July 10 (Bloomberg) -- The natural gas shortage in Western Australia, generator of more than a third of the nation's exports, may cost the state A$6.7 billion ($6.4 billion), the Chamber of Commerce and Industry said.

``The gas crisis has already cost the Western Australian economy in the vicinity of A$2.4 billion,'' the chamber said today in its quarterly report. ``With gas supply expected to be restricted until December 2008, CCI estimates the overall cost to be around A$6.7 billion.''

Mining companies and small businesses are scrambling to secure fuel supplies after the state government gave essential services including hospitals priority in the wake of an Apache Corp. pipeline explosion that cut 30 percent of the state's gas supplies. Western Australia's forecast growth for the 12 months to June 30, 2009, is expected to decline by a percentage point, the chamber said.

``We always figured it would be in the billions,'' Hugo Loneragan, an account director for Deloitte Touche Tohmatsu's forensic and dispute services, said in an interview in Perth today. ``The figure from the chamber doesn't shock us.''

The estimates on the cost of the gas shortage were derived from a survey of about 300 chamber members across a range of industries. About 17 percent of respondents said their business was directly affected by the outage, with another 33 percent ``indirectly affected.''

Cutting Hours

To cope with the energy shortfall and production decline, 28 percent of respondents affected by the gas shortage said they were reducing employees' working hours.

Apache said June 23 it expects to resume by mid-August 57 percent of supplies from the blast-damaged plant on Varanus Island off the state's northwest coast, with full capacity to be returned in December.

After Apache declared force majeure on its West Australian contracts after the explosion, some mining companies supplied energy by the Houston-based company, including Iluka Resources Ltd. and Alcoa Inc.'s Australian unit, followed suit. Force majeure is a legal clause that allows a company to miss deliveries because of circumstances beyond its control.

``Force majeure is used as a tactical tool,'' said Sydney- based Loneragan, who provided businesses with interruption insurance claims after the September 11 attacks in New York and the Longford gas outage in Victoria state in 1998. ``Some companies have been able to declare it straight away, which frees up that contractual negotiations and allows them to negotiate one-on-one with their customers.''

NOSPA Report

Apache now has more than 200 workers at Varanus Island attempting to repair the pipeline, with the National Offshore Petroleum Safety Authority, or NOPSA, preparing a report on the incident.

``We expect significant scrutiny will be given to the NOPSA report from lawyers determining if its findings could have a bearing on insurance claims,'' Loneragan said. ``We certainly know most of the big companies will be insured, but we no not all loses that will be sustained will be recoverable.''

Since the disruption, small businesses have been contacted by energy retailer Alinta Ltd., a unit of Sydney-based Babcock & Brown Power, late in their working day, informing them of how much gas they can expect in the next 24 hours.

Westpine Industries, 50 percent owned by Wesfarmers Ltd., fired a third of its workforce because of the loss of gas supplies, the West Australian newspaper reported. Production was curtailed at Midland Brick, the world's largest brickworks, and Prime Laundry, which serves about 85 percent of Perth's hospitality industry.

BHP Strategy

Mining companies have also suffered. BHP Billiton Ltd., the world's largest, brought forward a four-month rebuilding project at a nickel smelter and shifted gas to an alumina refinery.

The energy disruption comes at a time of rapid growth in Western Australia, fueled by China's appetite for its iron ore and other metal resources.

Western Australia's economy probably expanded 6.5 percent in the 12 months that ended June 30. Growth is expected to slow in the coming year because of a forecast decline in consumer spending and a lull in investment after the completion of major projects, the chamber said in its report.

A record A$34.1 billion was invested by business in Western Australia over the year to March 31, 2008, it said. Exports in the period rose 8.1 percent.

West Australian business investment in the three months to March 31 increased 12.4 percent from the year before, the chamber said.

Unemployment, Housing

The state's unemployment rate stood at 3.7 percent in May, after reaching a 34-year low of 2.8 percent in February.

``Labor market conditions are expected to remain very tight in West Australia over the next four years as labor shortages continue to impact on the ability of businesses to expand their operations,'' the report said.

Median housing prices in the capital Perth fell 2.7 percent in the three months to March 31 to A$460,000, from A$474,000 and the end of December.

West Australia's population grew at the fastest rate in 18 years in 2007, rising 2.4 percent compared with 1.6 percent nationally, the chamber said. Overseas migration represented 58 percent of the population increase.

The state's local and foreign currency AAA rating was unchanged with its outlook remaining stable, Standard & Poor's said today in a statement.

``The state's operating performance has been exceptional,'' Standard & Poor's credit analyst Danielle Westwater said in the statement. ``The strong commodity markets have significantly boosted the state's economic growth and it continues to manage the economic boom within conservative financial parameters.''

To contact the reporter on this story: Jason Scott in Perth at jscott14@bloomberg.net

Last Updated: July 10, 2008 02:48 EDT