(Bloomberg) -- Billionaire Andrew Forrest is studying a proposed 1,500-mile (2,400-kilometer) transcontinental natural gas pipeline as part of his iron ore company’s strategy to diversify and to boost Australia’s power supply network.
Fortescue Metals Group Ltd. confirmed it has undertaken work for a duct that would link the gas-rich state of Western Australia with fuel-strapped East Coast power markets where the bulk of the population lives. The project, being considered by the federal government, may cost as much as A$5 billion ($3.9 billion), according to one industry estimate.
“We think we can connect up the biggest gas resources in the world with one of the biggest markets with a pipeline -- and to me that makes absolute sense,” Forrest, chairman and founder of the world’s fourth-largest iron ore exporter, said in a Bloomberg TV interview. If Fortescue can “establish breakthrough pipeline materials, that becomes a really good commercial option,” he said.
Australia, one of the world’s biggest liquefied natural gas and coal players, has come under pressure to ensure sufficient supplies for its East Coast electricity grid amid concerns for the country’s energy security following plant closures and surging LNG exports.
“As a large gas user and infrastructure developer and operator, Fortescue has undertaken high-level conceptual studies of a transcontinental pipeline,” Chief Executive Officer Elizabeth Gaines said in an email Thursday. The company supported the government’s pre-feasibility study for the project, she said.
The study, commissioned by Energy Minister Josh Frydenberg, was due to be completed in March. The minister will provide an update on the project once the report has been made public, a spokesperson said in an email Thursday. The line was first proposed in the 1970s by then-Energy Minister Rex Connor.
Fortescue in January added a search for copper in Colombia and lithium brines in Argentina to its global hunt for mine projects that give it exposure beyond iron ore. Steel production in China will drop each year through to 2023, while iron ore shipments from Australia and Brazil rise before leveling off, Australia’s government forecast this month.
"We’re extremely good at infrastructure and we’re extremely good at operations," Forrest said Wednesday. "Right now, that formula is doing iron ore and doing it extremely well. But I want to take that formula and bring it in to these other industries."
His great, great uncle Sir John Forrest, first premier of the state of Western Australia, was instrumental in the construction of the state’s water pipeline to the goldfields at the turn of the 20th century. “Everyone said that won’t work,” Forrest said. “And they did it with new materials of construction and new techniques of construction, which had never been done and it’s still there today. That was over 120 years ago. ”
Despite government backing, a pipeline may not be economical as there are cheaper supply options available, consultant Wood Mackenzie Ltd. said last year.
Forrest is also backing the construction of an LNG import terminal on Australia’s East Coast by 2020 through his Squadron Energy Ltd. unit. He revealed he first offered the project to Fortescue, which turned it down in order to concentrate on the cross-country gas pipeline project.
“Fortescue said we don’t want to be distracted from that,” Forrest said. “I said I think we need a virtual pipeline in the meantime and they said knock yourself out chairman, but that’s not for us.”
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