State parliament has been told there is no 'magic pudding' to protect the interests of all parties in the state’s gas network, after a long-awaited report on the sector was tabled today.
State parliament has been told there is no “magic pudding” to protect the interests of all parties in the state’s gas network, after a long-awaited report on the sector was tabled today.
The final report into the state’s domestic gas settings backed in the 15 per cent reservation policy applied to existing offshore LNG producers, but offered less certainty around new projects and those developed onshore.
The report by the Peter Tinley-chaired Economics and Industry Standing Committee followed months of inquiry, heading from major gas users in the state as well as onshore and offshore producers and developers.
Addressing the parliament as the report was tabled, committee member and former state energy minister Bill Johnston said the report highlighted the complexity of the market, which meant some participants would need to make sacrifices.
“Nothing is very easy in gas supply, there’s certainly no magic pudding that solves all the problems without any sacrifices by participants in the market,” he said.
The report warned of increasing deficits in the gas market over the years from 2030, unless new supply was introduced and flexibility was integrated into the policy settings guiding domgas.
It called for increased transparency and oversight of the supply of gas by major producers into the local market, and endorsed a current, long-held reservation policy requiring current offshore producers who process their gas in Westdern Australia to supply 15 per cent of their overall production to the local market.
While backing the status quo for existing producers, the committee suggested new offshore projects be subject to a fluid reservation policy, which is set as necessary to mitigate expected domestic gas shortfall. If enacted, the recommendation could mean new offshore projects are subject to a reservation greater or less than 15 per cent, depending on the needs of the local market.
Mr Johnston pointed out that any change to the requirement for offshore producers to supply more gas into the local market would require an upgrade to infrastructure in the state. The exploration of common-use upstream gas infrastructure was one of the 30 recommendations handed down by the committee.
Seemingly anticipating public backlash to that measure, he pointed to Chevron’s Gorgon project, which supplies 300 terajoules of gas into the domestic markets a day, as an example.
“Even if you shut down the LNG export facility at Gorgon, it doesn’t increase domestic supply because simply, the domestic plant produces 300 terajoules per day,” he said.
“That’s what it can do. You can’t have additional supply without additional infrastructure.”
The report also recommended the state consider mandating a local agency – like the Economic Regulation Authority – to report on historical policy compliance by producers.
Compliance monitoring responsibility currently falls on the Department of Jobs, Tourism Science and Innovation, which administers the state’s agreements with producers.
An agreement between the state and Woodside Energy over the Pluto project on the North West Shelf drew specific attention during the inquiry, with some stakeholders expressing concern that the project would never meet its reserve commitment to the state.
The committee was unable to reach a conclusion over that claim but recommended the Pluto agreement be renegotiated by the state and producer to sit more in line with more recent domestic gas agreements.
Mr Tinley’s introduction noted Woodside doubled domestic gas output from Pluto through the Karratha gas plant after the interim report was released in February, boosting supply from the facility through to the end of 2025.
The state was also encouraged to consider a new domestic gas security objective, which promotes the state’s energy security, while developing a legislative framework to guide it.
And while finding some merit in the suggestion, the report offered no directive to lift an LNG export ban for onshore producers, like those in the Perth Basin.
A major gas user, fertiliser manufacturer Yara Pilbara, said it welcomed the findings of the report and the committee's position on exports from onshore projects on existing pipelines. Yara was among those pushing for gas certainty to support its operations.
"We encourage the state government to move swiftly on implementing an updated policy and supporting mechanism that guarantees rigorous compliance and certainty of supply to support the future needs of existing and new domestic gas users," Yara senior energy sourcing manager Jai Coppen said.
"Yara Pilbara also welcomes the committee’s position on the issue of onshore gas exports, which is clear that until the domestic gas market is well-supplied, no onshore gas should be exported using existing pipeline infrastructure.”
The committee was firm around developers who retained leases without developing known gas resources; recommending leases be returned to the pool in the instance a titleholder is unwilling or unable to develop.
That recommendation was in response to calls for a stronger “use it or lose it” policy.
The state's Chamber of Minerals and Energy said the report needed careful consideration to strike the right balance between new gas supply and increased demand.
“Based on current LNG producer commitments and delivery timeframes, the risk of domestic gas under-supply will be more of an energy security and availability issue than a compliance one," chief executive Rebecca Tomkinson said.
“The challenge for the WA resources sector is in supporting the decarbonisation of our domestic energy-intensive industries, while also providing secure and affordable sources of energy to our trading partners."
Ms Tomkinson said CME was pleased that the 15 per cent gas reservation would remain for existing projects.
“With gas demand expected to grow in the WA domestic market over the next decade it’s good to see the report advocate for maintaining the existing 15 per cent reservation amount for existing agreements for offshore projects,” she said.
“But the recommendation to set an ‘as necessary’ reservation amount for new projects is as concerning as it is ambiguous, and likely to introduce investment uncertainty.
“Any changes to policy settings must balance the needs of both gas consumers and producers for investment certainty and market efficiency.”
The DomGas Alliance, of which Yara is a member, was particularly supportive of the committee's stance on exports from onshore projects, having campaigned strongly against a move to reintroduce exemptions for new producers.
"Allowing onshore gas exports at this time would undermine our domestic energy security," spokesperson Richard Harris said.
The alliance was overall welcoming of the committee's recommendations.
Australian Energy Producers - representing the oil and gas industry - said the report highlighted the contributions of gas producers, and outlined concerns over the potential for renegotiations of existing domestic gas agreements like that at Pluto, and the 'use it or lose it' measure.
"Any changes to the DGP objectives, as proposed, should be tested with stakeholders," AEP WA director Caroline Cherry said.
Liberals respond
Liberal Party of WA energy spokesperson Steve Thomas said the report highlighted the potential for future shortfalls of gas but left it to government to find a solution, particularly around onshore production.
“The committee recommendation that the fifteen per cent offshore reservation policy be retained is one that I support, as does most of the state,” he said.
“The committee rightly claimed credit for getting better outcomes in this regard, which is welcomed.
“The question on whether onshore gas producers will be given access to the LNG export market so that they can achieve higher prices for their product is now firmly a decision of the state Labor government.”
Dr Thomas said the lack of clear direction created more policy uncertainty for producers in the Perth Basin.
This includes Mineral Resources, which has delayed a final investment decision at its Lockyer project pending regulatory clarity.
Dr Thomas said he doubted whether a firm policy decision would be made before the election next year.
“The outcome to date therefore is that as we wait for government policy there will simply be more uncertainty for an industry that needs long term certainty,” he said.
A government response to the final report is expected before the end of the year.
