Warning on local impact of gas delays

A new report has singled out timely local supply from Woodside’s Scarborough project and the Perth Basin as critical to balancing the state’s tight domestic gas market.

The independent report from EnergyQuest warns delays in bringing new supply to market will worsen current shortages, and that even more new natural gas will be needed in the years that follow the planned start up of Scarborough in 2026.

“Even with a successful start-up of Scarborough and the Perth Basin, the tightness in the WA market means gas prices are likely to remain at the elevated prices now in the market – double what they were a few years ago,” EnergyQuest chief executive Rick Wilkinson said.

Under the current domestic gas reservation policy, Woodside would be required to set aside 15 per cent of production from Scarborough for domestic use over the project’s lifetime.

Woodside is targeting first production from the Scarborough project in 2026 but ran into regulatory hurdles recently when a regulatory approval granted for seismic surveying at the project was overturned by the Federal Court - one of a number of LNG projects to have hit approvals hurdles of recent times.

The company told an investor briefing this week that it was still on track for its 2026 production target and working with regulators to better understand environmental approval consultation requirements, but some analysts are predicting a delay to the project’s start date.

EnergyQuest’s report supported the popular view that natural gas would be required for some time to come in the state, both as an industrial fuel and in the transition away from coal towards net zero targets.

Mr Wilkinson said the domestic gas reservation policy for LNG exporters, currently in the spotlight through the state’s domestic gas inquiry, were not meeting current needs.

“For many years this policy has worked to keep supply available and prices low, but it is no longer having that effect,” he said.

“Prices reached record highs in 2023 and the proportion of LNG volumes supplied to the domestic market has fallen over time.

“The problem isn’t that LNG producers are in breach of the gas reservation policy. What’s happening is that domestic supply obligations agreed by government and LNG projects many years ago aren’t adding up to enough supply to meet today’s demand.”

Mr Wilkinson said that without new gas supply, the government would need to choose between strengthening its gas reservation policy for the closure of industrial plants.

The highly prospective Perth Basin near Dongara has also been contentious of late, with the state government quietly shifting its policy around LNG export exemptions for the region earlier in the year.

That move drew the ire of Strike Energy, which is accelerating the development a suite of projects under a government-supported initiative in the basin and had hoped for an export exemption similar to that granted to Kerry Stokes-backed Beach Energy covering its Waitsia joint venure with Japan’s Mitsui in 2020.

Developers in the region have argued the requirement that they supply all production into the less opaque pricing of the domestic pipeline only would disincentivise large-scale developments by removing the carrot of LNG markets abroad.

EnergyQuest’s report said the region showed great promise, but noted drilling results had been mixed and took the view that production may disappoint.

The report found WA relied on gas for 54 per cent of its energy in 2022, with coal contributing nine per cent. Only the Northern Territory had a higher dependence on gas for energy. 

The Peter Tinley-helmed parliamentary inquiry into the domestic gas market is ongoing, and will table its report in May 2024.