Australia's Red Gully Gas Plant Encounters Supply Delays

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Researched by Industrial Info Resources (Perth, Australia)--The Red Gully Gas Plant, near the Western Australian town of Gingin, is already facing delays after recently commencing operations. Due to a lack of storage space, production was limited until a backlog of more than 3,000 barrels of condensate was moved from the site.

The plant, owned by Empire Oil & Gas (ASX:EGO) (Perth, Western Australia), has a maximum capacity of 10 terajoules per day (9.5 million metric standard cubic feet per day), but has been designed to accommodate an expansion to 20 million metric standard cubic feet per day as demand increases. Gas produced at Red Gully is being sourced from two wells, Red Gully-1 and Gingin West-1.

Under a sales agreement made in October 2012, all gas produced at the Red Gully facility is to be sold to Alcoa Australia (ASX:AAI), a division of Alcoa Incorporated (NYSE:AA) (Pittsburgh, Pennsylvania). Over the course of the agreement, 15,000 terajoules of gas will be sold to Alcoa, which also has funded the majority of the project, providing $22.7 million (AUD$25 million) of the $26.5 million (AUD$29.1 million) required.

The condensate is intended to be transported by road tanker more than 60 miles (100 kilometres) to the BP plc (NYSE:BP) (London) refinery in Kwinana. It is this agreement that was delaying the plant from ramping up to full production. BP said that it could not accept the condensate until Empire met its stringent safety guidelines at the Kwinana Refinery. Empire insisted that its testing of the current condensate production showed that it is within contractual specifications and, therefore, anticipates no further issues.

As a result of these delays, Empire was unable to meet its supply obligations to Alcoa. The Red Gully gas is to supply the Dampier Bunbury Natural Gas Pipeline (DBNGP), to which the Alcoa plant is already connected. However, until the excess condensate was moved from the site, Empire could not produce the gas. As a result, Empire and Alcoa agreed to extend the delivery start date until July 15.

This delay was another blow to the aluminium refiner, which says that rising energy costs and falling commodity prices are reducing the viability of its Australian operations. Alcoa invested in the Red Gully plant as a way of sourcing a secure and cheaper source of energy.

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