25/06/2008 - 22:00

Flow-on effects emerge from gas crisis

25/06/2008 - 22:00


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The true impact of the Varanus Island incident is starting to emerge as the depth and length of the resulting crisis become clearer to business and the government.

Flow-on effects emerge from gas crisis

The true impact of the Varanus Island incident is starting to emerge as the depth and length of the resulting crisis become clearer to business and the government.

With the crisis costing hundreds of millions of dollars a week, the fact that significant increases in gas production and the emergency coal-fired energy won't be available until August means that the 'b' word - billions - has become a plural.

That means Varanus will eclipse the three-week Longford disaster in Victoria which ultimately cost the state about $1.3 billion in 1998.

The huge cost is already occupying the minds of professional services firms in Perth, including those advising on insurance matters.

Deloitte forensic and dispute services group director Hugo Loneragan had experience in the wake of Longford and said it was clear from his preliminary work in WA in the past fortnight that many companies had not learned from that event.

"The lesson that has not been learned is in practices up the supply chain," Mr Loneragan said.

"We think business is so focused on increasing efficiency that they have not heeded the risks of relying entirely on one supplier."

"We have seen that approach reflected in their insurance policies, a lot of businesses have not insured their supply chain as best they can."

Mr Loneragan said that the issue was not just about gas supply, but also those downstream who relied heavily on one input which had been affected by the crisis.

Mr Loneragan said that the issues in Western Australia's crisis were more complex due to the partial loss of gas supplies - rather than the total shut-down in Victoria - and he anticipated significant legal wrangling from the problem.

But insurance is only one part of the complexity of the issue.

Prime Laundry and Drycleaning - which employs 100 staff and cleans the linen for 85 per cent of hotels in Perth and the South West - is a good example of the cascading impact of the gas crisis.

Belmont-based Prime fears that irregular gas supplies will impact on the hotel sector, which is very dependent on its operations.

"They will find out how we affect the economy if we shut down the hotels," general manager Robert Dube said.

Mr Dube has taken issue with the government's handling of gas rationing, believing that other smaller businesses in his sector have not been rationed at all, creating the notion of unfairness.

As the biggest in the business, Mr Dube believes his operation is actually the most efficient when running smoothly. But, under current conditions, it is wasteful to spend three hours heating up boilers that have been allowed to cool off on a day's shut down.

Prime's daily consumption is 1,000 gigjoules, but the best allocation he claims to have had is below 400Gj in any one day during the crisis.

Mr Dube said gas was maintained when a big tourism conference was on but has been more difficult to obtain since then.

Most observers believe the next two weeks are critical in the evolution of the crisis, with coal-fired power from plants either mothballed or undergoing maintenance set to take up some of the slack from lost gas.

The explosion at the Apache Energy operation on Varanus Island, following what was believed to be a rupture in a pipeline, cut about 350 terajoules per day of gas from the domestic market - approximately 30 per cent of local supplies.

Since then, the North West Shelf has managed to increased production for domestic consumption by as much as 100Tj, though this is averaging below that.

State-owned Verve Energy is fast-tracking maintenance on some power plant and recommissioning several recently closed generators in a bid to boost power supplies in the South West Interconnected System.

Many operators are using diesel where possible to drive energy generation, though it is expensive and cumbersome, especially in outback regions.

Some diesel cargoes have been redirected to WA to meet the increased demand.


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