18/06/2008 - 22:00

Life’s not a gas, but it could be worse

18/06/2008 - 22:00


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In the past two weeks we've heard a range of views about whose fault this drama is and what we should do. Some of it sensible, a lot of it garbage.

Life’s not a gas, but it could be worse

It's time for a few words from me on the gas crisis.

In the past two weeks we've heard a range of views about whose fault this drama is and what we should do. Some of it sensible, a lot of it garbage.

Firstly, let's consider the scale of this issue.

While undoubtedly it will affect the lives of many Western Australians, we should not forget that, as catastrophes go, this is at the lower end of the scale.

No lives lost, no cities left in ruins, no freezing temperatures to threaten the weak and elderly.

At worst, companies and governments will fail to make the best of a very profitable time. Some people may lose their current livelihoods. That is unfortunate; governments will need to learn from this to reduce the chances of it happening again.

Despite all the job-hopping of recent years, many people like where they work and may be forced to seek alternative employment when they don't want to.

However, it is worth putting this in context. Such disruption to individual lives is occurring in a boom when many other jobs are available and in a state where social security will ensure that their landing is soft.

Earthquake victims in China don't necessarily have all these luxuries.

As for industry, what has been most apparent is how the big players have kept their heads down and sought solutions. While such an issue is a real test of the government's ability to handle a crisis, bleating and carping doesn't necessarily help.

That background noise did eventually come. I note it appeared to be the small retailers and publicans - two of the state's most protected species - who started to whinge about shoppers being in the dark and a lack of gas for a cold beer.

It's remarkable that those industries, who spend so much time and energy lobbying to ensure their profits are protected through regulation, should be the first to complain when faced by a threat that the government can't legislate against.

What's that expression...when the going gets tough...?

One of the biggest questions to arise from this issue is that concerning energy security.

Again, the commentary on this is varied, from the considered to the banal.

In one coffee shop conversation I overheard this week, one gent suggested that, because the Singaporeans now owned Alinta, they should be made to send us some of their gas. This is from someone who probably still wakes up to a warm house and cooks his eggs on a gas oven.

Still, not all suggestions are xenophobic over-reactions.

Calls to commandeer LNG ships and drive them south reflect plain ignorance about the technicalities of gas transportation.

Most of the sensible suggestions, naturally, look to the future and how we can reduce the likelihood of such an event occurring again.

Increasing the diversity of production and supply is clearly a good start. The rising cost of domestic gas ought to help this.

Just delving into some of the economics of Varanus, via junior partner Tap Oil Ltd's accounts, it appears as if gas from the island was being sold at prices that have been left well behind in the global rush for energy.

While these contracts were locked in and provided cheap power for local users, one wonders how the sellers' margins were being eroded by the rising cost pressures that have beset all industry, and what operational impact that could have had?

For its part, Varanus operator Apache Energy says it has a strong safety record.

No doubt there'll be an investigation into the cause of the issue when supplies are back up and running.

A royal commission into the huge 1998 Longford gas disaster in Victoria, which shut down gas supplies to that state for three weeks, found the operator Esso had poor training and operating procedures.

It had also erred in centralising key staff away from its relatively remote Longford facility.

Longford cost Esso hundreds of millions of dollars in lost revenue and compensation. It's a high price to pay for shirking on good management.

With prices rising to around $8 per gigajoule - outside the existing crisis prices - and climbing quickly, there ought to be more commercial opportunities for domestic gas supplies, including the possibility of a long-talked-about second pipeline.

Piping is clearly the most cost-effective method of gas transportation.What about linking our existing pipelines as a loop across the state's south?

Of course, I'm not entirely sure a parallel pipeline using many of the same feed supplies will make the state that much less vulnerable to a crisis.

While people have been wrong to suggest LNG ships be diverted here in the current crisis, perhaps such a long-term plan is not that stupid.

The big issue is that of a gas receival point in the south of the state, presumably Fremantle or Kwinana, which would cost hundreds of millions at the very least, depending on its sophistication.

Having this sitting redundant, waiting for a crisis, would be ridiculous, but given gas was already in short supply before the Varanus explosion, maybe there is an opportunity for a commercial solution

The North West Shelf already ships between 2 and 4 per cent of its gas onto the spot market, so not all production is locked in to Asian contracts. Depending on the compatibility of the LNG gas with the piped gas (and the cost differential), if a southern receival point were built, maybe local gas buyers could buy this type of gas, encouraging development of a southern trade route and adding to supplies available from the current piped system.

It would also mean that, in times of crisis, LNG from other regions would be available as an emergency supply.

Spreading the load is vital to help improve security of supply, but its worth noting that even little shocks can have an impact.

In Auckland in 1998, the same year as Longford, the New Zealand business capital's CBD was shut down when the four biggest of its five electricity feeder lines inexplicably failed. In that case, diversity (to be fair, the lines were all run by the same company) didn't work.

While WA businesses are concerned that the current gas outage may affect their opportunity to maximise profits in a boom, spare a thought for New Zealanders a decade ago. Their business capital was shut down when the nation was reeling from the Asian financial crisis and a drought.

Auckland, Longford and Varanus show many places are vulnerable to this issue. However, looking on the bright side, I'd rather be stuck in a boomtown Perth winter without gas than almost anywhere else - if it actually comes to that.


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