Longford gas plant blast effects still felt

The aftermath of Victoria's 3-week gas supply crisis resulting from the explosion and fire at the Longford gas plant continues to dominate Australian petroleum news, as a royal commission set up to investigate the Sept. 25 incident gets under way.

While Victoria's business sector continues to get a handle on the scope of losses related to the accident, its effects continue to ripple through the state's gas industry. Privatization of Victoria's gas sector is being accelerated in response to the incident.

At the same time, new options for oil and gas development are being mulled, even as Bass Strait production is restored after being offline for more than 2 months as a result of the Longford plant outage (OGJ, Oct. 5, 1998, p. 38).

Losses tallied

A survey conducted by the Victorian Employers Chamber of Commerce & Industry (Vecci) found that Victorian businesses lost $1.3 billion (Australian) during the crisis and that the state's export earnings had been slashed by as much as $200 million.

About 89,000 businesses state- wide-a third of all those surveyed-were affected by the gas disruption. Vecci says that 37% of businesses were covered by business-interruption insurance.

The Insurance Council of Australia says that claims for losses suffered during the 3-week period are expected to reach $150 million. Most of the claims will be for loss of profit and are expected to be made in June 1999, when companies close their books at the end of the 1998-99 fiscal year.

The preliminary hearing of the royal commission, before Commissioner Daryl Dawson, was told that $2 million has been set aside for the inquiry, which is directed to finish hearings by Feb. 15, 1999.

Privatization plans

The Victorian government has also reacted swiftly to the incident by moving on its plans to privatize the state's gas distribution network.

Three gas distribution/retail companies and the long-distance gas pipeline transportation business have been put up for tender and are expected to be sold in the next 6 months. The sale is expected to raise $4 billion.

Victoria Premier Jeff Kennett said the Longford incident and subsequent disruption to supplies reinforce the need for competition. He said that private ownership of Victoria's gas infrastructure is the only way to encourage exploration and development of alternative sources of gas supply beyond those from the Esso Australia Ltd./BHP Petroleum Pty. Ltd. operations in Bass Strait, which have supplied about 98% of the state's gas since the fields came on stream in the late 1960s.

Consequently, the already incorporated gas distributor/retailers-Kin- etik-Westar, Ikon-Multinet, and Energy21-Stratus-as well as the pipeline entity Transmission Pipelines Australia, will be sold in a staggered process. The first business, Kinetik-Westar, will be sold by the end of January and the last by the end of May 1999.

All four gas businesses were formed from the breakup of the former state-owned Gas & Fuel Corp. in 1997.

Production restarts

Esso/BHP's crude oil production from Bass Strait fields has finally recommenced, with liquids now being processed at the Longford crude oil stabilization plant.

The fields have been off line since the serious fire at the Longford processing facility, which also resulted in a 3-week shutdown of Victoria's natural gas supplies.

It is expected that normal production rates of 200,000 b/d will be achieved by yearend as additional processing facilities are recommissioned.

Gas production recommenced from Gas Plants 2 and 3 in October via a new pipeline that bypassed the damaged Gas Plant 1. Restoration work is continuing on the gas facilities to return gas production capacity to normal levels.

New development

In a related move, pressure has been applied for development of a new Esso/BHP-operated gas field in Bass Strait following a reported increase in proven reserves.

Australian Worldwide Exploration NL (AWE), which holds a 10% interest in the offshore Kipper field on the eastern side of the Gippsland basin, said late last month that its estimate of Kipper gas reserves has increased by 22% to 889 bcf.

Esso/BHP has so far resisted development on the grounds that the field does not have commercial quantities of gas. However AWE Chairman Bruce McKay told his company's annual general meeting that the Kipper field is now clearly economic at existing gas prices and that the reserves increase, combined with gas in the nearby (undeveloped) Manta and Gummy fields, makes development even more attractive.

"While the other joint venturers (Shell Australia Ltd., News Corp., Gulf Canada Resources Ltd., and Petroz NL) share AWE's view that Kipper should be developed expeditiously, unfortunatel, Esso and BHP appear reluctant to pursue the necessary appraisal and development activities with sufficient vigor," McKay told shareholders.

He added that, if Esso and BHP (each of which hold 25% Kipper field) are not prepared to proceed with the early development of the field, the opportunity should be made available for others to do so.

Based on the new reserves calculations, Kipper would have the capacity to supply up to about 46.5 bcf/year of gas for 15 years, which is close to 25% of Victoria's demand.

AWE and the other minority interest-holders envision development via a new offshore pipeline from the field to a new processing plant at Orbost, about 200 km further east from the existing Longford gas plant, plus an onshore link to the Victorian gas trunkline. Costs are estimated at $600 million (Australian).

Security of supply issues

Kipper development would create an alternative supplier to the Victorian gas market, which would displace an equivalent amount of gas from Esso/ BHP's Longford-based production.

In turn, that gas would be available for sale to other markets, including BHP's proposed pipeline from Bass Strait to Sydney.

Strategically, Kipper development would deal with the security of supply issues highlighted by the Longford incident by creating a completely separate production, processing, and pipeline infrastructure. If the development went ahead soon, it could be on stream by 2002.

The statement about Kipper from AWE has apparently been prompted by Esso/BHP's recent reapplication for a retention lease over the field that contains a minimal work program for the next 5 years. AWE and the other joint venturers want to see development sooner rather than later and, by drawing public attention to an internal debate, they hope to influence the federal and Victorian governments' decision about the granting of a new retention lease over the field area.

Aeromagnetic survey

One further note of interest concerning Bass Strait reserves comes from the federal government-run Australian Geological Survey Organisation (AGSO), which is to run a new airborne survey over the region.

In conjunction with the Victorian government's Department of Natural Resources and Environment, AGSO is aiming to complete a 40,000 sq km aeromagnetic survey over the whole Gippsland basin (onshore and offshore) during the next 6 months. The aircraft will be based at Sale airport.

The idea is to gain an appreciation of the structure of the entire basin-particularly the structure of basement rocks. The information will be an important tool for indicating areas with potential for new oil and gas targets. Much of the remaining potential for exploration in the basin is believed to be in waters as deep as 2,500 m.

The survey will include use of a cesium magnetometer that measures variations in the Earth's magnetic field every 7 m. For the onshore parts of the basin, there will be a gamma-ray spectrometer that records variations in the natural radiation from the ground.