Shell-shocked

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The fact that one explosion at a remote gas plant in WA can rock the foundations of our economy holds some deep lessons for us all, writes Todd Davies.

Before June this year I’d never heard of Varanus. I didn’t immediately understand why people were complaining about dirty sheets in WA hotels. I was told that the laundry industry in WA was on energy rations and clean sheets were one of the first things to go. This was my introduction to a much bigger story about risk and resilience at a state-wide level.

Varanus is a small island off the north-west coast of Western Australia. It is a key hub for gas production for the state. On 3 June, 2008 an explosion at Varanus interrupted gas supply from the Varanus site. On 6 June Apache Energy released a statement to say that “partial restoration of gas supply is likely to take a couple of months”.

In the following days it became apparent that 30 per cent of the state’s energy needs are supplied from Varanus. The WA Chamber of Commerce announces that 10 per cent of small businesses are at risk of going broke due to disrupted supply.

Alan Carpenter, WA’s Premier, makes an unprecedented plea for the public to conserve energy to keep the state’s economy going. Prime Minister Kevin Rudd advises that the impacts of Varanus will have knock-on effects for the entire economy. Futures traders reprice the chances of an interest rate rise and the Aussie dollar dips.

Meanwhile, Perth is on energy rations. Businesses are told at 5.30 each evening how much energy they are allowed to use the following day. Casual staff are being placed on standby and asked not to come in. Large mineral processing plants – the powerhouse for the national economy – have been shut down. Policymakers and energy suppliers are now worried about the summer months. Will full supply be restored before people crank up their air conditioners to beat the heat? It doesn’t seem likely.

The blame game begins. Negligence claims are likely. Frank discussion is no longer possible. The PR firms, lawyers and opposition roll up their sleeves for business and directors around the country begin to ask whether their companies have anticipated such a situation.

Multiplier effects

As we operate in an increasingly connected and dependent society, knock-on effects are often not obvious.

In this case, the site was dependent on parts of its operation which failed and didn’t have redundancy. The WA network was dependent on a single resource for 30 per cent of its supply, and the public was dependent on that network without any other options.

The knock-on effects flow from the energy supplier to the energy distributor, the energy retailer, small business, big business, households, the WA economy, exports, terms of trade, interest rates, the Australian dollar and commodity prices.

All of these will have a multiplier effect. On a local level livelihoods will be affected and households will hurt.

The Varanus incident highlights the need for a “whole of systems view” to be applied to planning, policy setting and business continuity. It highlights the need for broader thinking about changes in conditions and how these connect together to create a wave of knock-on effects.

Using Varanus as a catalyst for discussion, this allows us to think about some broader questions to better understand our risk context:

  • The WA Government says its hands were tied and couldn’t manage the risk because they didn’t own the asset. Now that a significant portion of Australia’s public infrastructure is in private hands, what does this mean for infrastructure security generally?
  • Many of the listed infrastructure funds vehicles are highly geared and struggling with the effects of sub-prime. What does this mean for infrastructure security?
  • How do we build redundancy into infrastructure networks instead of having to replicate and pay for our own back-up infrastructure?
  • Could a move towards green electricity production by private households be a cost-effective way to build greater redundancy into the network? Could a carbon tax accelerate this?
  • Are there other dependencies in my organisation that we haven’t given enough thought?

Large incidents such as this provide a useful wake-up call for all of us. If we’re able to step away from crisis response long enough, a whole-of-systems approach that embraces complexity and adaptive management can help us to have a better handle on the risks which face us as part of an interconnected world.

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