Carpenter sticks to his guns on gas

In February this year, the Department of Industry and Resources released a discussion paper that canvassed options for reserving some of Western Australia’s gas reserves for the state’s domestic market.

The issue has gathered a head of steam during the past week, with Premier Alan Carpenter attacked by Woodside boss Don Voelte and federal Industry, Tourism and Resources Minister Ian Macfarlane.

Despite the criticism, Mr Carpenter remains committed to the plan to reserve up to 20 per cent of gas reserves “to ensure the continued availability of low cost gas supplies into the domestic market”.

He has characterised this as a continuation of existing policy, since the North West Shelf project was required to set aside a fixed amount of gas for the local market, where it is sold at lower prices than LNG exports.

The state agreement for Chevron’s proposed Gorgon project also reserves some of the gas for the domestic market, although this is subject to a very wide qualifier.

“There is no requirement to bring this gas into the domestic system unless it is economic to the company,” according to the discussion paper.

Mr Carpenter has attached some urgency to the issue, claiming that “natural gas supplies for WA households and industry could run out within 10 to 15 years”.

With several big projects in the offing, including Gorgon, Woodside’s Pluto and Browse projects, and Inpex’s Ichthys project, the government has suggested that reserving  10 to 20 per cent of gas deposits “would appear to be appropriate”.

The requirement for project proponents to negotiate state agreements gives the government substantial leverage.

In particular, the existing North West Shelf state agreement requires the Woodside-operated joint venture to obtain the approval of the minister for state development before entering new export contracts beyond 2010.

WA’s major energy supply companies, including Alinta, Synergy and NewGen Power, have offered qualified support for the state government, commending its decision to initiate debate on the topic.

They are keen to maximise domestic gas supplies, which is clearly in their economic interests.

In a submission to the government, Alinta says there is a general lack of interest from explorers/producers in the domestic market.

“Those parties that are willing to engage in discussions are seeking substantial price increases,” Alinta says.

However, it is wary of the government’s proposal, arguing instead that the fundamental issue is the ability of producers to hoard gas supply.

It wants the government to modify its retention leases and production licences so that third parties can submit development proposals for known gas fields.

In this way, the market would be able to “realistically establish the true value of domestic gas”, Alinta says.

Critics of the state government include the coal lobby, which charges that the proposed policy would make it harder for coal producers to compete.

But leading the charge against the government has been the gas explorers and producers, who want the freedom to pursue the most attractive commercial opportunities.

Mr Voelte believes that volume itself is not an issue.

The industry in WA has made substantial discoveries in recent years and is likely to find substantially more gas “under appropriate economic and regulatory conditions”, Mr Voelte wrote in a government submission.

He said the real issue was that: “WA domgas prices are very low when compared to international and domestic benchmarks.

“This price differential represents the greatest challenge to providing a sustainable solution.”

Inpex stated bluntly that the proposed policy “would reduce the merits of exploring and producing here vis-à-vis other prospective locations.

“And I am afraid it could have a negative impact on our intention to develop in a timely fashion the world scale Ichthys gas field,” general manager Shinsuke Ban told the government.