Key takeaways
The Economics and Industry Standing Committee recommends renegotiating existing gas agreements to ensure consistent and timely supply to the domestic market, addressing current gaps in transparency and delivery.
For new LNG projects, the gas reservation should be adjusted based on market needs, potentially differing from the standard 15% to better address potential shortfalls.
The final report included a call for a more transparent trading market and a broader, more comprehensive domestic gas security policy to ensure long-term energy security and economic stability for Western Australia.
The long-awaited report on Western Australia’s domestic gas policy (Policy) was tabled in Parliament this week, concluding the Economics and Industry Standing Committee’s (Committee) 59-week inquiry into the Policy.
The Inquiry
In June 2023 the Committee commenced its parliamentary inquiry into the Policy (Inquiry) in response to concerns that domestic gas shortfall was imminent and that some liquified natural gas (LNG) producers might not meet their domestic gas commitments under the Policy by end-of-field life.
In February 2024, the Committee published an Interim Report which presented evidence about the adequacy of mechanisms to enforce compliance with the Policy in a timely manner. The Interim Report sought to provide an opportunity for industry to signal an intention to develop an industry-led solution to the forecasted shortfall (and in doing so, avoid government intervention). For more detail on the interim findings made by the Committee, please refer to our previous article here.
Since then, the Committee has seen evidence of a much welcomed industry response with some producers improving the rates at which they supply the domestic market.
On 15 August 2024, the Inquiry culminated in the release of the ‘Domestic Gas Security in a Changing World: Inquiry into the WA Domestic Gas Policy: Final Report’ (Final Report) which detailed 77 findings and 30 recommendations to the State Government. Some key findings and recommendations from the Final Report are set out below.
Domestic gas agreements
The WA Domestic Gas Policy is uncodified and different LNG producers are subject to different conditions as set out in their respective agreements with the State. This approach provides flexibility on one hand, but on another can lead to inconsistency in the implementation of the Policy.
The Committee noted that although the recent industry response was welcomed, the terms of existing domestic gas agreements are not robust enough to guarantee that producers will always meet their commitments to the domestic market in a timely manner.
To that end, it is recommended that the State Government commence negotiations with obligation holders to address the limitations of existing domestic gas agreements, including terms about transparency, the marketing of domestic gas, and the timeliness of gas delivery.
Established reservation amounts
The Committee found that in the case of already established reservation amounts, a unilateral intervention by government to change fundamental parameters in domestic gas agreements for projects which have already signed agreements with the State would be too great a sovereign intervention to be justified.
In the interests of regulatory certainty, the current reservation quantity of 15% (or equivalent amount as specified in the relevant agreement) should be left unchanged for existing agreements, unless the obligation holder agrees otherwise.
New LNG or gas fields
For new LNG projects or gas fields, the Committee found that the State has an opportunity to adopt a more flexible, evidence-based approach to setting the reservation quantity, guided by Western Australian Gas Statement of Opportunity (WA GSOO) forecasts.
In light of this, it is recommended that the reservation amount for new LNG projects or gas fields is set as necessary to mitigate any expected domestic gas shortfall, based on the WA GSOO forecasts. This means that new projects may be subject to a reservation greater or less than 15%, depending on the relevant market needs at the time.
Onshore export ban to continue
In its current form, the Policy does not support the export of gas via Western Australia’s local pipeline network. In August 2023, the State Government announced that it would no longer consider exemptions from the Policy for onshore gas developments on the existing pipeline network to export LNG. Despite this ban, gas producers are understood to continue to actively seek exemption from the Policy, to allow them to export onshore gas as LNG via the pipeline network.
Whilst the Committee accepted that there may be some merit in allowing onshore projects to access offshore markets to some extent, ultimately it determined that until the domestic gas market is adequately supplied and expected to be well supplied for a period of time, no LNG should be exported. The vital parameters of “adequately supplied” and “period of time” were left undefined.
Market reform
The Final Report detailed that a more transparent and effective marketplace is essential to the State’s long-term economic prosperity. In this regard, the Committee recommended the establishment of a transparent, public, long-term trading market (or LTTM) for domestic gas with a view to facilitate an equitable and transparent negotiating environment. The Final Report suggests that the LTTM could be located at one or more physical locations or hubs, to facilitate the concurrent trading of pipeline or storage capacity (such is the case on the east coast).
All domestic market obligation holders would be required to offer all present and future uncontracted reserved gas to the market on this new LTTM, enabling offers to be done transparently and in an ongoing and consistent manner.
The Committee also recommended that the establishment of standard terms and conditions for gas trades through the LTTM should be investigated by the State Government.
Policy revision
The Policy has been subject to successive revisions over time to provide clarification on matters of implementation and scope. However, the Committee determined that these revisions have not significantly changed the key policy principles and, as a result, have fallen short. The Policy’s core objective – being, to ‘secure WA’s long-term energy needs and ongoing economic development’ - remains a relevant and appropriate goal, however the focus on ‘long-term’ energy needs is no longer sufficient.
The Final Report recommends that the scope of the Policy should be widened to constitute a broader domestic gas security policy that considers more than just gas reservation. This may include considerations around the interface with electricity systems, domestic-only gas projects and aspects of the wider gas market.
It also recommends that a new domestic gas security policy objective is developed which promotes Western Australia’s energy security and ongoing economic development, and advances the long-term interests of Western Australians.
Improvement to existing transparency mechanisms
The Western Australian gas market is relatively opaque, with most gas traded through confidential, bilateral agreements. The WA GSOO and the Gas Bulletin Board are the primary mechanisms for gas market transparency in the State, both of which sit within the Gas Services Information regime (GSI regime). A review of the GSI regime by the State Government, together with the Australian Energy Market Operator is recommended to improve overall transparency and forecasting capabilities (including decarbonisation forecasting).