Efforts to cut costs are spurring a shift toward gas amongst iron ore miners operating in the mineral-rich Pilbara, as well as an attendant expansion in the network of pipelines needed for its delivery.
Fortescue Metals chief Nev Power has said the iron ore miner intends to avail itself of the “phenomenal advantage” provided by Western Australia’s abundant gas reserves in order to cut energy costs.
Power has described energy as a “major cost” for Fortescue, estimated to be in excess of US$800 million for the current financial year. The vast majority of Fortescue’s energy needs in the Pilbara are currently met by means of diesel fuel.
Power has flagged the potential “gasification” of Fortescue’s operations in the Pilbara, including its fleet of heavy duty haulage trucks.
This slated transition is in turn providing lucrative opportunities to fuel suppliers and developer-operators of energy infrastructure, such as Sydney-listed DUET Group – owner of the 1,500-kilometre Dampier to Bunbury Natural Gas Pipeline.
In order to facilitate the shift toward natural gas, Fortescue Metals Group has executed an initial 20-year 100 per cent take-or-pay gas transportation contract with a joint venture established between DUET and Canadian power company TransAlta.
The deal entails the construction of the Fortescue River Gas Pipeline, a 16-inch gas line extending 270 kilometres from the Solomon Hub to the main Dampier-Bunbury line on the western edge of the state.
According to Power, the pipeline will be a “significant step in the gasification of the East Pilbara to the lasting benefit of the state of Western Australia.”
“Fortescue has committed to the gas pipeline, to converting the Solomon power station from diesel to gas and to a 25-year agreement underpinning a gas power station at Port Hedland to supply our operations there,” he said.
The $178 million pipeline will be the longest built in the state in a decade, funnelling gas from the Dampier-Bunbury line to the 125-megawatt power station at the Solomon Hub, where Fortescue’s Firetail mine and Kings mine are located.
Monadelphous Group is building the pipeline, with work scheduled for completion by the year’s end and operation set to commence in early 2015.
The switch from diesel to gas permitted by the pipeline is expected to save Fortescue $20 million a year, as well as significantly reduce carbon emissions.
DUET holds an 80 per cent stake the Dampier-Bunbury Natural Gas Pipeline via wholly-owned subsidiary DBP. The pipeline, whose total running distance of nearly 1,600 kilometres makes it longer than the state of California, is considered to be most critical item of energy infrastructure in Western Australia.
DBP chief executive Stuart Johnston has hailed the Fortescue River Pipeline as “a really good example of how energy infrastructure can solve a problem by providing a cleaner and cheaper source of energy in the short term by enabling gas to replace diesel for power generation.”
The deal is the second new pipeline project undertaken by DBP in the north of the state, following a deal inked with Chevron in 2012 to connect the Wheatstone LNG project’s domestic gas plant to existing networks.