(Adds comment from Apache, WA State Resources Minister and details of more companies affected.)
By Alex Wilson
Of DOW JONES NEWSWIRES
MELBOURNE -(Dow Jones)- Apache Corp. (NYSE:APA) (APA) said Wednesday it has declared force majeure on gas supply contracts after a fire forced the closure of its Varanus Island gas plant off the coast of north west Western Australia state.
The fire is affecting mining operations across the state and marks the second time this year that an incident at a major gas plant has sparked serious shortages in Western Australia, raising concerns about the its heavy reliance on two key gas suppliers.
The Varanus Island plant supplies about a third of Western Australia's gas, with most of its output going to commercial customers. A number of companies in the state's booming mining sector are now facing shortages, including Alcoa Inc. (NYSE:AA) (AA), BHP Billiton Ltd. (NYSE:BHP) (BHP.AU), Newcrest Mining Ltd. (Australia:NCM) (NCM.AU), Iluka Ltd. ( ILU.AU) and Minara Resources Ltd. (Australia:MRE) (MRE.AU).
The rupture of one pipeline at the plant more than 100 kilometers off the coast on Tuesday sparked a fire which then lead to the rupture of two other pipelines.
Apache Energy Managing Director Tim Wall said a small fire is still burning at one of the ruptured pipelines. The company is still assessing the impact of the fires and Wall said it is too early to say how long the plant will be closed for.
"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," he said.
Alcoa (NYSE:AA) , which operates a number of bauxite mines and alumina refineries in Western Australia as part of its joint venture with Alumina Ltd. (NYSE:AWC) (AWC.AU), said it has turned to alternative fuels to meet its shortfall.
" Alcoa (NYSE:AA) is always prepared for these situations and while there is a need to switch to alternative fuels, we are also confident that our production will not be affected," Alcoa (NYSE:AA) said in a statement.
BHP Billiton (NYSE:BBL) said its Worsley Alumina operation is facing reduced gas supplies due to the fire but that the impact on production is not yet known.
A spokeswoman for the mining giant said its Nickel West and iron ore operations, which also use gas from the damaged plant, are operating as normal and discussions are continuing with suppliers to ensure an adequate supply of gas.
Newcrest Mining (Australia:NCM) said the outage has interrupted gas supply to the power station that feeds its key Telfer mine.
"Action is being taken to minimize the impact on operations at Telfer, including drawing down diesel fuel stocks to operate the power station. Available diesel fuel stocks on site are, however, limited," Newcrest said in a statement.
Pipeline operator APA Group (Australia:APA) (APA.AU) said the outage has disrupted gas supplies at two of its major gas pipelines and that the interruption was expected to last a number of days and should not have any material financial impact.
APA said it is in talks with customers of its Goldfields Gas Pipeline to enable them to access alternative sources of gas through the Dampier Bunbury pipeline.
Oxiana Ltd. (Australia:OXR) (OXR.AU) said power supplies to its Golden Grove mine are set to be disrupted with the length of the outage not yet known, but that it is working to minimize the impact by using diesel generators.
Western Australia generates about 40% of its electricity from gas, where the other Australian states rely largely on coal-fired power.
Heavy industry in the state was affected in January when the gas plant at the North West Shelf joint venture, which provides about 65% of the state's gas, was shut down for a week due to an electrical fault.
Western Australian Resources Minister Francis Logan conceded the state is reliant on the two gas plants for the majority of its gas but denied it was vulnerable to disruptions.
Logan said there are new sources of domestic gas on the horizon, with Santos and Apache bringing on the Reindeer field and Chevron Corp. (NYSE:CVX) (CVX) planning to dedicate some gas from its Wheatstone liquefied natural gas project to domestic use, as is Woodside Petroleum Ltd. (Australia:WPL) (WPL.AU) from its Pluto LNG project.
"We are getting more sources of supply but they all effectively come into the same infrastructure of the North West Shelf pipeline," Logan told reporters.
Almost all of the gas for Western Australia's southern population centers is currently transported down this pipeline from the large gas reservoirs in the north west of the vast state, and Logan said the government is working to encourage development of unconventional gas resources in the south.
Logan said, in the short term, no impact was expected on electricity generation in the state but this was dependent on how long the plant is off-line for.
Apache's Wall said the company is talking to Woodside, the operator of the North West Shelf joint venture, about any excess gas it may be able to supply to help meet the shortfall.
Mineral sands miner Iluka, meanwhile, has commenced a staged shutdown of parts of its operations in the state due to the interruption to its gas supplies.
And Nickel miner Minara Resources Ltd. (Australia:MRE) (MRE.AU) has advised the market its gas supply has been interrupted.
Also affected were companies with stakes in the upstream gas fields that feed the Varanus Island plant, including Santos Ltd. (Australia:STO) (STO.AU) and Tap Oil Ltd. (Australia:TAP) ( TAP.AU).
Santos said production has been halted at the John Brookes field, in which it has a 45% stake alongside operator Apache with 55%.
The company said its share of production from the field in the first quarter of 2008 had been 1.36 million barrels of oil equivalent.
Tap Oil said gas supply from the Harriet field, in which it has a 12.2% stake, has also been halted.
-By Alex Wilson, Dow Jones Newswires; 61-3-9671-4313; alex.wilson@dowjones.com
(END) Dow Jones Newswires 06-04-08 0401 Copyright (c) 2008 Dow Jones & Company, Inc.
