Higher gas prices here to stay: Woodside

Woodside Energy Ltd has hit back at claims by an alliance of big gas users that WA's gas market is in a state of failure saying that the gas market was in transformation and that the days of cheap gas are simply gone.

Woodside Energy enterprise capability director Keith Spence said the days of so-called "two dollar gas" were over because it was now significantly more expensive to produce.

Mr Spence said project costs were 80 per cent higher than they were several years ago and that all the "low-bearing fruit" had been picked, which meant new projects were more expensive to develop.

The DomGas Alliance, which includes big gas users such as Alcoa and Alinta Ltd, is pushing for government intervention to help solve what it claims is a gas supply crisis.

It says WA gas prices have tripled in the past 12 months but despite the price hike many companies were finding it difficult to secure gas supplies.

Speaking after Mr Spence's lunchtime address to gas users and producers, DomGas chairman Stuart Hohnen said there were 17 large projects looking for natural gas and failure to secure supply would put at risk $9.2 billion in projected annual economic output.

Mr Hohnen said a recent study conducted by the Alliance highlighted a further 900 terajoules per day for the next six years was needed to meet demand. About 350 tj/d is replacement demand.

Mr Spence agreed that short-term gas supplies were tight but said the market was sorting itself out.

He said the State's economic boom has pushed demand for gas up rapidly and almost all available supply had been taken, which had created a short term disequilibrium.

"The consequence of disequilibrium, such as price increases where supply needs to catch up with demand, do not imply market failure," Mr Spence said.

"Rather, these consequences are precisely the means to resolve imbalances. And the market is working. With higher gas prices, previously uncommercial developments are now being pursued such as Macedon, discovered in 1991, and Reindeer, discovered in 1997."

Santos Ltd and Apache Corporation yesterday approved detailed design work for the $750 million Reindeer gas project to produce 110 tj/d from mid 2010 while the BHP Billiton-operated Macedon field development is expected to come on stream in 2011 and produce 150 tj/d.

Mr Hohnen said that new supplies would likely get soaked up by big LNG developments including Woodside's Pluto project and would not solve long-term supply problems for local users.

Mr Spence also hit out at claims gas prices were uncompetitive and pointed out many large industrial gas users such as DomGas member Alcoa as well as Rio Tinto and BHP Billiton were getting world class prices for the commodities they produces but WA gas suppliers were not.

"WA gas prices have not even remotely kept pace with the rise in global energy prices that are causing massive capital and operating cost increases in our industry," Mr Spence said.

"The claim that the price of WA gas is uncompetitive is grossly out of line."