WA gas move a ‘nail in the west-east pipeline coffin’
The West Australian government has banned local gas supplies being sent to the nation’s east coast.
The West Australian government has banned local gas supplies being sent to the nation’s east coast, raising doubts over a mooted $6bn transcontinental pipeline, following its decision to allow onshore gas to be exported through the state’s North West Shelf LNG plant.
Onshore gas will be processed at the giant LNG plant for the first time from 2023 from the onshore Waitsia field owned by Beach Energy and Mitsui as the Woodside Petroleum-operated facility moves to a tolling facility due to dwindling existing supplies.
About 1.5m tonnes a year of LNG will be supplied to NW Shelf from Waitsia, equivalent to nearly 10 per cent of the plant’s 16.9m tonne annual capacity.
Beach and Mitsui will be able to export gas from NW Shelf “for a short period of time”, WA Premier Mark McGowan said, reflecting the need to incentivise gas producers to sanction new investments amid a profound industry downturn due to the COVID-linked oil price crash.
Under the updated gas policy released on Monday, local WA gas cannot be exported to the eastern States or overseas to ensure sufficient supplies are available for local users.
Mr McGowan has allowed an exception for Waitsia but said he was wary of the state repeating the mistakes of the east coast where domestic gas prices soared after Queensland LNG exports sucked supplies out of the market.
“We have seen what’s happened on the east coast with local gas supplies being prioritised for export and we won’t let that happen here,” Mr McGowan said. “The Waitsia Gas Project Stage 2 in the Mid-West is an exception to the policy. Once sanctioned, it will provide urgently needed jobs, royalties and economic stimulus for the region and the State.”
The decision to ban sales of WA’s domestic gas to the east coast may also hike the difficulty of advancing the long-mooted $6bn transcontinental pipeline, promoted by former WA premier Colin Barnett, and also backed by Andrew Liveris in an early National COVID Coordination Commission report.
A 2019 study found that while the $5.8bn pipeline was technically feasible, “commercial and market risks present major challenges for the project”. The new policy restrictions appear set to hobble a source of cheap domestic gas for the facility although it is unclear if any project proponent could still strike an offtake deal with a WA producer that still keeps 15 per cent of gas for the local market.
The move “sounds like a nail in the west-east pipeline coffin,” EnergyQuest chief executive Graeme Bethune told The Australian.
WA’s regulations require 15 per cent of gas reserves at LNG export projects to be set aside for use within the state, but the government has been grappling with the issue of how to treat new production from onshore sources such as Waitsia.
“The WA onshore discoveries were always going to be a tricky issue for the WA government, with looming declining NW Shelf production and delays to Scarborough and Browse,” Mr Bethune added.
Woodside’s own offshore Pluto field will also send gas through the plant from 2022 under a non-binding deal signed with NW Shelf partners that was announced on Monday. Woodside chief executive Peter Coleman has faced long-standing issues to get a much bigger gas processing deal for Browse through the plant with misalignment between the two different ventures.
Beach Energy said WA had made a pragmatic decision given the tough circumstances facing the industry.
“For us to be able to develop a field as large as Waitsia successfully and create more economic activity in the state, the combination of export and domestic gas is the right outcome for us and the right outcome for the state,”
Beach chief executive Matt Kay said after releasing its annual results on Monday.
“If you think about how many final investment decisions are going to take place in the oil and gas industry in the course of this economic downturn and COVID-19 pandemic, there’s not going to be a lot. The fact we are not a greenfield project, we’re going through existing facilities means we are able to take an investment decision despite the current economic circumstances.”
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