WA Domestic Gas Policy: updates

The North West Gas Development (Woodside) Agreement Act 1979 included express obligations for the State to invest in infrastructure in order to ensure the commercial success of the project by the joint venture parties. These obligations included the State’s decision to provide critical infrastructure for the project (including the construction of the Dampier to Bunbury Natural Gas Pipeline in 1984), community development facilities and a 20 year purchase agreement for gas by the then State Electricity Commission of WA. The purchase agreement assured Western Australia of supplies of gas adequate for its needs at contemporary commercially competitive prices. The policy approach emphasised the State’s interest in developing a management framework to enable resource projects to reach commercial stability without the State having to take direct ownership or interest in the resources themselves. The policy approach, which focuses on outcomes for the development of the State rather than project regulation, is reflected in recent domestic gas commitment agreements and lays out the foundation principles for future policy considerations.

Reflecting the principles enshrined in the policy approach to securing energy supplies in the 1970s, the WA Government Policy on Securing Domestic Gas Supplies was released in October 2006. The 2006 Policy continued the State’s commitment to managing market supply frameworks through conditions being place on project approval. The 2006 Policy included a domestic gas supply commitment as a condition of access to Western Australian land for the location of processing facilities in order to achieve the State’s objective to secure domestic gas commitments up to the equivalent of 15% of LNG production from each export gas project. At the time, the 15% target reflected the contemporary estimate of the State’s future domestic gas needs. The 2006 Policy did not seek to impose specific regulatory requirements on each project. Rather, on a case by case basis, the Policy provided commercial flexibility to enable the proponents to meet their domestic gas commitments. Further, and consistent with the principles adopted in the late 1970s, the 2006 Policy enabled market mechanisms to set the price of gas sold into the domestic market. This approach to the setting of policy facilitated market driven project investment whilst delivering broader social and economic benefits to the State and Western Australian community.

Following the 2010 Parliamentary Inquiry into Domestic Gas Prices, in 2011 the Government released a policy update which aimed to provide increased clarity to the operation of the 2006 Policy. In brief, the update clarified that gas producers would continue to be required to demonstrate their ability to meet the Domestic Gas Policy as a condition of project approval. The State would also continue to apply the policy flexibly with the following expectations: 

• LNG producers would continue to commit to making available domestic gas equivalent to 15% of LNG production from each LNG export project. 
• Producers would commit to developing, or obtaining access to, the necessary infrastructure (including a domgas plant, associated facilities and offshore pipelines) to meet their domestic gas commitments as part of their approvals process.  Producers would show diligence and good faith in marketing gas into the domestic market, and these efforts could be subject to independent review. 
• The obligation to supply domestic gas should, as far as possible, coincide with the start of LNG production. 
• Prices and contracts for domestic gas would continue to be determined by the market. 
• Producers would be able to propose to offset their domestic gas commitment by supplying gas or other energy from an alternative source, rather than supplying gas from their LNG projects. Among other conditions, producers would have to demonstrate that the proposed offset represented a net addition to the State’s domestic energy supply. 

The 2011 Policy statement did not provide for an explicit commercial viability test. The Policy provided that prior to approval, projects should demonstrate capacity to supply gas to the domestic market in accordance with the Policy expectations. The Policy emphasised these measures to incentivise delivery rather than attempt the development of a quasiregulatory framework establishing criteria for commercial viability. Notwithstanding, at the time Government indicated that it was developing a framework to clarify ‘commercial viability’ of domestic gas requirements, but would consult with industry before finalising the framework. These consultations have not progressed to enable the publication of a framework.

The WA Government updated the Policy in August 2020 to keep it fit for purpose. The amendments strengthen compliance, improve transparency of commitments, and ensure gas availability for new industrial development. The changes responded to concerns from downstream gas project developers in relation to gas supply and active marketing from existing domestic gas commitment holders. 

Prior to the 2020 Policy update, the WA Government did not have a policy position regarding the export of gas produced onshore. 

The Policy update clarified that the WA Government would not support the export of gas from the local pipeline network other than in exceptional circumstances, in order to ensure gas is available for local industry development. This clarification responded to emerging demand for gas from the local market to meet reserve shortfalls in the North West Shelf LNG facilities. It also responded to a crisis on the east coast, where integration of domestic and international gas markets has led to the export of onshore gas that would otherwise have been domestic-only, which as a consequence contributed to rising local gas prices. The 2020 Policy update did not change the policy settings for traditional, large-scale LNG export developments.