The state government has announced it will retain its 15 per cent domestic gas reservation requirement and will apply the policy in a flexible manner that pays heed to the commercial viability of projects.
Premier Colin Barnett made the announcement today in the government’s formal response to the recommendations of the Economics and Industry Standing Committee’s Inquiry into Domestic Gas Prices.
Mr Barnett said the state government would, as recommended, retain a flexible approach to how the domgas requirement is implemented, to take into consideration the commercial viability of a project.
"This flexibility will be retained unless an independent study can show that a stricter approach would be more effective,” he said.
He said the government is developing a framework to clarify ‘commercial viability’ of domestic gas requirements, and will consult with industry before finalising the framework.
This is a critical aspect of the policy, since project developers like Woodside and Chevron are required to start supplying the domestic market only when it is considered commercially viable.
The DomGas Alliance, which represents domestic users of gas, and includes Alcoa and Alinta among its members, welcomed the announcement.
DomGas Alliance Chairman,Tony Petersen, said the reservation policy was the single most important instrument available to ensure domestic supply.
"Western Australia depends on gas for 60 per cent of its energy and 70 per cent of its electricity,” Mr Petersen said.
“Ensuring affordable supply of gas to local business and households should be part of LNG producers’ licence to operate.”
Mr Barnett said the government was also seeking to improve market transparency.
“The Government is already implementing a Gas Market Bulletin Board and Gas Statement of Opportunities and developing more reliable gas demand and supply forecasts as recommended by the committee,” the Premier said.
“We have also approached the Federal Government to include a domestic gas supply requirement in the conditions for granting or renewing offshore petroleum leases in Commonwealth waters.”
Mr Barnett said that many of the committee’s other recommendations were already under way in one form or another and had been noted.
These included working with operators of LNG projects to secure assurances about future supply and timelines; and encouraging the safe development of unconventional gas resources.
The committee, chaired by Liberal MP MIke Nahan, advocated more intervention in the gas market, saying the limited supplies in the domestic market and the sharp spike in gas prices were not signs of a properly functioning market.
It suggested the establishment of an independent gas market monitor “to ensure the appropriate amount of gas is supplied to the market under domestic reservation obligations”.
It also suggested some more interventionist ideas, such as holding regulated auctions, limiting specific fields to domestic use, or toughening the process for renewal of retention leases.
