Government Intervention Looms Over Domestic Gas Policy
The State’s domestic gas reservation policy is no longer fit-for-purpose and Government action may be needed to remedy the problem as WA faces a gas shortage, a Parliamentary inquiry has found.
The Economics and Industry Standing Committee interim report said that while industry-led solutions to the likely gas shortfall were preferable and could ultimately mitigate the need for government intervention, “there is currently no indication that industry is likely to provide a solution”.
The report said any Government intervention should consider sovereign risk implications but noted: “Almost every discussion about regulatory reforms which might impact a project prompts a warning about ‘sovereign risk,’ but the label is not always justified.
“Making an investment in WA does not bestow a lifetime exemption from regulatory change. Circumstances change, and all businesses operating in WA —including those which started with foreign investment — should and do expect regulatory regimes to change with them.
“Not all sovereign interventions are equal.”
Possible intervention or changes canvassed in the report included:
- Improve the approvals process for new gas projects
- Permit onshore producers to export LNG
- Create a trading or market hub
- Address the gap between domestic gas prices and LNG netback
- Regulate the wholesale market
- Capture and clarify the domestic market obligation in legislative form
- Change the domestic market obligation for future projects
- Require producers to offer spare gas before exporting
- A reserve capacity mechanism for gas
- A formal ‘use it or lose it’ regime
- Adjust current domestic market obligation agreements
- Activate the Australian Domestic Gas Security Mechanism
- Create a Western Australian Domestic Gas Security Mechanism
- Emergency interventions
Committee Chair Peter Tinley said it was “seeking to test our findings with industry and the wider public and engage in a more focused dialogue about possible solutions to WA’s forecast gas shortfall”.
The report said that since their commitments started, LNG producers have on average delivered around eight per cent of domestic gas relative to LNG exports; just over half of what is required to be reserved under the WA Domestic Gas Policy.
In 2022 this increased to 10 per cent of LNG being supplied as domestic gas.
However, there is considerable variation between LNG producers, and it appears that some producers are not operating within the spirit of the policy.
Other observations or submissions referred to in the report include:
- There seemed to be general agreement amongst witnesses that the ‘easy’ LNG projects have already made their way through the approvals process. For example, the proposed Browse Project, which Woodside is hoping to bring online during the 2030s, will require gas to be piped over 900 kilometres along the sea floor to the Karratha Gas Plant. Many inquiry participants regard Browse as offering WA a ‘crucial boost’ to its domestic gas supplies beyond 2030. Others, however, seem doubtful whether it will reach FID, expressing their belief that it is unlikely any new LNG projects will be developed in WA after the Scarborough Project, particularly in light of the IEA analysis discussed above.
- Kate Ryan, Executive General Manager Western Australia and Strategy, Australian Energy Market Operator (AEMO) told the inquiry: “… we talk about gas as being a transition fuel through the [coming years]. I am not sure when that transition ends, quite frankly. I could see gas having a really important role to play in our electricity supply well into the 2040s and maybe beyond; we just do not know that yet.”
- The variability of gas consumption will increase. Synergy Chief Executive Officer (CEO) David Fyfe explained: “The thing that gas gives you is that instantaneous ability to increase generation on the SWIS. As more renewables come into the system, that variability increases. We can have, in a one-hour period, a 500 or 600-megawatt swing when cloud cover comes over, or from one day to the next go from 600 megawatts of wind down to eight megawatts of wind. That instantaneous ability with gas is key.”