The Parliamentary committee investigating the State’s domestic gas policy has questioned the size of Perth Basin reserves as it left the door ajar to onshore operators getting access to export markets.

The Economics and Industry Standing Committee’s final report said that there may be “some merit” in allowing onshore projects to access offshore markets to some extent.

“This argument is strongest when it is being done to mitigate demand risk. It is weakest, and perhaps not valid, if the rationale is simply to allow the onshore producer to capture higher prices,” the report said.

The report made 30 recommendations against a backdrop of “increasing demand for gas and declining supply”.

“Based on present forecasts, and in the absence of substantial changes in gas demand, the State appears likely to need substantial new sources of gas to meet its requirements over the coming decades,” the report said.

In relation to onshore gas, it recommended that the State Government allow exports only if the domestic market is adequately supplied and is expected to be well supplied for a period of time.

The report said there were indications that the discovery and size of future resources from the Perth Basin may be underwhelming.

Reserve Downgrades

It said there was a likelihood of future reserves downgrades to onshore and offshore gas fields, citing discrepancies between estimations by joint venture partners of remaining reserves at the North West Shelf, and the cessation of operations at some fields earlier than previously expected.

On Perth Basin reserves, it said there had been several reserves downgrades since mid-2020 which could result in “longer and larger” shortfalls of gas.

“Although the Committee has heard that the Perth Basin could supply a greater volume of gas to the domestic market, there are indications that the size of future resources may be underwhelming,” the report said.

“In April, there were disappointing drilling results at Lockyer Deep. Beach Energy later failed to recover gas at its Trigg 1 exploration well and has now abandoned plans to drill Trigg 2.

“In addition, there have been additional reserves downgrades at fields supplying the Devils Creek and Macedon domestic gas facilities.

“The Committee received evidence that the NWS JV partners have significantly different estimates of remaining reserves, and that substantial downgrades to these reserves are possible.”

‘Use it or lose it’

Among the recommendations, the committee opted for a “use it or lose it” approach.

It said the State Government should use all measures at its disposal to ensure that no further retention leases or renewals are granted in WA offshore waters.

“If the current title holder is not willing or able to develop the resource now, it should be returned to the pool so that another business can exploit it,” the report recommended.

Against a backdrop of declining North West Shelf reserves, the report said that an effective pathway to additional domestic gas supply could be a significant additional project to back-fill the NWS Karratha Gas Plant, including the two trains which process gas for the domestic market.

“(The committee) it does not agree that this gas should come from Perth Basin projects. There are resources in Commonwealth waters off the coast of WA which are not suitable to support an LNG export train; rather, these resources could be brought onshore and processed at one of the existing domgas plants,” the report said.

It also recommended the State Government investigate the options for common-use upstream gas infrastructure, to help bring increased gas supply to market.

Pluto Shortfall

The report found that aspects of the Pluto Domgas Arrangements meant that the State has not been able to enforce delivery of closer to 15 per cent of domestic gas equivalent to LNG exports from the Pluto LNG facility when the market requires it.

Woodside is supplying gas from the North West Shelf LNG project in excess of that particular project’s domestic gas commitment and is having it accounted for against the Pluto obligation, consistent with the WA Domestic Gas Policy.

The report recommended that the State commence negotiations with Woodside Energy to modernise the Pluto Domgas Arrangements in line with a more recent domestic gas commitment agreement template; for example, the Scarborough Domestic Gas Commitment Agreement.

It said that in the interests of regulatory certainty, the current reservation quantity of 15 per cent (or equivalent amount as specified in the relevant agreement) should be left unchanged for existing agreements, unless the obligation holder agrees otherwise.

It said that for new LNG projects or gas fields, the State has an opportunity to adopt a more flexible, evidence-based approach to setting the reservation quantity and recommended that for new LNG projects or gas fields, the reservation amount is set as necessary to mitigate any expected domestic gas shortfall.

Recommendations

Among other recommendations, the report said that:

• The State Government should consider developing a new domestic gas security objective which promotes Western Australia’s energy security and ongoing economic development and advances the long-term interests of Western Australians.
• The State should investigate establishing a transparent, public, long-term trading market (LTTM) for domestic gas to facilitate an equitable and transparent negotiating environment.
• Domestic market obligation holders be required to offer all present and forecast uncontracted reserved gas transparently to the domestic market at all times, so that buyers can select the quantities and durations over which they wish to be supplied.
• The State Government undertake a cost-benefit analysis for establishing and maintaining strategic gas reserves at storage facilities located at, or close to, major gas-powered generation (GPG) facilities, which could help mitigate supply risk when GPG demand is peaking.
• That the State Government consider whether a secondary market in pipeline or storage capacity is needed to supplement existing markets and any market trading mechanism which may be established.

On the day the report was tabled in Parliament, Premier Roger Cook said, “We believe that this is our gas, and that Western Australians should be the principal beneficiaries of that gas.”

“The 15 per cent reservation policy of offshore gas is vital to our economy and it will remain in place so long as Labor remains in government. We will consider the committee’s recommendations, and, in coming weeks we will provide an update on the government’s plan to ensure that the domestic gas policy meets our state’s needs into the next decade.”

Strike Energy Chief Executive Officer Stuart Nicholls told the Australian Financial Review that “this potential change to the export regime has a potential for a positive impact on Strike’s economics” while a Mineral Resources spokesman said the company was confident the Government would balance domestic requirements with the need to encourage investment.

The full report is available here.

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