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On 22 February 2024, the Economic and Industry Standing Committee of the Legislative Assembly of the Western Australian Parliament (the Committee) tabled in State parliament an Interim Report on its inquiry into the WA Domestic Gas Policy (the Policy).1
First introduced in 2006, the Policy was designed to secure enough gas to provide for the State’s energy needs and economic development into the future by governing the approval process of liquefied natural gas (LNG) projects within Western Australia. The Policy presently requires LNG producers to take measures to ensure adequate supply of gas for local use, including by reserving 15% of LNG production from each WA export project for domestic gas consumption.
The inquiry has been driven by recent forecasts issued by the Australian Energy Market Operator (AEMO), who presented the Committee with evidence that WA is likely to experience a shortfall of gas in the short and medium term.2 Given the expected shortfalls, the inquiry investigated the operation of the Policy, and found that it is no longer remained fit-for-purpose.
The Interim Report sets out the Committee’s preliminary findings on the efficacy of the Policy, to engage with gas market participants and the wider WA community on potential solutions to the expected gas shortfall. The full report, including the Committee’s recommendations, is expected to be finalised and tabled on 30 May 2024.
Over the next decade, the demand for gas, both domestically and international, is expected to grow. AEMO projects that the WA domestic gas market will be in deficit between 2024 and 2029, with committed and expected projects up to 11% below forecast demand.4 From 2030 onwards, further gas supplies are forecast to be required to meet increasing demand to prevent WA from facing an increasing deficit. By 2033, gas supply shortages peak at a deficit of 355 terajoules per day (or 27% of WA’s domestic gas demand at the time).5
The Policy is not set out in legislation but is instead given effect through contractual agreements between LNG project developers and the State (such as state agreements, domestic gas producer agreements and domestic gas commitment agreements).
Although each agreement is different, the Policy requires LNG export project developers to commit to making gas available in the WA domestic market by:
The Policy is currently providing a degree of certainty about how LNG producers should supply gas to the domestic market, and at what levels. However, concerns have been raised about the Policy’s ability to respond to the evolving market and the State’s interest when circumstances change.
The final report intends to provide recommendations on how the Policy can be improved, but the key findings on the Policy so far, include:
Key Issue |
Description |
Lack of consistency and clarity |
Concerns have been raised about the Policy’s lack of clearly stated objectives and enforcement mechanisms. Given the various agreements with LNG exporters contain obligations which have been negotiated by the State at a particular point in time, this has led to differences in the nature and obligations in each agreement (including in reporting requirements). |
Lack of transparency on Policy compliance |
Some stakeholders have noted concerns that some gas producers are subject to clear obligations that are publicly accessible, whilst other arrangements have not been publicly disclosed and it is unclear the extent of their obligations are concrete and legally enforceable. Although each joint venture participant in an LNG export project is individually responsible for its obligations and must individually report to the the Department for Jobs, Tourism, Science and Innovation (JTSI)– public reporting by JTSI on compliance only occurs at the project level. This has been highlighted by a number of stakeholders, as a way in which obligation holders are not kept accountable in the public eye. |
Inadequate compliance and enforcement mechanisms |
The Policy assumes that gas producers will act in ‘good faith’ and adhere to spirit of the Policy. Many stakeholders have concerns that the reliance on gas producers to act in good faith, without any enforcement mechanisms, exposes the domestic gas market to the risk that gas will not be delivered in a timely manner. As part of the annual compliance process under the Policy, JTSI collects data from the domestic gas commitment holders. Since their commitments started, the information collected from the JTSI suggests that LNG produces have delivered an average around 8% of domestic gas relative to LNG exports (just over half on what is required to be reserved under the Policy). There is a considerable variation between producers, and the JTSI has observed that some are not operating within the spirit of the policy. Projects which were not complying with the Policy were not named in the interim report, but could be identified once the final report is published. |
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