WA’s Domestic Gas Policy – Is it time for a change?

For nearly 20 years, Western Australia has stood alone in having a Domestic Gas Policy (the WA DomGas Policy). In May 2024, we looked at the recommendations set out in the Interim Report of the latest Parliamentary inquiry into the policy. Since then, the Economic and Industry Standing Committee of the WA Parliament's Legislative Assembly published its final report (with support from all parties represented on the Committee) in relation to the WA DomGas Policy (the Report).

Here we consider some of the Report’s key findings and recommendations.

Significant shortfalls are forecast from 2030 onwards

The Report details a bleak picture for the WA domestic gas market with large shortfalls in domestic gas production forecasted from 2030 onwards. The Report also forecasts that the shortfalls will increase over time – by 2032, the Report predicts that WA could encounter shortfalls of over 350 terajoules per day representing 30% of total gas demand.

The Reports refers to a number of factors which explain the predicted domestic gas supply gap, including:

• From a supply side – it has become increasingly difficult and costly to develop gas projects in WA (alongside unfavourable public sentiment towards fossil fuels) as well as depleting gas reserves.
• From a demand side – demand for gas is expected to grow over the next decade, particularly as the State moves towards a de-carbonised economy which will see the phasing out of coal-fired power generation by 2030 (and in turn increasing demand for natural gas as a transition fuel).

Reservation amount for domestic gas

The Report recommends that the current reservation quantity of 15% be left unchanged for projects that are already the subject of the WA DomGas Policy (Recommendation 4). The Report notes that a change (ie. increase) to existing arrangements would pose a sovereign risk. However, the Report recommends that the reservation amount for new LNG projects or gas fields should be based on a more flexible evidence-based approach (Recommendation 5).

Policy implementation

The Report recommends the State Government consider updating and expanding the WA DomGas Policy (Recommendations 6 and 7). An updated policy would promote WA’s energy security and ongoing economic development, and advance the long-term interests of WA. The proposed expansion would be to make the policy constitute a broader domestic gas security policy. Finally, the Report recommends the policy be given legislative force (Recommendation 8).

Gas market reform

The Report recommends the WA State Government investigate establishing a transparent, public, long-term trading market (LTTM) for domestic gas (Recommendations 9, 10 and 11). This, it says, will facilitate an equitable and transparent negotiating environment for domestic gas in WA. Currently, long-term contracting for domestic gas supply in WA is invariably negotiated bilaterally with bespoke contracting arrangements. Under an LTTM, a gas buyer would be able to secure a quantity of gas from the LTTM and select a standard contract duration based on a standard set of terms and conditions. The buyer and seller could then negotiate to strike a price and could agree to negotiate certain bespoke departures from the standard terms if necessary.

Improving market transparency and forecasting

The Report makes a number of recommendations for improving market transparency and forecasting, including lengthening the forecast period covered by AEMO’s Western Australia Gas Statement of Opportunities to 20 years (Recommendation 16) and working with AEMO to provide forecasts of the decarbonisation pathways for gas users and more regular updates on wholesale gas prices (Recommendations 17 and 18).

Changes to the onshore ban on LNG exports already implemented

Until recently, the WA DomGas Policy did not allow exports of onshore gas (except where an exemption had been granted). The only onshore project that was exempted from the ban was the Waitsia Gas Project.

One of the recommendations in the Report was that the WA State Government should allow onshore gas projects to export LNG via existing pipeline infrastructure, provided the domestic market is adequately supplied and is expected to be well supplied (Recommendation 30).

In September 2024, the WA State Government loosened the ban on onshore gas exports. The Policy now requires that onshore gas projects reserve 80% (rather than 100%) of production for WA domestic use up until 31 December 2030.

The rationale for the change was that it would incentivise new onshore gas projects or existing projects seeking to expand production by allowing LNG exports and in turn strengthen domestic gas supply.

Should the WA State Government allow the industry to drill baby, drill?

Given it is expected that demand for gas will grow over coming years, additional gas supply will be required to prevent the predicted shortfalls. Notwithstanding the decarbonisation process that is underway, the Report makes it clear that the development of new gas fields is a necessary part of ensuring supply keeps up with demand.

The WA Government has already made changes to the Policy as outlined above with the aim of increasing domestic gas production. The Report recommends other steps be taken to facilitate new gas projects, including:

• streamlining approvals processes for new gas projects in the state (Recommendation 26);
• refusing to grant new retention licences which are intended to apply to projects that are not currently commercially viable but is likely to become commercially viable within 15 years (Recommendation 27); and
• considering a scheme whereby owners of domestic gas processing facilities are compelled to open up capacity to third parties (Recommendation 28).