Gas developers in Perth Basin barred from tapping into lucrative export market

The WA government says the move will ensure domestic supplies, but critics insist it will curtail financing options for developments.

Gas developers in Perth Basin will be banned from exporting LNG in a bid to keep enough supplies for domestic use, the Western Australian state government said.

In an update to its domestic gas policy, the WA state Labor government said it would not issue any exceptions for the new markets in a bid to ensure local energy security

“To ensure domestic energy security, the WA government will not consider exemptions from the WA Domestic Gas Policy for onshore gas developments on the existing pipeline network to export LNG, including those in the Perth Basin,” a statement from the state government said.

The policy “will safeguard and secure Western Australia’s gas supply and support long-term economic and industrial development in the state.”

The move is a blow for would-be developers in the Perth Basin, which has been the epicentre of a recent battle between billionaires for control of the lucrative new market.

Chris Ellison’s Mineral Resources, Gina Rinehart’s Hancock Prospecting and the Kerry Stokes-backed Beach Energy are all clamouring to develop in the region and have sought additional exposure.

Beach Energy has, however, secured an exemption and can sell gas from its Waitsia project in the onshore Perth Basin; the South Australia-based gas company in 2022 said it had agreed to sell BP 3.75 million tonnes of LNG.

WA’s vaunted domestic gas reservation policy bans exports from onshore projects and requires big offshore players to place 15 per cent of their gas into the local market.

The reserve has been credited with keeping WA gas prices for big industrial users at levels far lower than for their eastern seaboard counterparts. But in recent months, WA has experienced a spate of coal power station outages and an uptick in demand.

The move comes as WA seeks to spur on the development of new critical mineral production and processing.

The WA clampdown will temper market excitement over a region that is widely tipped for an explosion of growth.

The state has abundant supplies of almost all the government’s critical minerals list – alumina, cobalt, lithium and graphite – much needed during global efforts to produce batteries and renewable energy projects as the world weans off fossil fuels.

These operations will need gas for power – and the export restrictions will ensure sufficient supplies.

Industrial development at Burrup in Western Australia.

The expansion of Waitsia, which will enable Beach to boost production, has been beset by problems after the collapse of construction contractor Clough. First gas from the expansion is now expected in mid-2024.

For other developers, however, the inability to secure offtake agreements will inhibit finance options, Australian Petroleum Production and Exploration Association WA director Caroline Cherry said.

“WA needs to bring more gas supply to the market to power WA’s growing resources sector and support the southwest electricity system as coal-fired power is phased out,” Ms Cherry said.

“But today’s changes, and the way they have been announced, are the opposite of what is needed and will only diminish new gas supply investment and the state’s path to net zero.”

So-called offtake agreements are a critical illustration of demand that most lenders look for when evaluating a project. Developers are already struggling to line up capital as major domestic lenders restrict lending to fossil-fuel developers.

The capital restrictions could inhibit the development of the critical mineral industry. These projects will need to demonstrate a secure and affordable supply of energy before any financial investment decision can be taken.