18 Sep 2023

Opinion Article: Caroline Cherry writes about the WA Dom Gas Inquiry in The West Australian

As winter ends and energy system pressures that often emerge in cooler months ease, it can be easy to forget that Western Australia must remain vigilant to retain the state’s enviable energy security position.

In fact, recent events have underscored how WA is at a critical moment in its energy transformation to net zero and its focus should be on enabling much-needed new gas supply to meet growing demand.

The Australian Energy Market Operator (AEMO) revealed recently that gas increasingly kept the lights on for WA during winter during coal-fired power plant outages and lower renewable generation.

It was not as dramatic as the east coast market suspensions in winter 2022, but WA’s gas-powered electricity generation soared 27% to record levels for the June quarter this year. It accounted for 40% of electricity generation in the South West Interconnected System (SWIS) over the past 12 months.

This reliance on natural gas should not come as a surprise. The scenario highlights the critical role of natural gas around the world – replacing coal and partnering with renewables to provide a reliable back up in electricity generation.

Last December, AEMO’s WA Gas Statement of Opportunities (GSOO) found overall WA domestic gas demand is forecast to increase from 1,099 TJ/day to 1,278 TJ/day in 2032 – a total rise of 16% in 10 years.

The clear take away was that WA needs to bring on more gas supply to the market to meet rising demand, powering WA’s growing resources sector and supporting the SWIS as coal-fired power is phased out.

Now the issue of new gas supply sits at the heart of the State Government’s recently launched Parliamentary Inquiry into the WA Domestic Gas Policy.

Unfortunately, it was not a good start when the Government decided to pre-empt its own inquiry and announce – before even hearing from the industry – that there would be no exemptions from the ban on exports for new onshore projects.

Process and lack of consultation aside, the decision to rule out exemptions will only discourage investment in new gas supply – the opposite of what is required.

The oil and gas industry is committed to providing a secure, reliable and affordable supply of natural gas to WA households and businesses.

But to deliver on this commitment the industry requires a stable policy and regulatory environment that provides certainty to natural gas sector participants and investors.

Too often the export arm of the industry is wrongly singled out as the cause of supply or price issues when, in fact, exports underpin the domestic energy security of WA gas users.

LNG earnings also flow through to Australians as substantial economic benefits domestically such as jobs and government revenues.

Without the planning of complex production facilities and investment of billions of dollars into these projects – which supply both domestic and international customers – the energy supplies would not be secured for anyone.

The need for investment certainty is echoed in a new Rystad Energy report, Western Australia Domestic Gas Policy Study, commissioned by the Australian Petroleum Production & Exploration Association (APPEA).

Rystad Energy found a total of $11 billion investment in new gas supply is needed in WA over the next decade but policy and regulatory stability were critical.

The LNG Domestic Market Obligation which requires LNG producers to reserve domestic gas equivalent to 15% of LNG production from each LNG project, has supported gas supply and price stability in WA.

And the study said allowing onshore gas projects to access export markets would expand the number of commercially viable projects, potentially unlocking further new supply.

“The access to larger export markets reduces the domestic price required for fields to become commercial while improving access to capital and financing,” Rystad Energy said.

The study said the Government could also unlock new supply by incentivising exploration, investment, faster approvals and enabling unconventional gas development.

It said: “New gas supply is needed to offset declining production from legacy fields and meet growing demand.

“Gas demand will remain robust through to 2033, with new gas plants needed to support planned coal retirements and the expansion of renewables in the power sector alongside an almost doubling of industrial demand for gas.”

The industry considers the government should be focused on bringing on new gas supply with pro-investment policies and regulatory certainty.

WA should retain the current offshore domestic market obligations (DMO) while allowing onshore domestic gas policy to be more closely aligned with offshore rules – including the removal of the export prohibition.

Whatever direction the Government takes from the inquiry, the unlocking of new gas supply to maintain the state’s energy security must be the guiding principle.

Otherwise WA risks the kind of energy upheaval seen on the east coast.

Caroline Cherry is WA Director of the Australian Petroleum Production & Exploration Association (APPEA)