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Varanus raises spectre of Longford

As concern grows about the impact of Tuesday's explosion at the Varanus Island gas plant the spectre of the Longford gas explosion in Victoria looms, notably in terms of economic cost.
While the effect of the 1998 Longford disaster was more widespread and deadly - two workers were killed at the Esso site - there are still strong comparisons in the potential for economic disruption from the loss of production from the Varanus field operated by Apache Energy Ltd which supplies about 30 per cent of Western Australia's domestic gas.
It has also again highlighted WA's reliance on gas, as Longford did in the garden state.
Ten years ago, the loss of gas to Victoria's consumers and manufacturers for a staggering 19 days, is conservatively estimated to have cost the state $1.3 billion. The federal government alone lost $300 million in resource taxes and Esso itself ended up paying $32 million in compensation to businesses impacted by the loss of gas supplies.
While WA consumers are being asked to reduce gas usage, there is not the total shut-off that Victorians experienced over a period of almost three weeks which included the AFL grand final, a federal election and forced lay-offs in big industries like car manufacturing.
However, the focused affect on WA industry, particularly in the Pilbara, Goldfields and even southern coastal areas, is marked and could have a major impact on resource sector revenues for both producers and governments.
Mining and processing operations from Newcrest Mining Ltd's Telfer copper and gold project in the Pilbara's remote north to KCGM's Superpit in Kalgoorlie, as well as a host of miners in between, are understood to have had operations interrupted.
There is also the important port town of Esperance which relies on gas from the Goldfields Gas Pipeline.
The impact is not limited to the Goldfields pipeline's market, with Iluka Resources Ltd completing controlled shutdowns of its production plants at its mid-west and south-west mineral sands operations, all of which lie within the South West Interconnected System that supplies most of WA's population with electricity.
Iluka said it had been notified by energy company Alinta that it could not supply normal electricity levels to its operations.
One senior resources industry observer said that the true economic impact of the Longford explosion took some time to become apparent.
"After the explosion there was a lag effect, the real impact was several days after," he said.
DJ Carmichael analyst Paul Adams says mining companies stand to lose hundreds of millions of dollars as a result of the shutdown of the Varanus plant.
Mr Adams warned the shutdown will hit the balance sheets of some of Australia's biggest miners, including BHP Billiton Ltd and Alcoa of Australia Ltd.
At this stage, the Goldfields pipeline's major owner APA Group said it has replaced 90 per cent of gas supplies lost due to the explosion at Varanus, relying on sources via the Dampier to Bunbury Natural Gas Pipeline
"It is a major concern," said Kalgoorlie-Boulder Chamber of Commerce CEO Hugh Gallagher who said the negative impact on minerals production would not just be in shut-downs.
"It is not just the downtime. It is the time it takes to ramp up again to where you were when you lost it."
Mr Gallagher said that doubt about how long the issue would take to be resolved was also creating uncertainty.
While many operations - such as Minara Resources Ltd's Murrin Murrin laterite nickel processing operation - are taking the opportunity to bring forward shut-downs for maintenance others are shifting to diesel, an expensive option at this time.
Mr Gallagher said the problem raised the issue of energy supply and alternatives should gas transmission be cut.
"Politically the situation needs to be encouraged to consider fallbacks," he said.
Gas storage was one obvious contingency.
"Or it could be in the form of agreements with others, at the moment we are totally committed to Apache."
"You don't think about these things until such time as you have to.
"This is about the sustainability of the state."
The WA Chamber of Commerce and Industry has used the moment to renew its call for a state energy policy, noting that the reliance on gas is a significant issue for industry.

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