussed accessing emergency diesel supplies stored by the Department of Defence
Department of Defence (Australia)
The Australian Department of Defence is a Federal Government Department. It forms part of the Australian Defence Organisation along with the Australian Defence Force . The Defence mission is to defend Australia and its national interests...
at Garden Island
Garden Island (Western Australia)
Garden Island is a slender island about ten kilometres long and one and a half kilometres wide, lying about off the Western Australian coast, to which it is now linked by a man-made causeway....
with Acting Prime Minister
Acting Prime Minister
An acting Prime Minister is a Cabinet member who is serving the role of prime minister, whilst the individual who normally holds the position in unable or unwilling to do so. The role of Acting Prime Minister is often performed by the Deputy Prime Minister...
Julia Gillard
Julia Gillard
Julia Eileen Gillard is the 27th and current Prime Minister of Australia, in office since June 2010.Gillard was born in Barry, Vale of Glamorgan, Wales and migrated with her family to Adelaide, Australia in 1966, attending Mitcham Demonstration School and Unley High School. In 1982 Gillard moved...
. The state's Energy Minister, Fran Logan
Fran Logan
Francis "Fran" Michael Logan is an Australian politician who is currently a member of the Western Australian Legislative Assembly representing the electorate of Cockburn in the southern suburbs of Perth for the Labor Party...
, said the decommissioned Muja
Muja Power Station, Western Australia
Muja Power Station is a power station 22km east of Collie, Western Australia. It has eight coal powered steam turbines that together generate a total capacity of 854 MW of electricity. The coal is mined in the nearby Collie Sub-basin....
AB coal-fired power station at Collie
Collie, Western Australia
-External links:*...
would be returned to service to supply 25 terajoules of gas to industry. He estimated it would take up to six weeks before the plant was 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".
Power consumption will be reduced from 22 megawatts to four megawatts a day at the State Government's water desalination plant in Kwinana
Kwinana
Kwinana may refer to:*Town of Kwinana, a Local Government Area in Western Australia*Kwinana Beach, Western Australia, a suburb in Western Australia*Kwinana Freeway, a major road in Western Australia...
, 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."
On 17 June, two weeks after the explosion, Carpenter made an unprecedented public address on television and radio.
"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
David Black
David Black (historian)
David Black is a Western Australian historian. He has lectured and written extensively on Australian and Western Australian history, especially political history. He was Professor in History and Politics in the School of Social Sciences and Asian Languages at Curtin University of Technology...
, 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." Opposition Leader Buswell called for daily publication of a gas supply allocation for businesses. After Carpenter's address, power consumption fell 2% the next morning, on the coldest day since September 2007. Carpenter said, "The saved consumption was very, very significant, enough to power the city of Geraldton".
Prime Minister of Australia
The Prime Minister of the Commonwealth of Australia is the highest minister of the Crown, leader of the Cabinet and Head of Her Majesty's Australian Government, holding office on commission from the Governor-General of Australia. The office of Prime Minister is, in practice, the most powerful...
Kevin Rudd
Kevin Rudd
Kevin Michael Rudd is an Australian politician who was the 26th Prime Minister of Australia from 2007 to 2010. He has been Minister for Foreign Affairs since 2010...
told Federal Parliament that Premier Carpenter had established a Gas Supply Coordination Group, involving government agencies and industry representatives. Rudd said the Royal Australian Navy
Royal Australian Navy
The Royal Australian Navy is the naval branch of the Australian Defence Force. Following the Federation of Australia in 1901, the ships and resources of the separate colonial navies were integrated into a national force: the Commonwealth Naval Forces...
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
Martin Ferguson
Martin John Ferguson AM , Australian politician, has been an Australian Labor Party member of the Australian House of Representatives since March 1996, representing the Division of Batman, Victoria. He was born in Sydney, the son of Jack Ferguson, who was Deputy Premier of New South Wales from 1976...
, to control production, transfer and stock levels of crude oil and other liquid fuel.
"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
On 21 June, it was revealed that the state-owned electricity generator Verve Energy
Verve Energy
Verve Energy is a Western Australian Government owned corporation responsible for operating the state's electricity generators on the State's South West Interconnected System...
continued to use hundreds of terajoules of gas each week, despite having access to diesel fuel. 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
North West Shelf
The North West Shelf of Western Australia is an extensive oil and gas region off the North West Australia coast in the Pilbara region.It has a considerable number of oil and gas wells, pipelines, production areas and support facilities.- Location :...
". 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." 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.
The lack of a State Government contingency plan
Contingency plan
A contingency plan is a plan devised for an exceptional risk which is impractical or impossible to avoid. Contingency plans are often devised by governments or businesses who want to be prepared for events which, while highly unlikely, may have catastrophic effects. For example, suppose many...
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
Perth basin
The Perth Basin is a thick sedimentary basin in Western Australia. It lies beneath the Swan Coastal Plain west of the Darling Scarp, representing the western limit of the much older Yilgarn Craton, and extends further west offshore...
depleted of gas, like Dongara, and companies could be offered tax incentives. Federal Opposition spokesperson for trade, Ian Macfarlane
Ian Macfarlane (politician)
Ian Elgin Macfarlane , is an Australian politician. He was elected as a member of the Australian House of Representatives in October 1998, representing the Division of Groom, Queensland for the Liberal National Party...
, 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." Professor Dong-ke Zhang, Director of the Centre for Petroleum, Fuels and Energy at the University of Western Australia
University of Western Australia
The University of Western Australia was established by an Act of the Western Australian Parliament in February 1911, and began teaching students for the first time in 1913. It is the oldest university in the state of Western Australia and the only university in the state to be a member of the...
, 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
Woodside Petroleum
Woodside Petroleum Limited is an Australian petroleum exploration and production company. It is a public company listed on the Australian Securities Exchange and has its headquarters in Perth, Western Australia.-History:...
and Chevron
Chevron Corporation
Chevron Corporation is an American multinational energy corporation headquartered in San Ramon, California, United States and active in more than 180 countries. It is engaged in every aspect of the oil, gas, and geothermal energy industries, including exploration and production; refining,...
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."
Restoration of supply
A statement released by Apache Energy on 13 June 2008 said the company had sourced pipe and valves needed to repair the pipeline. 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. On 18 June, Apache Energy said it had commenced demolition and restoration of the damaged pipeline and expected this to be finished by the end of the following week. The pipe was already in Karratha and valves and fittings from the United Kingdom were expected to arrive in early July. Gas supply from the plant partially resumed in late August. By mid-October, gas production was running at two-thirds of normal capacity, with 85% of full output restored by December 2008.
Muja Power Station, Western Australia
Muja Power Station is a power station 22km east of Collie, Western Australia. It has eight coal powered steam turbines that together generate a total capacity of 854 MW of electricity. The coal is mined in the nearby Collie Sub-basin....
power station came back online. Western Power
Western Power
Western Power Corporation , owned by the Government of Western Australia, was Western Australia's major electricity supplier from 1995 through 2006...
spokesperson Ken Brown said the plant will provide "very minimal megawatts because it has been out for many months, not just for pure maintenance, it's had a complete overhaul of the machine and the control, and it's going to take quite a while to commission that, but by next week it will be producing some significant coal megawatts and that's really good." Kwinana Unit 1, a power station located at Kwinana
Kwinana, Western Australia
The Town of Kwinana is a Local Government Area of Western Australia. It covers an area of approximately 118 square kilometres in metropolitan Perth, and lies about 38 km south of Perth's central business district, via the Kwinana Freeway...
closed for maintenance before the explosion, was reactivated on 8 July. The 110 megawatt station operated at 60% capacity for the first few days before running at full capacity. Kwinana Unit 1 is expected to free up to five terajoules of gas daily.
Impact
Overall, the gas shortage had a large impact on Western Australian industries, particularly mining, construction, and hospitality. Some affected companies declared force majeure
Force majeure
Force majeure or vis major "superior force", also known as cas fortuit or casus fortuitus "chance occurrence, unavoidable accident", is a common clause in contracts that essentially frees both parties from liability or obligation when an extraordinary event or circumstance beyond the control of...
, and others are expected to make large insurance claims. If Apache Energy was found responsible for the pipeline explosion, compensation claims could be made against the company. 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".
A survey of 301 businesses conducted by the Chamber of Commerce and Industry showed on 18 June 2008 that nearly 630 employees had already been, or could be, stood down or made redundant - nearly 1% of the workforce surveyed. 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. 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."
Macquarie Group
Macquarie Group
Macquarie Group Limited is a global investment banking and diversified financial services group, providing banking, financial, advisory, investment and funds management services to institutional, corporate and retail clients and counterparties around the world...
economists estimated the energy crisis could reduce gross domestic product
Gross domestic product
Gross domestic product refers to the market value of all final goods and services produced within a country in a given period. GDP per capita is often considered an indicator of a country's standard of living....
growth by 0.25 percentage points in the third quarter, as gas prices increased and the percentage of gas production allocated to export reduced. Natural gas sales were worth $5.2 billion in the 2006/2007 financial year, and its five year trend growth rate is 16.8%. 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".
Modelling undertaken by the WA Department of Treasury and Finance estimated that the gas crisis would affect Western Australia's exports of chemicals, metal products, textiles, clothing, footwear and rubber and plastic products. Treasurer Eric Ripper
Eric Ripper
Eric Stephen Ripper is the Leader of the Opposition and leader of the Labor Party in Western Australia.He grew up on a wheat/sheep farm near Nyabing. Ripper later attended Churchlands Senior High School and the University of Western Australia, from which he received a Bachelor of Arts and a...
said, "In the long term, the disruption is estimated to reduce WA's economic value by $1.8 billion between 2007-08 and 2011-12... this $1.8 billion figure (estimated at 2008–09 values), only equates to 0.2 percent of the economy over the same five-year period." The WA Chamber of Commerce and Industry (CCI) released its quarterly report on 10 July, which said, "The gas crisis has already cost the Western Australian economy in the vicinity of $2.4 billion... With gas supply expected to be restricted until December 2008, CCI estimates the overall cost to be around $6.7 billion".
The Reserve Bank reported in September that "the disruption is expected to result in a temporary reduction in national GDP growth of around 0.25%, with the impact spread across the June and September quarters".
Mining industry
Western Australian-based mining companies could have potentially lost hundreds of millions of dollars, because the state is the world's largest producer of iron ore and one of the largest producers of goldGold
Gold is a chemical element with the symbol Au and an atomic number of 79. Gold is a dense, soft, shiny, malleable and ductile metal. Pure gold has a bright yellow color and luster traditionally considered attractive, which it maintains without oxidizing in air or water. Chemically, gold is a...
and nickel
Nickel
Nickel is a chemical element with the chemical symbol Ni and atomic number 28. It is a silvery-white lustrous metal with a slight golden tinge. Nickel belongs to the transition metals and is hard and ductile...
, exporting $48.4 billion of minerals and energy in 2006. Three days after the blast, the world's largest mining company, BHP Billiton
BHP Billiton
BHP Billiton is a global mining, oil and gas company headquartered in Melbourne, Australia and with a major management office in London, United Kingdom...
, said it was assessing the gas shortage's impact, but its iron ore mines at Mount Newman and Nickel West were running normally. 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
Worsley, Western Australia
Worsley is a town in Western Australia located in the South West region near the town of Collie. The town is part of the Shire of Collie.The town's name comes from the Worsley river, a tributary of the Collie river, that is located nearby. The origin of the name is thought to be from the Worsley...
aluminium
Aluminium
Aluminium or aluminum is a silvery white member of the boron group of chemical elements. It has the symbol Al, and its atomic number is 13. It is not soluble in water under normal circumstances....
refinery. A spokesperson for Rio Tinto
Rio Tinto Group
The Rio Tinto Group is a diversified, British-Australian, multinational mining and resources group with headquarters in London and Melbourne. The company was founded in 1873, when a multinational consortium of investors purchased a mine complex on the Rio Tinto river, in Huelva, Spain from the...
, 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. The world's third-biggest gold
Gold
Gold is a chemical element with the symbol Au and an atomic number of 79. Gold is a dense, soft, shiny, malleable and ductile metal. Pure gold has a bright yellow color and luster traditionally considered attractive, which it maintains without oxidizing in air or water. Chemically, gold is a...
producer, Newmont Mining
Newmont Mining
Newmont Mining Corporation , based in Denver, Colorado, USA, is one of the world's largest producers of gold, with active mines in Nevada, Indonesia, Australia, New Zealand, Ghana and Peru. Holdings include Santa Fe Gold, Battle Mountain Gold, Normandy Mining, Franco-Nevada Corp and Fronteer Gold...
, said it was "investigating alternative gas and energy sources", and Iluka Resources
Iluka Resources
Iluka Resources is a mining company involved in the mining and processing of titanium based and zircon products. The company mines heavy mineral sands and separates the concentrate into its individual mineral constituents rutile, ilmenite, leucoxene and zircon...
, the largest zircon
Zircon
Zircon is a mineral belonging to the group of nesosilicates. Its chemical name is zirconium silicate and its corresponding chemical formula is ZrSiO4. A common empirical formula showing some of the range of substitution in zircon is 1–x4x–y...
producer, shut down its Western Australian operations on 5 June and said it was awaiting advice from power supplier Alinta Gas. Oxiana Limited
Oxiana Limited
Oxiana Limited was an Australia-based copper and gold miner and exploration company. The company's operations were located in Laos, Australia, Cyprus and the Philippines...
, soon to be the world's second-largest zinc
Zinc
Zinc , or spelter , is a metallic chemical element; it has the symbol Zn and atomic number 30. It is the first element in group 12 of the periodic table. Zinc is, in some respects, chemically similar to magnesium, because its ion is of similar size and its only common oxidation state is +2...
producer, used standby diesel power at its Golden Grove mine until 6 June, when they obtained an alternative source. Newcrest Mining
Newcrest Mining
Newcrest Mining Limited engages in the exploration, development, mining and sale of gold and gold-copper concentrate. Newcrest is an Australian based Company which initially incorporated in Victoria in 1980. Today it has become Australia’s leading gold mining company...
, a gold mining company located at Telfer
Telfer, Western Australia
Telfer is a minesite in the Pilbara region of Western Australia, within the Great Sandy Desert. Telfer was previously the state's most isolated town, located north-east of the state capital Perth...
, switched to its limited stockpile of diesel fuel. Fonterra Co-operative Group
Fonterra
Fonterra Co-operative Group Limited is a New Zealand multinational dairy co-operative owned by almost 10,500 New Zealand farmers. The company is responsible for approximately 30% of the world's dairy exports and with revenue exceeding NZ$19.87 billion, is New Zealand's largest company.- History :In...
also switched to diesel power. Minara Resources
Minara Resources
Minara Resources Ltd is one of the major mining companies of Australia, specializing in the exploration of cobalt and nickel. Based in Perth, Minara Resources was founded in 1994 as the successor to Anaconda Nickel Ltd. which was founded by Fortescue Metals Group chief Andrew Forrest; it...
, the country's second-largest nickel producer, was "using the time opportunistically on plant maintenance", as natural gas was its Murrin Murrin
Murrin Murrin Joint Venture
The Murrin Murrin Joint Venture is a major nickel-cobalt mining operation being conducted in the North Eastern Goldfields, approximately 60 km east of Leonora, Western Australia...
mine's only energy source. Minara Resources predicted that its full-year production would be reduced by 8%. Alcoa
Alcoa
Alcoa Inc. is the world's third largest producer of aluminum, behind Rio Tinto Alcan and Rusal. From its operational headquarters in Pittsburgh, Pennsylvania, Alcoa conducts operations in 31 countries...
, which operates bauxite mines and alumina refineries
Alcoa World Alumina and Chemicals
Alcoa World Alumina and Chemicals is a joint venture between Alumina Limited and Alcoa and is abbreviated to AWAC. AWAC's business is the mining of bauxite, the extraction of alumina and the smelting of aluminium. It has about 25% of the global alumina market...
with Alumina
Alumina Limited
Alumina Limited is a public company listed on the Australian and New York Stock Exchanges. It was formed in 2003 in a demerger from Western Mining Corporation, and is one of the largest companies on the ASX....
, declared force majeure as a precaution on 11 June. 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". 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.
Woodside Petroleum
Woodside Petroleum
Woodside Petroleum Limited is an Australian petroleum exploration and production company. It is a public company listed on the Australian Securities Exchange and has its headquarters in Perth, Western Australia.-History:...
's North West Shelf Venture
North West Shelf Venture
The North West Shelf Venture, situated in the north-west of Western Australia, is Australia's largest resource development project. It involves the extraction of petroleum at offshore production platforms, onshore processing and export of liquefied natural gas, and production of natural gas for...
increased production of natural gas to meet Apache Energy's shortfall. Apache's managing director Tim Wall said it was a small quantity of relief; Premier Carpenter said Woodside was providing an extra 50 terajoules of gas per day for the domestic energy grid.
Other industries, businesses and domestic customers
The construction and hospitality industries were strongly affected by the energy shortage. BrickBrick
A brick is a block of ceramic material used in masonry construction, usually laid using various kinds of mortar. It has been regarded as one of the longest lasting and strongest building materials used throughout history.-History:...
producers Midland Brick and Austral closed their kilns within the first week after the blast, and on 11 June, the Chamber of Commerce and Industry warned that 14% of local businesses could close. UnionsWA
UnionsWA
-Name changes:Originally known as the Trades & Labor Council, Perth from 1891, the organisation has gone through several name changes including the Western Australian Branch of the Australian Labour Federation in 1907; Australian Labor Party in 1927; Trade Unions Industrial Council in 1947...
said thousands of workers were being stood down
Layoff
Layoff , also called redundancy in the UK, is the temporary suspension or permanent termination of employment of an employee or a group of employees for business reasons, such as when certain positions are no longer necessary or when a business slow-down occurs...
or made to take annual leave
Annual leave
Annual leave is paid time off work granted by employers to employees to be used for whatever the employee wishes. Depending on the employer's policies, differing number of days may be offered, and the employee may be required to give a certain amount of advance notice, may have to coordinate with...
, and the secretary Dave Robinson said mining, timber, beef, pork, laundries and transport industries workers were worst affected. Supplies of gas and electricity to residential customers are protected by state government legislation introduced in 2006.
The impact of the crisis on Wesfarmers
Wesfarmers
Wesfarmers Limited is one of Australia’s largest public companies and one of Australia's largest retailers. Its headquarters are in Perth, Western Australia....
' subsidiaries caused a slump in the company's share prices. Wesfarmers managing director, Richard Goyder, said, "At this stage, our best estimate is that the pre-tax impact on group profit will be up to $20 million per month at the current level of gas supply. A portion of that loss is expected to be recovered from insurance". The subsidiaries affected are CSBP, which can no longer produce ammonium nitrate, Wesfarmers LPG, which has delayed commissioning of a new liquid natural gas plant in WA, and Premier Coal, whose sales have been reduced due to the closure of some of its customers, such as Iluka Resources.
There was speculation in the media on whether the AFL
Australian Football League
The Australian Football League is both the governing body and the major professional competition in the sport of Australian rules football...
football
Australian rules football
Australian rules football, officially known as Australian football, also called football, Aussie rules or footy is a sport played between two teams of 22 players on either...
game at Subiaco Oval
Subiaco Oval
Subiaco Oval , known colloquially as Subi, is the highest capacity sports stadium in Perth, Western Australia...
on 21 June between the West Coast Eagles
West Coast Eagles
The West Coast Eagles are an Australian rules football club which plays in the Australian Football League. The club is based in Perth, Western Australia. The club was founded in 1986 and played its first games in the 1987 season. Its current home ground is Subiaco Oval...
and Geelong Football Club
Geelong Football Club
The Geelong Football Club, nicknamed The Cats, is a professional Australian rules football club, named after and based in the city of Geelong, playing in the Australian Football League . The club has been the VFL/AFL premiers nine times, with a record equalling 3 in the AFL era. Geelong has also...
should be moved from night to daytime, to avoid using the oval's lights. According to Western Power
Western Power
Western Power Corporation , owned by the Government of Western Australia, was Western Australia's major electricity supplier from 1995 through 2006...
, 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". Western Australian Trotting Association chief executive, Rob Bovell, said if they were forced to move races at Gloucester Park
Gloucester Park
Gloucester Park is a harness racing course in Perth, Western Australia. In the suburb of East Perth, the oval course is adjacent to the WACA Ground...
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."
Shopping mall
A shopping mall, shopping centre, shopping arcade, shopping precinct or simply mall is one or more buildings forming a complex of shops representing merchandisers, with interconnecting walkways enabling visitors to easily walk from unit to unit, along with a parking area — a modern, indoor version...
and office towers
Skyscraper
A skyscraper is a tall, continuously habitable building of many stories, often designed for office and commercial use. There is no official definition or height above which a building may be classified as a skyscraper...
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
Elevator
An elevator is a type of vertical transport equipment that efficiently moves people or goods between floors of a building, vessel or other structures...
". Perth's
Perth, Western Australia
Perth is the capital and largest city of the Australian state of Western Australia and the fourth most populous city in Australia. The Perth metropolitan area has an estimated population of almost 1,700,000....
tallest building, Central Park
Central Park (skyscraper)
Central Park is a 51-storey office tower in Perth, Western Australia. The building measures from its base at St Georges Terrace to the roof, and to the tip of its communications mast. Upon its completion in 1992, the tower became the tallest building in Perth...
, turned off its heating on 17 June, with General Manager Tim Ward saying, "We're not expecting anyone to be anything but compliant".
Royal Perth Hospital
Royal Perth Hospital
Royal Perth Hospital is an 855-bed teaching hospital located on the northeastern edge of the CBD of Perth, Western Australia . Royal Perth Hospital also has specialised rehabilitation facilities at Shenton Park.-History:...
's plans for coping with decreased gas supplies were leaked to the media at the end of June, which showed a 30% reduction in gas would cause phase 1, changing linen "only when soiled" and having "one towel per patient". Phase 2, a further 20% decrease, would result in "reductions in elective surgical procedures", "prioritisation of equipment for sterilisation", sourcing oxygen supplies from interstate and restricting patients' showers to "four minutes, second daily". Further reductions could lead to cancellations in elective surgery, rationing food and transporting "infectious linen" interstate for laundering.
Industrial gas provider BOC
The BOC Group
The BOC Group plc was the official name of the multinational industrial gas and British based company more commonly known as BOC, and now a part of The Linde Group. In September 2004, BOC had over 30,000 employees on six continents, with sales of over £4.6 billion. BOC was a constituent of the...
reduced its supply of carbon dioxide to pubs for draft beer, whilst the shortage also threatened WA's wineries, who use carbon dioxide for bottling. BOC gave 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
Air Liquide
L'Air Liquide S.A., or Air Liquide , is a major French company supplying industrial gases and services to various industries including medical, chemical and electronic manufacturers. Founded in 1902, it is first in the world market in its field, now operating in over 80 countries. It is...
, also shut down production, leading to fears that WA's largest pork abattoir would close.
Westpac
Westpac
Westpac , is a multinational financial services, one of the Australian "big four" banks and the second-largest bank in New Zealand....
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. Other banks and credit-lenders offered similar assistance to their customers.
Technical investigation by NOPSA
Following a four-month investigation, the National Offshore Petroleum Safety AuthorityNational Offshore Petroleum Safety Authority
The National Offshore Petroleum Safety Authority is the occupational health and safety regulator for the Australian offshore petroleum industry...
(NOPSA) handed down its report into the causes of the incident on 10 October 2008. Numbered copies of the 92-page report were made available to members of the public upon request to the Department of Mines and Petroleum.
According to the report, the plant was operating normally up until the incident. The immediate cause was the rupture of the 12" Sales Gas Pipeline at the NNE beach crossing, and that "the gas released from the ruptured pipeline ignited very soon after the rupture". The rupture of the pipeline was caused by corrosion
Corrosion
Corrosion is the disintegration of an engineered material into its constituent atoms due to chemical reactions with its surroundings. In the most common use of the word, this means electrochemical oxidation of metals in reaction with an oxidant such as oxygen...
of the external surface of the pipe "resulting in excessive stresses of the pipe wall". The report provides the likely sequence of events following the initial rupture, including the failures of other pipelines located near the 12" Sales Gas line, contributing to the intensity of the fire and damage to the gas plant. According to evidence available to NOPSA, the main causal factors in the incident were:
- ineffective anti-corrosion coating at the beach crossing section of the sales gas pipeline
- ineffective cathodic protectionCathodic protectionCathodic protection is a technique used to control the corrosion of a metal surface by making it the cathode of an electrochemical cell. The simplest method to apply CP is by connecting the metal to be protected with another more easily corroded "sacrificial metal" to act as the anode of the...
of the wet-dry transition zone of the beach crossing section of the pipeline, and - ineffective inspection and monitoring by Apache Energy of the beach crossing and shallow water section of the pipeline.
A section of the report titled "Impediments to the Investigation" refers to the investigation team's frustrated attempts to interview staff of Apache Energy in relation to pipeline inspection, monitoring, and the company's maintenance and repair regime. The company declined to make its key personnel available for questioning by NOPSA. The investigators' efforts were also hampered by Apache's delays in releasing the results of laboratory analysis of pipeline materials related to the incident. Apache produced a comprehensive "corporate response" to a set of written questions provided by NOPSA, seven weeks after receiving the request. The report notes that "these matters directly impacted on the ability of the investigation team to develop its findings within the agreed time period and resulted in aspects of some lines of inquiry not being fully settled".
The report identified that Apache and its co-licensees may have committed offences under the Petroleum Pipelines Act and associated regulations, and that there may have been non-compliance with pipeline license conditions.
Senate inquiry
On 28 August 2008, the SenateAustralian Senate
The Senate is the upper house of the bicameral Parliament of Australia, the lower house being the House of Representatives. Senators are popularly elected under a system of proportional representation. Senators are elected for a term that is usually six years; after a double dissolution, however,...
referred a number of matters relating to the gas crisis to its Standing Committee on Economics. The inquiry focussed on the economic impact of the crisis (losses faced by business and industry; relevance of contractual arrangements) and government responses (crisis management; emergency measures; alternative energy sources). Written submissions were made by numerous business and industry bodies, and six days of public hearings in Perth, Bunbury
Bunbury, Western Australia
The port city of Bunbury is the third largest city in Western Australia after the State Capital Perth and Mandurah. It is situated south of Perth's central business district...
and Canberra were held during October. Written submissions to the inquiry included claims of unfair allocations of gas, inadequate communication of important information during the crisis, and the scale of the impact on individual businesses and industries. The committee was initially expected to report by 13 November 2008. The Committee tabled its 84-page report on 3 December 2008, listing six key recommendations to minimise the impacts and risks of future supply disruption, including developing a comprehensive energy security plan, and changing the methods of allocating remaining supplies during a major disruption.
In terms of the macroeconomic impact of the gas crisis, the Committee relied heavily upon State Treasury forecasts provided during its inquiry, including that "the June 2008 disruption in gas supplies... is expected to cost the Western Australian economy around $2 billion in Gross State Product (GSP) terms, with roughly half of this impact in each of the June and September quarters of 2008. This translates to approximately a 0.5 percentage point reduction in estimated GSP growth in 2007-08, from 7.5% at budget-time to 7.0%." The report refers to the Reserve Bank's modelling of the national impact of the crisis, "that the disruption is expected to result in a temporary reduction in national GDP growth of around 0.25 percentage point, spread across the June and September quarters... as national GDP is around a trillion dollars, a 0.25 percentage point represents about $2½ billion, so the Reserve Bank estimate is broadly consistent with that of the Western Australian Treasury."
In assessing the state government's response to the crisis, the report recommended that the newly elected state government honour the Carpenter government's pledge on 6 August 2008 to develop an energy security plan. The plan should include possible contingency options, but warned any contingency option that would be of sufficient scope to mitigate significantly the impact of a gas shortage on the scale of that experience after the Varanus Island incident would be very expensive and could present significant technical and environmental challenges."
The inquiry examined the mechanisms and emergency supply protocols established by the WA government to mitigate the effects of the crisis. According to the committee, the protocols were appropriate, and the residential supply "was crucial to ensure that negative health impacts were minimised, particularly as the incident occurred in winter." The Committee said it received submissions that the campaign to reduce household gas consumption "was misplaced as (households) only directly account for around three to five per cent of overall gas consumption." However, the Committee concluded that the campaign was appropriate under the circumstances.
The document contained a 15-page dissenting report written by the five Coalition
Coalition (Australia)
The Coalition in Australian politics refers to a group of centre-right parties that has existed in the form of a coalition agreement since 1922...
members of the Committee. This report directly criticised the Labor
Australian Labor Party
The Australian Labor Party is an Australian political party. It has been the governing party of the Commonwealth of Australia since the 2007 federal election. Julia Gillard is the party's federal parliamentary leader and Prime Minister of Australia...
government's lack of a contingency gas supply plan, despite two previous supply disruptions in 2006 and early 2008. The government "ignored these precedents, as well as industry advice, to develop an appropriate contingency response plan to deal with such a crisis and accordingly deserves strong criticism". The government's communication with industry and customers was "sporadic at best", and it should have declared a state of emergency to control gas distribution, rather than leaving distribution to market forces and a bulletin board system.
Joint Commonwealth-State inquiry
On 23 December 2008, the State Government formally announced a joint inquiry (funded by the Commonwealth) into the Varanus Island gas disaster. To be set up as a 2-person expert panel inquiry and expected to conclude by April 2009, it will "focus on the effectiveness of the regulatory system and the regulators for upstream petroleum operations and recommend improvements to the existing system." According to the new WA Premier, Colin BarnettColin Barnett
Colin James Barnett , Australian politician, is the leader of the Western Australian Liberal Party, the 29th and current Premier of Western Australia since the 2008 election and served as the Treasurer of Western Australia in 2010. He was sworn into office by Governor Ken Michael on 23 September 2008...
, the original inquiry focussed solely on the cause of the explosion, rather than considering surrounding issues. The Premier said that any recommendations arising from the report would ultimately be referred to the Ministerial Council on Mineral and Petroleum Resources (MCMPR) for implementation.
External links
- Varanus Island Pipeline Incident Apache Energy
- Media Releases National Offshore Petroleum Safety Authority
- Varanus Island Pipeline Incident Department of Mines and PetroleumDepartment of Mines and PetroleumThe Department of Mines and Petroleum is a department of the Government of Western Australia. The department was formed on 1 January 2009, out of the former Department of Industry and Resources and Department of Consumer and Employment Protection, which were split into three new departments, the...
(Western Australia) - Energy Update Information Office of Energy (Western Australia)
- Senate Inquiry Federal Senate