GOT GAS? Is Western Australia’s gas price holiday about to end?
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Western Australia has been enjoying low gas prices compared to the east coast thanks to its abundant gas resources and domestic gas reservation policy.
However, concerns have now been raised that this long price holiday could be ending and that Sandgropers need to be prepared to pay more for their gas.
The ABC has just fingered the state government’s decision to allow the second stage of Waitsia gas field owners to sell gas into the North West Shelf LNG plant for export from 2024 to the end of 2028 as having the potential to put pressure on prices.
This comes amidst the decline in production at the North West Shelf and delays in the development of replacement projects.
But is the impact going to be as bad as the report indicates? Will Western Australia, which is hugely dependent on gas see prices climb to the same levels as over in the east given that the Australian Energy Market Operator has forecast that the state’s gas market will experience shortages from 2026?
The answer is rather complicated, but can be boiled down to probably not.
That’s not to say that there won’t be any price increases but there are many factors that will mitigate the impacts.
The first is that while Waitsia Stage 2 will be exporting gas until the end of 2028, the terms of its agreement with the state government requires the project in the Perth Basin to return to supply gas to the local market from 2029 on.
Additionally, during the export period, the project will be required to set aside 15% of its gas production for the domestic market.
Secondly, while some of the major developments such as Scarborough off Western Australia’s coast have been delayed, delayed isn’t the same thing as cancelled.
Woodside has already pressed the button on delivering the project, so it’s only a matter of time before its gas enters both Pluto Train 2 and the domestic market.
And then, there’s the recent spate of new gas discoveries in the Perth Basin.
Finds such as West Erregulla, Walyering and Lockyer Deep all have the potential to deliver gas into the domestic market, even if exemptions like that granted to Waitsia are handed out like so much candy.
Major gas users like those represented by the DomGas Alliance may gripe, but the situation in the West isn’t quite as dire as in the East where rather than having deep but still very much conventional gas fields, they have to resort to tight gas sources such as coal seams or shales that require fracture stimulation.
This not only raises the cost of extraction, which does the gas price absolutely no favours, but is also hugely unpopular with some segments of the population (adding to the already poor reputation gas has with the green lobby).
All this of course doesn’t take into account the growing proportion of the energy mix that renewable energy and its offshoots provide – such as green hydrogen.
As of November last year, the energy generated by residential solar panels in the South West Interconnected System, which covers most of the Western Australian population, already exceeds the amount generated by the state’s largest power station. And it’s still growing.
Add in grid-scale power and the potential greater use of batteries and there’s a better than even chance that gas demand might fall just as supply dips.
Companies are also finding ways to substitute the need for natural gas such as in fertilisers with green hydrogen.
Take all these factors together and while gas prices might indeed rise in Western Australia, it might not be the calamity feared by some.