FMG plans gas pipeline to cut costs

Fortescue Metals Group wants to build a gas pipeline linking its Solomon and Chichester iron ore mines as part of a long-term strategy to lower Pilbara operating costs.

It would mark the first substantial gas pipeline to be built by the mining industry in WA since WMC, the then-BHP and Normandy Mining joined forces to underwrite the 1380km long Goldfields Gas Pipeline two decades ago. Having achieved their aim of securing a gas supply for their mine sites, the companies then sold their pipeline stakes to utilities.

Fortescue has given its project the working title Pilbara Gas Pipeline, in a nod to the GGP, and is undertaking early-stage studies into building a link from Port Hedland (where the gas would enter the line) to its Solomon mine hub.

Fortescue is also looking at extending the pipeline to its yet-to-be constructed 30 million tonne a year Nyidinghu mine, which will have its own gas-fired power station, and in the process also supply the nearby Cloudbreak and Christmas Creek mines, which make up the Chichester hub.

Fortescue's pipeline proposal could further threaten the decades-old East Pilbara Link, a $1 billion Government proposal to fill in the gaps in the region's electricity distribution network to create a modern and cost efficient system.

The timing of Fortescue's pipeline and its likely cost - estimated to be in the hundreds of millions - remain unclear, as does the proposed corridor. It could make sense to lay the pipeline parallel to the company's Port Hedland-Chichester-Solomon rail network.

Given Fortescue is focused on reducing its big debt burden and has been offloading non-core assets, a pipeline push in the short term appears unlikely unless it can secure a third party, such as a utility or pipeline operator, to fund and develop the network based on long-term gas offtake contracts.

Last year, TransAlta paid $US300 million for Fortescue's under- construction 125 megawatt dual-fuel power station at Solomon, suggesting the Canadian utility could play a role in the pipeline plan.

APA Group, which owns the GGP and the 219km Pilbara Energy Pipeline which links the North West Shelf gas plant with Port Hedland, is another likely player.

Fortescue yesterday confirmed its pipeline plans but would not elaborate. "Fortescue is pursuing options to run a gas pipeline to the company's Solomon mine and eventually other mine sites in the Pilbara," a spokeswoman said.

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