Gas prices may force Rio to cut back power generation

RIO Tinto could cut electricity production from its Gladstone gas-fired power plant next year because of a lack of competitively priced gas as $70 billion of liquefied natural gas projects gets ready to start up in the city.

The Australian reports the scenario would see more electricity in Queensland revert to coal-fired power and, if what Rio says is a lack of gas availability continues, an erosion of the long-term viability of Rio's Yarwun alumina plant.

The potential reduction of gas-fired power that Rio puts into the grid from Yarwun comes after Queensland's largest power generator, Stanwell, last month said it would mothball its biggest gas-fired power station, near Ipswich, because of high gas prices and instead resurrect a coal unit.

In a submission to the federal government, Rio's aluminium unit said the Queensland gas market had become illiquid and government intervention might be warranted to stave off energy shocks.

"We continue to experience a domestic gas market lacking traditional liquidity and efficiency," Rio's head of aluminium business development, Paul Arnold, said in the submission to the eastern Australian domestic gas market study.

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Head of Rio's bauxite and alumina, Pat Fiore, in December said there was concern there would be no gas available to run its Yarwun alumina plant at Gladstone once current contracts ended.

"Right now we're struggling to attract anyone to the table to negotiate," Mr Fiore said.

"We're not asking for preferential prices or that sort of thing, we're just asking for there to be a market in eastern Australia."

The $70 billion worth of LNG plants being built on Curtis Island are expected to create a gas shortage and increase prices as Australian buyers are forced to compete with their Asian neighbours willing to pay higher prices.

Manufacturing Australia has claimed that the tripling of gas exports by 2017 will cause price spikes and shortages that could cost 200,000 jobs and reduce GDP by $28 billion a year.

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