Mar­ket­place surge fu­els WA’s do­mes­tic furore

The Weekend Australian - Review - - Clean Energy - Keith Orchi­son

HOW can en­ergy- rich West­ern Aus­tralia have a gas cri­sis? The pe­tro­leum in­dus­try says that it doesn’t — it has just run head- on into the re­al­i­ties of the mar­ket­place.

The state can meet lo­cal and LNG ex­port de­mand for 100 years, but the im­bal­ance in sup­ply to do­mes­tic cus­tomers over the past 12- 18 months has caused a furore and seen the in­dus­try locked in ar­gu­ment with the Car­pen­ter Gov­ern­ment.

The heart of the dis­pute is a 13 per cent jump in gas de­mand by West Aus­tralians af­ter a decade of 3 per cent av­er­age an­nual in­creases.

The in­dus­try lobby group, the Aus­tralian Pe­tro­leum Pro­duc­tion & Ex­plo­ration As­so­ci­a­tion, as­serts that cur­rent gas sup­ply con­tracts are be­ing met and large cus­tomers ‘‘ who are gen­uine about want­ing more gas’’ are ‘‘ qui­etly en­gaged’’ in ne­go­ti­a­tions with sup­pli­ers.

‘‘ Th­ese cus­tomers,’’ adds AP­PEA, ‘‘ know that gas prices in WA are ris­ing to cover in­creas­ing costs. They un­der­stand that, with the ex­tra­or­di­nary de­mand aris­ing from the re­sources boom, it will take time to de­velop new gas­fields. Ex­plo­ration is un­der way, sup­ply ca­pac­ity is be­ing in­creased and de­mands for new do­mes­tic projects are be­ing fast­tracked.’’

AP­PEA points to the very low prices paid for do­mes­tic gas. This turned off the in­cen­tive for do­mes­tic gas ex­plo­ration and pro­duc­tion, it says, and has led to a lag in de­vel­op­ment of new fields. A lack of spare ca­pac­ity on the crit­i­cal Dampier- to- Bun­bury pipe­line link­ing the north­ern off­shore fields to the pop­u­lated south- west of the state has not helped, ei­ther.

The damp­en­ing ef­fect of low do­mes­tic prices has been ex­ac­er­bated by the surge in ex­plo­ration and pro­duc­tion costs. De­vel­op­ment costs have risen 50 per cent in two years and are still go­ing up.

The good news, adds AP­PEA, is that, now do­mes­tic prices are ris­ing in re­sponse to the mar­ket sig­nals, ‘‘ com­pa­nies are look­ing se­ri­ously at plans for ex­ist­ing gas­fields that were pre­vi­ously un­eco­nomic’’.

The growth in de­mand for LNG from over­seas is also a pos­i­tive fac­tor. The as­so­ci­a­tion points out that the do­mes­tic WA is too small to sup­port the de­vel­op­ment of large, re­mote and high- cost off­shore fields. ‘‘ But once the in­fra­struc­ture is in place for LNG pro­duc­tion and the price for do­mes­tic gas is suf­fi­cient to at­tract in­vest­ment for lo­cal pur­poses, the sup­ply of more gas for the WA mar­ket will fol­low.’’

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