Fortescue switching from diesel to gas power generation

Fortescue Metals Group has signed a 20-year gas transportation deal which will underwrite a new $178m gas pipeline to the company’s Solomon hub power station. The iron ore miner expects the switch from diesel to gas static power generation to save it $20m per annum.

A joint venture of pipeline developer DUET Group (57%) and power generator TransAlta (43%) have signed the 100% take-or-pay gas transport contract with Fortescue. The joint venture will build, own and operate the natural gas pipeline.

The contract involves construction of a new 270km, 16 inch pipeline connecting the existing Dampier to Bunbury natural gas pipeline to TransAlta’s 125MW power station at the Solomon Hub iron ore operation. The latter facility will be converted from diesel to gas operation.

Fortescue says that the new gas pipeline is part of a broader strategy to reduce its energy costs and carbon emissions. It will be constructed by late 2014 and commence operation in 2015.

Fortescue anticipates that the new pipeline will spur further growth across the Pilbara with pipeline extensions and expansions possible.

Engineering firm Monadelphous will construct the new pipeline in a contract worth $100m. Monadelphous will build the new pipeline from Compressor Station 1 on the Dampier to Bunbury natural gas pipeline to the Solomon Hub.

The AFR cited figures by Bell Potter stating that Fortescue will burn 800 million litres of diesel per annum when it reaches target production.

As an incentive to switch from diesel to gas, WA domestic gas prices are low at $6 to $7 per gigajoule. Bell Potter said that a deal with a power contractor at even $10 per GJ would be an attractive deal for Fortescue.

Source from here