Here's Why Iron Ore Miner Fortescue Keeps Talking About Gas

Andrew Forrest at the recent opening of the company’s Kings Valley project in WA. Image: Supplied.

Energy costs are one of the biggest miners have to budget for, with the input usually costing more than the labour bill at their operations.

This is one of the reasons why iron ore miner Fortescue Metals Group has recently been talking about the need for speeding up the development of gas projects in northern Australia.

More gas supply should bring down the cost of energy at Twiggy Forrest’s mine sites which at a time when the iron ore price is falling below historical highs, cost savings are important to its margins and shareholders.

Using the US as an example, Fortescue external relations director Tim Langmead said at the Northern Development summit in Queensland that low cost energy can be delivered by building a stronger gas sector.

“Competitively-priced gas has led to dramatically cheaper energy which has reduced input costs,” he said.

And while the miner says low-cost energy will help the country’s agriculture sector by enabling the production of cheaper fertilisers, it is also backing a “use it or lose it” policy for gas development.

Fortescue said this strategy should speed up the development of reserves and up gas supply levels.

This chart from the miner shows the types of energy it uses at its operations and outside of diesel, gas is a big share. It is forecasting its FY 2015 energy costs to exceed $US800 million.

Image: Fortescue.

Australia’s Bureau of Resources Energy and Economics predicts the gas sector will be the driver of the country’s resources and energy export earnings over the next few years with new projects including Queensland’s Curtis LNG operation expected to come online in December adding 8.5 million tonnes a year to export and both the Gladstone and Gorgon LNG operations expected to ramp up by the 2015 June quarter, adding another 24.3 million tonnes a year when fully operational.

“These three projects represent the first stages of a significant expansion which is forecast to increase Australian gas production to 68.4 billion cubic metres in 2014–15,” the bureau said in its June report.

“Total export volumes for 2013–14 are estimated to be relatively flat at 23.8 million tonnes (compared with 23.9 million tonnes in 2012–13).”

Recently company CEO Nev Power said gas was a fuel which could lower its energy costs as it had the potential to be used for power generation at its Pilbara mines and to drive its heavy vehicle fleet.

Because of this it’s constructing the Fortescue River gas pipeline, expected to be completed by 2015. It will deliver gas to its Solomon Hub and has flagged the future development of a pipeline extension to its Chichester Hub and Iron Bridge operations.

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