PERTH (miningweekly.com) – The Australian Petroleum Production & Exploration Association (Appea) has used the release of the second 'Gas Statement of Opportunities' (GSOO) report to call for the abolishment of the gas reservation policy in Western Australia.

The report, prepared by the Independent Market Operator, was aimed at improving transparency in the gas market by highlighting opportunities to market participants and policymakers.

The latest report, released on Monday, found that Western Australia had an abundance of gas reserves and existing and planned gas processing capacity to supply to the domestic gas market.

However, the report noted that between 2021 and 2023, the availability of gas to the domestic market would be dependent on the positive outcomes of negotiations between the government and the North West Shelf (NWS) joint venture partners, as well as further investment into the NWS project to extend the project life.

Appea said on Monday that the GSOO reconfirmed forecasts of strong growth for Western Australia’s domestic gas supply over the next decade compared to only modest growth in demand.

Appea COO of the Western region, Stedman Ellis, said that the GSOO report had once again called into question the need for Western Australia’s protectionist gas reservation policy, which 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.

“The state government should abolish its reservation policy and focus its efforts on attracting investment for new gas developments.”

Ellis added that Australia’s ability to develop new gas projects was already threatened by rising costs at home and growing competition abroad, and added that policies that dictated where and how gas could be sold represent a further barrier to investment.

“Western Australia is experiencing a growing level of competition in the domestic gas supply market, as new capacity comes on stream, as demonstrated by the recent addition of the Devil Creek, Macedon and Red Gully domestic gas 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.”

Ellis said that these decisions were driven by market forces, not by government intervention in the form of a reservation policy.

However, the DomGas Alliance said on Monday that the GSOO also confirmed the sensitivity of domestic industry to the surge in domestic gas prices pointing to data showing “recent price increases have started to affect domestic gas demand”.

“This means increases in average medium- to long-term new contract gas prices will be reflected more rapidly by suppression of gas demand over the forecast period.”

DomGas Alliance executive director Matt Brown said the report had serious implications for domestic industry and Western Australian jobs.

“The GSOO forecasts confirm the alliance’s long-held concerns about domestic supply as the NWS project inevitably ramps down or diverts gas to liquefied natural gas (LNG) exports,” Brown said.

“The forecasts point to a supply shortage by 2021, a prediction which we believe potentially underestimates the gravity of the situation. While 2021 may seem a long way off to the public, domestic industry makes long-term investment decisions, which require certainty of supply.”

He added that the uncertainty surrounding the future of supply from the NWS project simply confirmed the importance of the state government’s domestic gas reservation policy.

“We need to ensure the certainty of supply of competitively priced gas into the domestic market to underpin economic growth and provide job security for Western Australian workers.

“While the GSOO confirms the state has the resources and the capacity to meet its domestic demand needs, the domestic reservation policy ensures those resources support local industry and jobs and are not diverted to LNG exports.”

Brown added that the findings on the sensitivity of domestic industry to recent price rises corrected a mistake made in the original GSOO report in 2013.

“We are already seeing a reluctance from some companies to commit to new projects in Western Australia due to the elevated price of domestic gas,” Brown said.

“The GSOO also points to fuel switching by companies where that is an option. Given that natural gas is the cleanest form of fossil fuel, this outcome should be of concern.”