A shortage of gas supplies in the South West is likely to result in Collie coal miner Griffin Group becoming the dominant supplier of new electricity generation in Western Australia in the coming years.
This will put renewed pressure on the state government, which has attempted to ensure competition in the energy market by implementing its controversial gas reservation policy.
The policy requires new LNG projects, like Woodside’s Pluto and Chevron’s Gorgon project, to supply 15 per cent of their gas to the domestic market.
While the policy may boost long-term gas supplies, it is unlikely to boost supplies for at least several years.
Major gas consumers believe the state government should pursue further policy reforms to boost the volume of gas available in the South West of the state.
DomGas Alliance chairman Stuart Hohnen said local industry was increasingly frustrated by its inability to secure gas supplies for new projects.
“We don’t see any evidence of significant activity to address our domestic gas requirements,” Mr Hohnen said.
He said the delivered price of gas into the South West had doubled over the past year, yet big producers were showing no interest in the domestic market.
“We don’t see a competitive market operating. The majors are focusing all their energies on LNG.
“The fact is the major consumers can’t get [the gas producers] to engage.”
Mr Hohnen is executive chairman of Dampier Bunbury Pipeline, the company that operates the state’s largest gas pipeline.
The DomGas Alliance includes the state’s biggest gas consumers, alumina producer Alcoa and energy utility Alinta, and also includes ERM Power, Perth Energy and Synergy.
While the members of the Alliance have their own commercial interests at heart, the lack of competition in the energy market creates policy issues for the state.
In particular, Griffin could be the only serious participant in the tender process currently being run by Synergy for the supply of 400 megawatts of baseload power.
The last time the state ran an electricity supply tender, through the former Western Power, it attracted several competing proposals before awarding the contract to NewGen Power, which is currently building a gas-fired power station at Kwinana.
The losing bidders were the state’s two coal producers, Griffin and Wesfarmers.
Griffin has vigorously pursued opportunities in the energy market. It is currently building a 200-megawatt coal-fired power station at Collie and has plans for two further 200MW units.
In contrast, Wesfarmers is not involved in the current tender, preferring to focus on being a coal supplier, a company spokesman told WA Business News.
Market speculation is that no gas-fired proposals have been submitted to Synergy, a view supported by recent market developments.
State-owned Verve Energy announced in February that it would continue burning coal at the Kwinana power station because of “continued uncertainty about gas supplies”.
Private company Perth Energy, which is aiming to build a 90MW gas-fired plant at Kwinana, has been forced to change its plans because it could not secure sufficient gas.
“The gas supply constraint had a big impact,” managing director Ky Cao told WA Business News.
“It forced us to change the configuration of the plant.”
His company plans to build an open-cycle peaking plant, which will need much less energy than a closed-cycle baseload plant.
Even after changing its plans, Perth Energy has still not been able to lock in its total gas supply needs.
“I just can’t see how anybody can get enough gas to supply 100 to 200 megawatts of base load,” Mr Cao said.
Mining companies Newmont and Gindalbie Metals, which recently conducted tenders for 250mw of electricity supply, both selected coal-fired power.
Both companies cited long term security of supply and long term price certainty as the major attractions of coal.
“Gas generated power is too costly and pricing is not available for the length of term we are looking for,” Gindalbie managing director Garrett Dixon said.
The Synergy tender is designed to source new electricity supplies to replace Verve, which plans to close several old power stations over the next three years.
Synergy spokesman Andrew Gaspar declined to provide any details of the tender, which is due to conclude in August.
Mr Hohnen believes the state government should develop more targeted exploration policies, focusing on relatively small inshore and onshore gas fields.
Mr Hohnen also wants tighter scrutiny of retention leases, which he said effectively lock up many of Western Australia’s large gas resources.
The DomGas Alliance is also pushing for a review of the current arrangement that allows the North West Shelf joint venture partners to sell gas jointly into the domestic market.