THE gulf between gas buyers and producers in Western Australia continues to widen as local industry pushes harder for government intervention to curb rising prices and force suppliers to deliver more gas.
THE gulf between gas buyers and producers in Western Australia continues to widen as local industry pushes harder for government intervention to curb rising prices and force suppliers to deliver more gas.
A formal debate on the availability and price of gas for local industry was the centrepiece of the Energy in Western Australia conference in Perth last week.
On the one hand, upstream suppliers argue there is no shortage of gas for local buyers prepared to pay realistic prices that reflect growing demand and the rising cost of production as more marginal or remote fields are tapped.
Yet, downstream users claim there is a crucial shortage of “affordable” supplies because producers are warehousing gas reserves to sell into the more lucrative LNG export market, putting WA industry at a disadvantage to places where gas is cheaper.
In particular, they bemoan that gas prices have trebled under new supply deals compared to the artificially capped prices of 20-year-old contracts that are now beginning to expire.
They also bemoan that competition regulators continue to allow major gas producers to market gas collectively from jointly owned projects to local buyers, rather than forcing them to compete head to head.
Tony Petersen, chairman of the Domgas Alliance which represents major buyers such as US alumina giant Alcoa, said it had simply become impossible for downstream buyers to secure new long term contracts for significant volumes of gas.
Instead, producers were offering short-term deals at inflated prices, making it impossible to finance expansions or new projects reliant on gas.
Though he reluctantly accepted the regulators approval of joint selling arrangements, he maintained they were uncompetitive and should be scrapped, along with “escape clauses” which allow LNG developers to defer supplying some gas to local buyers on the grounds it would be commercially unviable to do so.
Mr Petersen conceded that such action would amount to “interfering in the market” but argued it would “still deliver the best result for the state” by making more gas available to local industry at more affordable prices.
He argued the benefits of subsidising an expansion of local businesses, such as Alcoa’s, would outweigh the cost of a reduced investment return to gas producers.
But Australian Petroleum Production and Exploration Association director Tom Baddeley said buyers’ claims of a shortage of “affordable” gas were simply a myth.
Mr Baddeley said buyers’ forecasts that demand would grow by at least 1100 terajoules a day by 2020, double current levels, were not credible because the WA market would need to grow at twice the rate predicted by the Australian Bureau of Agriculture and Resource Economics.
Similarly, predictions of a 600 tj/day shortfall by 2015 were unbelievable given WA was experiencing its biggest boom in domestic gas development in 30 years, he said.
Already, Apache Energy’s Devil Creek project and BHP Billiton’s Macedon gas project now underway, are forecast to boost WA’s supply by 40 per cent by 2013. The giant Gorgon LNG export project will also boost local supplies by at least another 10 per cent by mid decade and as much as 30 per cent after 2020.
Mr Baddeley said instead of seeking curbs on the gas available for export, buyers should be encouraging LNG projects because they provided the infrastructure and investment that ultimately increased supplies to the local market.
The key to bringing more gas to shore was securing a price that was “mutually advantageous”, he said, adding that higher prices were the very reason that new projects such as Devil Creek were now going ahead.
Agitating for government intervention to force producers to deliver more gas at reduced prices would simply discourage investment in gas projects and delay the supply of more gas to local industry, he said.
