Apache Resumes Partial Output From Varanus Gas Plant

By Jason Scott
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Aug. 6 (Bloomberg) -- Apache Corp. said some gas output has resumed at its Varanus Island plant off Western Australia, after an explosion in June created fuel shortages in the resource-rich state that generates a third of the nation's exports.

Current production of 80 terajoules a day will reach 120 terajoules tomorrow, and double later this month before reaching full capacity of 350 terajoules before year end, the Houston- based company said in a statement handed to reporters today on Varanus, off the northwest coast.

Results of an investigation into the cause of the June 3 blast, which the state's Chamber of Commerce and Industry says may cost the economy A$6.7 billion ($6.2 billion), are due from the national safety authority next month. The disruption left mining companies and businesses scrambling to secure fuel in a state where gas is burned to produce 60 percent of electricity.

``While investigations continue into what caused the Varanus Island incident, we need to ensure we have security of supply into the future,'' state Premier Alan Carpenter told reporters on Varanus.

Western Australia's office of energy will work with the federal government to review the state's gas supply security and disclose its findings next year, Carpenter said.

Options for the state include expanding and extending the 1,596-kilometer (992-mile) Dampier Bunbury pipeline that carries gas to the southwest, building emergency gas storage and adding suppliers, Carpenter said.

Iluka, Alcoa

Apache, which earlier said it planned to restart some supplies by Aug. 15, declared force majeure on its Western Australia contracts after the explosion. Some mining companies affected by the shortage, including Iluka Resources Ltd. and Alcoa Inc.'s Australian unit, followed suit.

Force majeure is a legal clause that allows a company to miss deliveries because of circumstances beyond its control.

Asked today if Apache would compensate companies affected by the lack of gas, Tim Wall, managing director of Apache's Australian unit said on Varanus: ``We did issue force majeure.''

The disruption to supplies may prompt ``a lot of litigation'' in Western Australia and may trigger a Royal Commission, or government inquiry, into its cause, Carpenter said Aug. 1.

Apache's Wall declined to estimate the cost of the incident to the company. ``It has affected us, the business interruption has been quite dramatic,'' he said. ``It has hurt us.''

Newcrest Mining

Newcrest Mining Ltd., Australia's largest gold mining company, said today it switched back to using gas from Apache at its Telfer mine in the state after a two-month disruption caused by the explosion.

As much as half of Telfer's normal gas requirements will be available under its contract with Apache after the partial resumption of Varanus Island supplies.

``Telfer's remaining requirements are expected to be supplied by Apache around mid-August as it further increases its gas supplies,'' Newcrest said today in a statement.

Newcrest terminated part of an interim gas supply arrangement with the North West Shelf venture. It will continue to get some gas from the Woodside Petroleum Ltd.-operated venture until Apache resumes full supplies to Telfer later this month, the company said.

The National Offshore Petroleum Safety Authority, or NOPSA, is preparing a report on the explosion due to be released next month, Carpenter said Aug. 1.

The fuel shortage probably reduced the state's economic growth by 0.5 percentage point in the year ended June 30, Western Australian Treasurer Eric Ripper said in a July 24 statement, limiting expansion to 7 percent.

``The worst of the situation is clearly over, electricity supplies are basically restored,'' Carpenter said today. ``There has been an impact on some businesses, which is regrettable, but a lot of the anticipated impact didn't happen.''

To contact the reporter on this story: Jason Scott in Perth at Jscott14@bloomberg.net