In its submission, DomGas said it believes that, at a time when manufacturing faces significant challenges, energy is one of the few advantages Australia has to offer. However, DomGas also believes that this advantage is currently being lost overseas, with domestic gas prices in WA rising sharply from $2.50 per gigajoule (GJ) to as high as $12/GJ as producers focus on maximising LNG exports.
“In the east, gas prices have risen from $3–4/GJ to $6–7/GJ with producers now talking of prices of up to $9/GJ. The significant rise in gas prices could cost industry and households an extra $3 billion a year in WA; an extra $420 million a year in Queensland; and, an extra $1.6 billion a year in Victoria, New South Wales and South Australia,” states the submission.
Why the need to formally reserve gas?
DomGas has proposed that the Federal Government implement a national gas reservation policy, citing the WA domestic gas reservation policy as a successful example of what Australia could achieve as a country.
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“The Wheatstone Project is an example of reservation in action. The project has committed to domestic gas equivalent to 15 per cent of LNG production.
“Domestic supply is targeted for 2016 to coincide with LNG start up. Importantly, domestic supply will rise from 187 terajoules per day (TJ/d) to around 500 TJ/d as LNG exports expand. For local industry, this means energy certainty over the 25+ year life of the project.”
According to DomGas, WA faces a serious shortfall of gas, with supply from the North West Shelf Project expected to fall significantly.
“In the absence of Commonwealth domestic supply obligations, gas producers can conduct all processing offshore through floating LNG plants or transport gas to Darwin without supplying the Australian market. Domestic supply obligations should be implemented by the Federal Government in offshore WA areas to support and complement WA’s 15 per cent reservation policy,” states the submission.
“The east coast market is an integrated gas supply market with NSW, for example, dependent on interstate supply for 98 per cent of its gas. Action or inaction by one state at the point of production can have significant flow-on impacts on energy users in other states.
“The Queensland Government policy ‘to set aside future gas fields for future domestic supply if needed’ has proven to be ineffective. To date, no gas field has been set aside by the Queensland Government despite the worsening domestic gas shortage.
“Even if the policy was activated now and a suitable domestic gas field identified, it could take up to seven years before the field could be developed and gas begins to flow to the domestic market.
“There is a real risk for Queensland and other east coast states dependent on Queensland gas that once the ramp-up phase of the Gladstone LNG projects is complete, most if not all of the gas will already have been locked up in 20–25-year LNG contracts.”
How a federal reservation policy could work
To support its proposal, DomGas has suggested how a Federal reservation policy could be implemented.
“Where offshore gas resources are administered by the Commonwealth, domestic reservation obligations could be easily implemented as a condition in exploration permits, retention leases or production licences,” states the submission.
“For onshore gas resources, domestic supply could be mandated through Commonwealth legislation.
“Producers should, however, be given sufficient flexibility in how they would meet their domestic supply obligations. This could be achieved through gas swaps and trading mechanisms which allow producers to, for example, meet commitments from outside the project or outside the field.”
The draft Energy White Paper seeks to provide a policy framework to address challenges in Australia’s energy sector and to help maintain Australia’s competitiveness.
The white paper sets out a series of proposed Federal Government priorities to address challenges confronting Australia’s energy sector.
The Federal Government intends to release the final Energy White Paper in mid-2012.
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