WA Gas Supply and Demand - A Need for Policy Intervention

Client: Domgas Alliance
Sector: Energy

The report provides an assessment of the WA gas market covering issues in gas supply and demand, types of policy and market failures likely to be present given the structural characteristics of the WA gas market. It also assesses potential policy responses. Read more...

The WA economy has the highest energy dependence on natural gas of any state in Australia. Natural gas accounts for 51% of WA primary energy consumption and this dependence is expected to increase in the future given natural gas is a relatively clean and low carbon fuel.

Modelling undertaken for the study found that a focus on facilitating downstream investment in minerals processing is likely to generate a significant positive economic benefit. This facilitation would include the removal of structural impediments, including any impediments to the domestic supply of natural gas.

The study found compelling evidence that the WA gas market suffers from market failure:

• Existing and potential gas users have reported significant challenges in securing additional or new supplies of gas.
• The WA gas supply market is highly concentrated. Two operating entities hold close to 100% of gas reserves in developed fields.
• The current joint marketing arrangements for the North West Shelf joint venture significantly reduce competition by reducing the number of independent producers selling into the domestic market.

Given the market failure, the study concluded that there is a need for urgent policy intervention by government to ensure continued supply of competitively priced gas to the domestic market. Such intervention should aim to avoid being excessively costly, and be the minimum necessary to correct the failure.

The study identified the most fruitful targets for such intervention to include the removal of unnecessary joint selling arrangements, such as the domestic market joint selling arrangements in WA. In addition, impediments associated with the current Retention Lease arrangements could be addressed and opportunity for third parties to gain access to natural monopoly upstream gas gathering and processing facilities provided.

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