Wesfarmers has joined the list of victims of Western Australia’s gas supply crisis.
The company told the ASX yesterday that the cost could be $20 million a month off pre-tax earnings for as long as the supply problems last.
The news saw investors give the company a touch up and sold off the shares by around 3.5%, or $1.36 to $37.40.
It joins the likes of Babcock and Brown Power, Fonterra, BHP, Newcrest, Alcoa and Minara Resources in experiencing some financial impact from the gas supply problems that followed the Varanus Island blast at the start of the month.
That June 3 pipeline explosion has cut 30% of the state’s natural-gas supplies. Brokers, Southern Cross Equities said Tuesday that the crisis could knock earnings at mining companies such as BHP Billiton and Newcrest Mining by a combined $500 million this year.
Newcrest, Minara and Alumina are among companies that have reduced output or profit estimates after the explosion at the Apache Corp plant.
Full production won’t be restored until December, boosting power costs for mining companies.
The WA Chamber of Commerce says the gas shortage and associated problems may cost the Western Australian economy billions of dollars over the rest of 2008 and into early 2009.
Wesfarmers is the first company to put a dollar figure on its possible losses and says some of the loss will be recovered from insurance.
The company made no mention of any impact on its Coles group outlets and Bunnings stores in WA.
CEO, Richard Goyder said in the statement to the ASX:
"There are a number of impacts on our profits. At this stage, our best estimate is that the pre-tax impact on Group profit will be up to $20 million per month at the current level of gas supply. A portion of that loss is expected to be recovered from insurance. "
The company detailed the impact, which is quite widespread, but of a minor nature in some businesses (say insurance) but significant in fertilisers.
Wesfarmers says it has brought forward maintenance work, halted carbon dioxide production and will import one shipment at least of ammonia to maintain supplies to customers.
Apache, owner of the pipeline, expects to resume about 57% of supplies by mid-August while full production won’t be possible until December.
"We have not had to stand down employees, however we will continue to monitor the situation by business, particularly if shutdowns are protracted," chief executive Richard Goyder said in the statement. "Where possible we are bringing forward maintenance activities and undertaking employee training."
Wesfarmers, which had pretax earnings of $1.1 billion in the 12 months ended June 2007, gets about 6.1% of sales from chemicals and fertilizers.
Mr Goyder said "The gas shortage has most impact on our Chemicals & Fertilisers division and our Energy division".
(CSBP’s Kwinana operations are supplied gas by Apache and Alinta. Natural gas is a feedstock in the production of ammonia and sodium cyanide).
"Since the gas supply disruption, CSBP has suspended ammonia and sodium cyanide production. CSBP has secured an ammonia shipment of approximately 23,000 tonnes arriving late in June, which will allow CSBP to continue to supply its ammonia customers and to continue manufacturing ammonium nitrate and Flexi-N fertiliser through to the end of July.
"With the 23,000 tonne ammonia importation, CSBP should be able to produce sufficient ammonium nitrate for the mining sector throughout July and into early August. Should more ammonia be required, CSBP will move to secure additional imported product.
"Based on existing stock and current consumption levels, CSBP should have sufficient sodium cyanide stock to supply customers for several weeks. We remain hopeful that sufficient gas will become available in the next couple of weeks to enable production of sodium cyanide for the domestic market.
"Commissioning of the new ammonium nitrate prill plant at Kwinana continues despite the gas shortage and it’s expected that we’ll commence manufacturing product from this plant within the next week or so. Both the new nitric acid and ammonium nitrate plants were commissioned some months ago and have run well since then.
"A small amount of gas is being provided by Alinta to operate the fertiliser granulating plant. The supply of this gas is inconsistent as it is based on the gas allocation advised on a daily basis by Alinta. Impact on fertiliser manufacture has been minimal to date and CSBP has sufficient stock to meet existing fertiliser sales agreement customer commitments.
"Production of carbon dioxide, which is a by-product of ammonia production, has ceased and is affecting supply to downstream industries. Maintenance work has been brought forward and staff training is being undertaken at CSBP.
"In the Energy division, the Kwinana LPG extraction plant is operating at much lower output with one train shut down due to reduced gas flows and loss of high LPG content gas from Apache. Wesfarmers LPG may import product to ensure ongoing LPG supplies to domestic markets. Kleenheat Gas has access to sufficient stocks to last for several weeks and thereafter expects to access imported product to support local supply.
"Commissioning of the $138 million, 175 tonne per day Kwinana LNG plant, together with distribution and storage equipment, has been delayed. enGen has demobilized teams from two sites scheduled to use LNG and at other gas-fired power stations has increased the use of diesel generation where available.
"Air Liquide WA has extremely limited availability of carbon dioxide du
