The West Australian government is looking to firm up local supply by restricting the export of gas produced onshore, in a move rejected by the nation's upstream industry group.

West Australian Premier Mark McGowan revealed this week his government had strengthened the state’s domestic gas policy to ensure security of supply.

This includes the amendment to prevent the export of local WA gas overseas or to Australia’s east coast, while gas used to power ships will also not be considered domestic gas.

McGowan said the updated policy would ensure Western Australia had continued access to reliable and affordable gas.

"For the domestic gas policy to work, the market also needs to know how much gas is available to it, and when the gas is available. We've listened to WA industry's calls for this transparency and the amended policy will ensure it happens,” he said.

"We have seen what's happened on the east coast with local gas supplies being prioritised for export and we won't let that happen here.”

It is extremely concerning that with a flick of a pen, and not as much as a discussion with industry, that the future prosperity natural gas can provide would be put at risk.

APPEA WA director Claire Wilkinson

He added that there would be no change for traditional liquefied natural gas projects, with the yet to be sanctioned Browse and Scarborough projects still allowed to export, with the state’s existing 15% domestic gas reservation policy to continue apply to those projects should they go ahead.

Domestic shortfall

However, with both of those projects currently on hold, it has created concern of a supply gap emerging in the domestic market by the mid 2020s.

Recent successes in the onshore Perth basin, such as Strike Energy’s West Erregulla discovery and Beach Energy’s Beharra Springs discovery, have provided hope that the Perth basin will be able to help make up the anticipated shortfall that would have been supplied by the LNG projects.

Waitsia exception

However, the government confirmed it had provided an exemption for the tightened domestic gas reservation policy to the Mitsui-operated Waitisia development.

The exemption follows Monday’s announcement the Waitsia field partners had reached an agreement with the Woodside Petroleum-led North West Shelf (NWS) joint venture covering LNG exports of up to 1.5 million tonnes of LNG per annum from the onshore Perth basin field.

The agreement is expected to help keep the trains running at the NWS joint venture’s 16.9 million tpa Karratha gas plant, after Woodside has delayed a final investment decision on its Browse development amid the Covid-19 created downturn.

Gas from Browse is destined to help backfill the trains at Karratha, where spare capacity is expected to open up in the coming years as supply from its existing offshore fields dwindles.

“Due to exceptional economic circumstances created by the Covid-19 pandemic, the state government has given in-principle support to allow the Waitsia project in the Mid-West to fill available capacity at the Karratha gas plant and export some of its gas as LNG for a short period of time,” the government said.

“This arrangement helps ensure the Waitsia Gas Project Stage 2 proceeds to construction. The project will create 200 construction jobs and deliver large volumes of gas into the WA market.”

A final investment decision on the Waitsia Stage 2 development is expected to be made in the December quarter.

Industry backlash

The move to tighten Western Australia's domestic gas policy was criticised by upstream industry body the Australian Petroleum Production & Exploration Association (APPEA).

APPEA warned that the policy could place further onshore development at risk amid the most challenging market conditions facing the state for a generation.

“As we look to the post-Covid-19 recovery, all responsible development, including of WA’s onshore natural gas resources and the economic activity and jobs it provides, should be encouraged, not stifled," APPEA WA director Claire Wilkinson said.

“Cutting off a potential market for any gas developed is a sure way to signal that WA is not open for business. Worryingly, there was no industry consultation on this sudden change to the domestic gas reservation policy."

Wilkinson added that WA's domestic gas needs were already being met without the added "restriction" the amended policy brings, which she warned could actually do the opposite of what the government expects, reducing supply if future developments do not go ahead.

"In short, a project that could be viable if developed for both the domestic and export market may not be commercially viable if developed for the domestic market only," she said.

“One of WA’s advantages is its abundant natural gas resources – which has underpinned much of our economic growth and prosperity in recent decades and provides over half of WA’s energy requirements."

LNG

Keeping Perth basin gas onshore: Western Australia tightens domgas policy to ensure supply