Fortescue Metals Proposes New Gas Pipeline in Western Australia

Researched by Industrial Info Resources (Perth, Australia)--Fortescue Metals Group Limited (ASX:FMG) (East Perth, Australia) announced that it is considering plans to construct a grassroot natural gas pipeline, tentatively named the "Pilbara Gas Pipeline," through the Pilbara Region of Western Australia to supply the energy needs of its mining operations at the Solomon Hub.

Located in the middle of Fortescue's 34,000-square-mile (87,000-square-kilometre) Pilbara tenement area, the Solomon Hub is one of Fortescue's major projects. It has almost twice the resources and less than half the strip-ratio of the nearby Chichester Hub, which, along with its flagship Cloudbreak Mine, accounts for the majority of Fortescue's current production.

If the proposed pipeline goes ahead, it would be the first major gas pipeline built by the Western Australian mining industry since the 860-mile (1,380-kilometre) Goldfields Gas Pipeline more than 20 years ago. The Goldfields Gas Pipeline was funded by a number of Australian mining companies operating at the time near Kalgoorlie, in the Goldfields region of Western Australia.

As Fortescue is focused on reducing its debt and has been offloading non-core assets, it is unlikely that the company will internally fund the construction of a long-distance pipeline that is estimated to cost $180 million (AUD$ 200 million). Industry commentators have suggested that Fortescue may look to an established pipeline operator to develop the pipeline in return for signing long-term supply gas purchase contracts.

APA Group Limited (ASX:APA) (Sydney, Australia) appears to be the likely choice for such a deal. APA is Australia's largest pipeline company and already owns the Goldfields Gas Pipeline, as well as the nearby 136 mile (219 kilometre) Pilbara Energy Pipeline, which links the Northwest Shelf gas plant with Port Hedland.

Another option could be Canadian company TransAlta Corporation (NYSE:TAC) (Calgary, Alberta), which recently purchased Fortescues' 125-megawatt (MW), dual-fuel power station at Solomon Hub for $300 million (AUD$330 million) while the project was still under construction.

The new Pilbara Gas Pipeline project has only just been announced and is still in the very early stages of development. The route of the proposed pipeline has not yet been established, but it likely will parallel Fortescue's Port Hedland-Chichester-Solomon rail line.

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