BHP Billiton warns for crisis in power market

//BHP Billiton warns for crisis in power market

BHP Billiton warns for crisis in power market

3 March, 2017

Matt Chambers

Courtesy of Australian

BHP Billiton is facing a more than doubling of east cost power prices because of the dwindling effectiveness of the National Electricity Market and rising gas prices.

The mining giant has called for government subsidies to increase South Australia’s power supply reliability and prevent costly outages like the one that wiped $US105 million off the big miner’s first-half profit.

The call, made in a submission to Chief Scientist Alan Finkel’s review of future security of the NEM, came with the revelation that BHP’s power bill at the Olympic Dam copper and uranium mine in South Australia is expected to rise by $US30m ($39m) this year because of higher gas ­prices and the cost of contracts that offset the risks of power price spikes.

“It is the combination of underlying gas price increases and the overall mix of generation capacity in South Australia and the intermittency that comes with that,” BHP’s head of Australian mining, Mike Henry, told The Australian.

At BHP’s eastern Australian assets overall, prices are expected to increase by 150 per cent between 2015 and 2017.

This comprises a 42 per cent rise last year to be added to by an expected 78 per cent gain this year.

“Such increases challenge our ability to operate in globally competitive assets, particularly given that Australia is already one of the higher-cost mining jurisdictions in the world,” BHP says in the submission.

In its first-half profit report last month, BHP revealed the 14-day outage at Olympic Dam, sparked by a statewide blackout in September, cost it $US105m.

Business SA now estimates the total cost of the outage was $450m, up from a previous estimate of $367m. This is based on BHP’s estimate and recent conversations with other big industrial users hit by the September 28 outage, such as Nyrstar’s Port Pirie lead ­smelter, the Whyalla steelworks and OZ Minerals’ Prominent Hill mine.

BHP said supply disruption could have a bigger cost impact than power price increases, meaning it needed to be dealt with swiftly.

“The first priority should be stabilising the market in South Australia to manage the high levels of intermittent generation within the state portion of the ­National Electricity Market,” BHP says in its submission.

“We believe this can be most effectively achieved in the short to medium term by incentivising one or more generators to provide baseload generation when required, at least until longer-term solutions are in place.”

BHP has not been specific, but the most likely option would be to make sure Engie was compensated for keeping its Pelican Point power station, where one of two units has been mothballed since 2015, up and running. BHP did not say whether this should be something the federal or state government should fund.

In the longer term, BHP has called for an end to state-based renewable targets and for a carbon price to provide a technology-neutral approach to climate change, ­establishing security requirements in the NEM.

Last month, BHP chief Andrew Mackenzie said the company would not look at a planned expansion of Olympic Dam — which it was now studying — without reliable and affordable power. He also said renewable targets were unlikely to work.

“Let’s talk about affordability, reliability and emissions reduction, as opposed to having some secondary target about just having more renewables, which might deny you all three,” Mr Mackenzie said. BHP is South Australia’s biggest power user but uses more power in its Queensland coking coal mines, chiefly because of its electric “draglines” — the huge loaders that move coal and earth.

Mr Henry said BHP had not yet been experiencing problems in Queensland, despite Rio Tinto’s Boyne smelter in January cutting jobs and production because of high power prices. “You’ve got the Queensland government talking about pretty significant renewable energy targets,” Mr Henry said.

“As those get deployed, you could then find yourself in a similar situation.”

While BHP has been hit to some extent by higher east coast gas prices, it is also a beneficiary, thanks to its 50 per cent interest in the ExxonMobil-run Gippsland Basin joint venture in Bass Strait.

BHP has called for more transparency in domestic gas markets and an end to state-based restrictions on onshore gas exploration and production.

But it says gas reservation is not the answer.

“Australian governments should ensure that policy and regulatory settings support open and transparent gas markets, and avoid interventions that impeded access to supply (such as moratoria and prohibitions on onshore gas development) and dull incentives for innovation and investment (for example, gas reservation policies),” BHP says in its submission.

2017-03-03T10:27:19+11:00 March 3rd, 2017|