Looming gas shortage threatens WA market

loomingWA will struggle to meet domestic gas demand if the North West Shelf joint venture (NWSJV) does not extend its current supply contracts beyond 2020, according to a leading industry body.
The Independent Market Operator’s (IMO) newly released Gas Statement of Opportunities (GSOO), which looks at the state’s gas supply and demand from 2014 to 2023, found existing contracts would meet domestic need until 2020.
However, with all of Woodside-led NWSJV contracts ending by 2020, the IMO flagged potential supply problems and price hikes from 2021 onwards.
Gas supply to the WA market currently sits at 1142 terajoules per day, easily meeting state demand of 976 TJ/d. The NWSJW supplies more than 60 per cent of WA’s gas requirements.
The IMO forecasts domestic gas demand will grow to about 1012 TJ/d in 2023, which could be met if the NWSJV extended its contracts beyond 2020 – leading to a supply of 1324 TJ/d.
However, if the NWSJV did not make gas available after 2020, the IMO predicted supply would drop to 1026 TJ/d, creating a supply-demand gap of just 14 TJ.
“This has the potential to create a very tight WA domestic gas market towards the end of the forecast period, which may result in gas prices rising,” the report said.
The IMO said while there were sufficient gas reserves for domestic demand, supply would depend on negotiations between Woodside and the state government and investment decisions made by the NWSJV and investment into the ageing Karratha Gas Plant.
Discussions are ongoing between Woodside and the WA Government about the remaining undeveloped gas reserves in the NWS, which could lead to the government imposing further domestic gas obligations on the joint venture, or letting it export its full quantities. Woodside chief executive Peter Coleman last year suggested the NWS would continue to supply the domestic market if the price was commercially viable, according to the report.
The IMO said price hikes would be necessary to fund the US$10 billion capital expenditure needed to produce gas from remaining NWS reserves and to maintain the Karratha Gas Plant.
The report prompted calls from the Australian Petroleum Production and Exploration Association (APPEA) for an end to WA’s gas reservation policy, which it said created a barrier to investment in the sector.
Under the reservation policy, 15 per cent of LNG produced from new offshore gas projects has to be set aside for domestic supply. Developers are responsible for building or gaining access to the necessary infrastructure to meet their domestic commitments.APPEA Western region chief operating officer Stedman Ellis said the report called into question the need for the reservation policy, which he said delivered little more than subsidised gas for big industrial gas users.
“APPEA believes long-term energy security is best delivered through efficiently operating markets and by encouraging new entrants and competition, a view that is shared by other Australian governments that have considered and rejected the need for reservation policies,” he said.
“Australia’s ability to develop new gas projects is already threatened by rising costs at home and growing competition abroad.
“The State Government should abolish its reservation policy and focus its efforts on attracting investment for new gas developments.”
Mr Ellis said WA was experiencing growing competition in the domestic gas supply market as new capacity came on stream, such as the Devil Creek, Macedon and Red Gully facilities.
“These projects proceeded because buyers were willing to commit to commercial terms that underpin the enormous investment required to develop and construct a gas processing facility,” he said.
“They have been driven by market forces, not by government intervention in the form of a reservation policy.”
Looking beyond 2023, the IMO found unconventional gas resources and reserves outside the Carnarvon Basin would need to be developed within the next 50 years.
The report said the Carnarvon Basin, from which the majority of the state’s gas is sourced, would only be able to meet domestic demand until 2050.
“Considering the length of time required to develop and extract gas resources commercially, encouragement of exploration and development of other gas basins may be warranted to promote diversity in WA’s sources of gas supply,” it stated.