Independent analysis by Wood Mackenzie shows the Federal Government's proposed domestic gas reservation framework would undermine Western Australia's well-functioning gas market, discourage investment, force domestic-focused gas producers out of the market and put up to $142 billion in export revenue at risk.
The analysis found applying the proposed 20 per cent Domestic Supply Obligation to WA’s LNG exporters would create a significant structural oversupply in the domestic gas market, distorting investment signals and undermining the commercial incentives required to develop future gas supply.
Australian Energy Producers Chief Executive Samantha McCulloch said the findings reinforced industry concerns that the federal government’s approach was unworkable and risked dismantling Western Australia's proven approach to gas reservation.
"Western Australia already has a well-established domestic gas policy that has delivered affordable and reliable gas supply to homes and businesses for over two decades," Ms McCulloch said.
"The analysis underscores the case for recognising Western Australia’s established framework, instead of overriding the state’s scheme with one that creates unnecessary complexity, uncertainty and significant economic risks.”
Wood Mackenzie found the proposed national scheme would create a structural oversupply in the short-term equivalent to almost double Western Australia's domestic gas demand, leaving thousands of petajoules of gas stranded with no viable market.
By forcing gas prices below the marginal cost of production, the scheme would make future investment uneconomic, forcing out domestic-focused producers that currently supply around 40 per cent of the state’s domestic market. Over time, this would reduce competition, create gas shortfalls and drive prices higher. It would also jeopardise investment in backfill supply for existing LNG projects.
Ms McCulloch said the proposed scheme’s broad ministerial discretion and annual approval processes added further investment uncertainty and risk.
"Gas projects require billions of dollars of long-term investment and investors need certainty. Policies that rely on annual ministerial decisions and broad discretionary powers make it harder to attract the capital needed to develop future supply.”
Wood Mackenzie also found that if LNG exports had to be curtailed to meet domestic supply obligations, Western Australia could lose up to $142 billion in export revenue between 2027 and 2040.
Ms McCulloch said this would also damage Australia's reputation as a reliable energy supplier and the state would lose out on the enormous economic and strategic opportunity from growing LNG demand in the region.
"This sends the wrong signal to our major trading partners and investors at a time when global competition for investment is intensifying,” she said.
"The last thing Australia should be doing is jeopardising the investment needed to deliver new gas supply, support energy security and maintain our reputation as a trusted and reliable trading partner."
Australian Energy Producers’ submission on the draft framework outlined several recommendations to achieve a workable design that supports investment while ensuring a well-supplied gas market for the long term.
The submission calls on the Government to calibrate domestic supply obligations to actual market demand, fully protect existing contracts, and allow gas genuinely offered to the domestic market but not purchased to be exported without unnecessary regulatory hurdles.
It also recommends replacing annual Ministerial approvals with a more predictable, performance-based compliance framework. The scheme should also recognise the unique circumstances of Western Australia and the Northern Territory and exempt these jurisdictions in practice.
“These changes would align the national scheme more closely with Western Australia's reservation model, which has supported investment and domestic supply for almost two decades.”
Read the Wood Mackenzie report for Western Australia here.
Read our submission here.
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