Western Australia’s move away from coal-fired power will push the state into a gas supply shortage in the early 2030s, according to new analysis from Wood Mackenzie.
Western Australia’s move away from coal-fired power will push the state into a gas supply shortage in the early 2030s, according to new analysis from Wood Mackenzie.
The paper, which echoes the warnings of the Australian Energy Market Operator that the state’s once enviable domestic gas market could enter a shortfall, predicts volatility for major gas users in the years ahead.
The warning comes despite Alcoa’s announcement in January – after AEMO’s shortfall warning – that it was closing its Kwinana alumina refinery.
Alcoa’s gas use accounts for around 25 per cent of current domestic gas demand, and the closure of the refinery by 2025 is expected to offer temporary relief.
But the research firm does not expect it to be enough to avoid a shortfall.
WoodMac highlights the disparity in the plans of the region’s major mining and processing players, as they shift away from dirtier fuels.
“The region’s largest customers for gas are the mining and minerals processing industries, and they are on a decarbonisation journey. But it is not one-size-fits-all,” WoodMac senior research analyst upstream Anne Forbes said.
“Some companies are going green by switching from gas to renewable energy, while others are changing from diesel or coal to gas.
“So, gas demand will be continually evolving over the next decade.”
Compounding the challenge is the state’s commitment to shift away from coal-fired power generation by 2030, which is expected to increase the state’s demand for gas by around 10 per cent as it is adopted as a firming fuel to support a grid increasingly reliant on renewables.
A proposal to significantly increase the allowable energy generation of the gas-fuelled Kemerton power station near Bunbury was submitted to the Environmental Protection Authority this week.
The request flagged anticipated growth in demand from the South West Interconnected System as rationale for an increase.
WoodMac’s report also highlighted the delicate balance between interests in the state’s domestic gas market policy, where conversation is ongoing around the rights to export LNG from onshore projects.
Policy currently blocks project developers in the onshore Perth Basin from exporting part of their production as LNG – a move developers argue will stifle development.
Major gas customers have argued against a policy shift, with an at-times heated state government inquiry into policy settings ongoing.
“Customers are demanding cheap gas, while onshore operators are asking for export consideration,” Ms Forbes said.
“Balancing these demands and reducing the risk of future price volatility will be an increasing challenge, particularly as gas demand grows.”
Premier Roger Cook has flagged a domestic gas policy decision in the first half of the year, signalling a willingness to re-open the door to export exemptions for onshore producers that the government abruptly shut in August to protect domestic supply.
Meanwhile, the nation’s Resources and Energy Quarterly, also released today, forecast a significant drop in LNG export revenue towards the end of the decade as volumes and prices decrease.
National export revenue forecast at $72 billion in 2023-24 was expected to drop to under $45 billion in 2028-29.
In response to the report, lobby group Australian Energy Producers said new gas supply would be critical both domestically and internationally into the future.
“New gas supply is critical for domestic and international markets where our valued customers rely on our energy and help support thousands of jobs and pay for public services and infrastructure in Australia,” chief executive Samantha McCulloch said.
Ms McCulloch reiterated the importance of ongoing support for natural gas as a transition fuel to 2050, in support of renewables.
