Apache to Resume Varanus Gas Output Ahead of Schedule

By Jason Scott

Aug. 1 (Bloomberg) -- Apache Corp., operator of the Varanus Island gas plant shut down after an explosion in June, said it will restart a third of production at the facility off Western Australia earlier than previously announced.

Partial sales will begin in the ``next few days'' with initial production expected to be 110 million cubic feet of gas a day, Tim Wall, managing director of Apache's Australian unit, said in a statement today. That should double later in August, with full output of 330 million cubic feet by year-end, the Houston-based company said.

The June 3 blast damaged pipelines at the plant and cut 30 percent of Western Australia's gas supplies. The disruption left mining companies and small businesses scrambling to secure fuel in the state, generator of more than a third of the nation's exports. The state's Chamber of Commerce and Industry estimates the incident may cost the economy A$6.7 billion ($6.4 billion).

``The state is by no means out of the woods,'' chamber Executive Director Trevor Lovelle said in a statement today. ``Business and industry across the state that rely on gas as a primary fuel source will continue to operate in a constrained market until full supply is restored.''

Partial supplies will begin Aug. 5, Western Australia Premier Alan Carpenter said.

Force Majeure

Apache, which earlier said it planned to restart some supplies by Aug. 15, declared force majeure on its Western Australian 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.

Apache had 162 workers on Varanus Island as of yesterday to repair the pipeline. The National Offshore Petroleum Safety Authority, or NOPSA, is preparing a report on the incident due to be released next month, Carpenter said.

``Having 80 terajoules in that pipeline from Apache by Tuesday and 110 terajoules by the end of the week and shortly thereafter up to 220 terajoules means that a very much improved situation is in front of us,'' Carpenter said at a press conference in Perth today.

The disruption to supplies may prompt ``a lot of litigation'' in the state, Carpenter said. No government agencies have indicated they would be taking legal action, he said.

Small Businesses

Since the disruption, small businesses have been contacted by energy retailer Alinta Ltd., a unit of Sydney-based Babcock & Brown Power, late in their working day, informing them of how much gas they can expect in the next 24 hours.

The chamber said households and businesses should do all they can to conserve energy as gas will remain in short supply until the end of the year.

``The gas crisis remains one of the most significant challenges facing Western Australian business and the local economy in many years,'' the chamber's Lovelle said. The incident has already cost business and industry $2.4 billion in lost turnover, it said.

Western Australia's economy probably expanded 6.5 percent in the 12 months that ended June 30, according to the chamber. Growth is expected to slow in the coming year because of a forecast decline in consumer spending and a lull in investment after the completion of major projects.

Apache said June 23 it expected to resume 57 percent of supplies from the blast-damaged plant off the state's northwest coast by mid-August.

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