Woodside Petroleum boss Don Voelte has given a subtle warning to major domestic gas customers, such as Alcoa, that the days of cheap gas are over following Woodside's landmark price settlement with Alinta.
Woodside Petroleum boss Don Voelte has given a subtle warning to major domestic gas customers, such as Alcoa, that the days of cheap gas are over following Woodside's landmark price settlement with Alinta.
Alinta almost collapsed late last year when an independent arbitrator ruled that the North West Shelf partners were entitled to demand a big increase in the price paid by major industrial customers for gas.
After months of negotiation, Alinta and Woodside last month reached a confidential price settlement for North West Shelf gas supplied to WA's biggest gas distributor.
Speaking at Woodside's annual results announcement today, Mr Voelte lauded the confidential agreement as setting a new benchmark for all new domestic gas contracts.
"The exact settlement is to remain confidential, but I can say we are pleased that ... it compares favourably with recent WA gas sales agreements," he said.
"This is a huge new revenue exposure for North West Shelf and Woodside and my expectation is that when other new or existing contracts come up for review, there will now be a new price foundation to work from."
Mr Voelte declined to provide any further detail, but the agremeent is believed to result in the price Alinta pays rising at least threefold to around $8 a gigajoule.
Mr Voelte's comments are likely to be seized upon by WA's Domgas Alliance, which represents major customers, including Alinta and Alcoa.
The alliance has long argued for greater sanctions on big upstream suppliers, such as Woodside, to force them to develop more gas reserves for the domestic market instead of focusing on the more lucrative international LNG market.
In particular, it supports greater enforcement of the state's reservation policy, whereby 15 per cent of reserves are to be earmarked for domestic use, and the revocation of retention permits over known gas resources if the holders refuse to develop them in a timely manner.
The alliance argues companies are deliberately stalling development of fields that could economically supply the domestic market in order to preserve them for export.
It also argues that the subsequent lack of investment in new domestic supply capacity has contributed to a runaway increase in prices and that a shortage of affordable gas has become a major impediment to the development or expansion of major mining and industrial projects.
Meanwhile, Mr Voelte also warned that any further industrial action at its Pluto LNG project on the Burrup Peninsula could delay its completion.
Though the $13 billion project is 85 per cent complete, Mr Voelte said its scheduled completion by the end of this year remained "contingent on a productive industrial relations environment".
Mr Voelte said two recent illegal strikes over the introduction of motelling for fly-in/fly-out workers staying at Woodside's Karratha accommodation camp had significantly impacted productivity for eight days.
Mr Voelte said he believed the strikes, which Woodside argues were orchestrated by construction unions, were not aimed at the company but merely at testing the boundaries of the Rudd government's new industrial relations laws.
"We hope that this early testing will give way to a calming of the waters," he said. "But just in case, we've put in place a mitigation plan ... which ensures our customer LNG delivery obligations are met."
Mr Voelte said he had held several long meetings with federal IR minister Julia Gillard about the issue and believed Woodside had received a good hearing.
Mr Voelte said it was up to the government to determine its response to the evolving IR situation, though Woodside would make suggestions.
He said the "pendulum" of IR regulations may have swung too far in one direction under the Howard government, and had maybe now swung slightly too far in the opposite direction under the Rudd government.
"We need to find that happy neutral state," he said.
Mr Voelte declined to comment on Woodside's suggested measures, though hinted that more immediate penalties for illegal strikes may be one option.
"We're working for basic fairness," he said.
Coincidentally, Woodside revealed today that it would retain ownership of its Gap Ridge accommodation village at Karratha given its planned three-fold expansion of the Pluto LNG project.
The company had previously indicated it would sell the village on completion of the Pluto project.
The village is at the heart of the motelling dispute, whereby workers will no longer have a room permanently allocated to them but will receive a new room each time they are on roster.
Motelling is widespread across the resources industry, and Woodside says it will enable it to house 25 per cent more workers needed for the expansion of the Pluto LNG development.
