A state government inquiry has been told that some of WA’s LNG producers are playing catch up on their requirements under the state’s Domestic Gas Policy.
A state government inquiry has been told that some of WA’s LNG producers are playing catch up on their requirements under the state’s Domestic Gas Policy.
The policy requires LNG producers to reserve 15 per cent of overall production for supply to the domestic market, but the inquiry was told today that flexibility in the system meant in recent years the 15 per cent supply mark was not being met.
Department of Jobs, Tourism, Science and Innovation (JTSI) executive director project facilitation Steven Dawson told the Peter Tinley-chaired inquiry that some producers were playing catch up on meeting their obligations.
However, he pointed out that current arrangements meant producers were required to meet the 15 per cent mark over the life of project, not per annum.
“The reservation is not based on a per LNG cargo, that 15 per cent of export value is delivered into the export market on any given day,” he said.
“The requirement is for a reservation of 15 per cent, and then a commitment to market in good faith, and particularly under modern agreements a commitment to deliver the infrastructure to support that delivery of gas at a rate that is commensurate to meeting that 15 per cent over the project’s lifespan.
“What that means is that proponents are not required to sell gas into a market, particularly where conditions are not favourable to delivery of that gas.”
Mr Dawson stopped short of saying producers were in a debt of supply but confirmed increases to the rate of gas supplied domestically would be required over time. JTSI forecasting predicts a paper shortfall in gas supply in the coming years.
“We wouldn’t characterise it as a debt, but perhaps an increase in the incremental rate of gas that would be required to meet that obligation,” he said.
The nature of domestic gas agreements – administered by JTSI on a commercial basis balancing investment attractiveness and accountability, rather than via legislation – was also explained.
In all, eight individual agreements covering the state’s LNG projects, with the oldest applying to the Chevron-operated Gorgon project. Under these agreements JTSI collects information from domestic gas commitment holders about their domestic supply levels.
However, it was revealed the department does not provide that information to the federal Australian Energy Market Operator (AEMO) for use in supply-demand forecasting.
“We acknowledge that the information we hold regarding relative performance of commitment holders against the state agreements would assist AEMO in presenting a more accurate picture of the gas market through that forecasting,” acting JTSI director general Alistair Jones said.
AEMO’s forecasting is currently based on an assumption of an annual 15 per cent rate of supply into the domestic market.
Mr Jones said the department was looking at measures to reduce the transparency gap around domestic gas supply.
The inquiry earlier heard from representatives from the Department of Mines, Industry Regulation and Safety, which predicted demand for electricity in the South West Interconnected System would triple in years to come.
Separate of today’s sitting, the state government announced it would not consider gas reservation exemptions for new onshore projects in the state.
The decision drew the ire of the Association of Petroleum Production & Exploration Association, which said it was disappointing for a call to be made while the inquiry was ongoing.
The WA Domestic Gas Policy Inquiry is scheduled for tabling on November 30.
