WA’s looming domestic gas shortage: How a ‘good faith’ argument left WA short

Eighteen years ago, a West Australian Labor premier made a deal with an American Woodside chief executive to secure gas from the Pluto project he said was “critical to our state’s long-term economic future”.

Now WA is facing a gas shortage and ex-premier Alan Carpenter’s long-term optimism is Premier Roger Cook’s immediate problem.

WA Premier Roger Cook and Woodside ceo Meg O’Neill with their predecessors Alan Carpenter and Don Voelte in the background.Credit: WAtoday

Australia’s most gas-dependent state long thought it had a secure supply through a policy of mandating exporters to reserve for local use the gas equivalent to 15 per cent of exports.

That policy is now “not fit-for-purpose” as WA faces an “imminent and potentially severe” gas shortfall that threatens jobs and economic growth, according to a parliamentary inquiry examining the policy, which tabled its interim report in January.

It found liquefied natural gas producers had delivered to WA just over half the 15 per cent of exports the policy dictated.

The worst performer by far was Woodside’s Pluto project, delivering to WA only one-eighth of its obligation.

Carpenter gifted Pluto a huge concession from his policy, with no domestic obligation for the first five years of exports. Then from 2017, Woodside had to pump 110 terajoules a day of gas into the state’s gas network to hit the 15 per cent. However, seven years on it can supply just 35 terajoules a day through a small pipeline and a facility to load trucks with LNG.

Until 2030, WA faces an average shortfall of 64 terajoules a day of gas, according to a forecast from the Australian Energy Market Operator – less than the missing 75 terajoules a day from Pluto.

‘Good faith’ and a loophole left open

Inquiry chair Peter Tinley told parliament the Pluto deal was just an exchange of letters that “created all sorts of gaps and challenges”.

Woodside uses the biggest gap – that it has to supply the local market only if it is commercially viable – in its defence.

Woodside’s revenue from the Pluto gas plant in 2023 was $5.9 billion.Credit: Woodside

“Pluto is meeting its domestic gas obligation, which is to market and make available gas that is commercially viable,” Woodside chief executive Meg O’Neill said when quizzed last year.

A properly defined commercially viability clause may have worked, but Carpenter left it out of the 2006 deal, leaving it to be negotiated in “good faith” afterwards.

In 2020, the commercial viability test had still not been agreed and now Roger Cook’s Department of Jobs, Tourism, Science and Innovation just refuses to answer the question. Eighteen years of good faith negotiations must have exhausted them.

The biggest hurdle to selling Pluto gas is its nitrogen content, which is far higher than allowed in WA’s pipeline system.

For Woodside to strip nitrogen from more gas than is supplied now it needs to install expensive new equipment.

Woodside vice president for Pluto Mike Price told the parliamentary inquiry in October that it was not commercially viable when Pluto started exporting gas in 2012 and on multiple times since Woodside had reached the same conclusion.

The state would find it difficult to challenge Woodside’s conclusions, given the two sides have not agreed how to determine commercial viability.

McGowan and Cook miss an opportunity

The gas reserved by exporters for local use does not belong to WA, as it comes from Commonwealth waters. WA extracted the domestic gas deals in exchange for allowing the companies to build processing plants onshore.

In 2021, Woodside needed another favour from the state government: permission to build a pipeline between its Pluto and North West Shelf gas plants to significantly increase exports.

It was then-premier Mark McGowan and his state development minister Roger Cook’s chance to get a revised Pluto domestic gas deal. But they only secured a small fraction of the backlog of gas supply from Pluto. Part of the deal was extra gas from Woodside’s North West Shelf project in lieu of Pluto gas.

Who is at fault?

The claim that Woodside does not provide a fair share of gas to WA is a “myth,” according to its website.

It counters with the “fact” that it “acts in accordance with the commitments in our domestic gas agreements”.

Most would argue that being fair and doing the minimum you can get away are different standards.

If you believe the spirit of the deal counts, then Woodside is the culprit.

If doing the absolute minimum you can get away with is acceptable, then the Carpenter government is guilty by accepting such a loophole-riddled agreement, and McGowan doubled down on that failure in 2021.

Will Cook take a stand?

Just five years ago, McGowan spruiked a different view of gas in WA: “My pitch to east coast industry is simple, if you want a cheaper and more reliable supply of gas – go west.”

Now the state faces a future of more expensive gas that could shut marginal operations and deter new investment. A lot of jobs are at stake.

Just like 18 years ago, we have a Labor premier, an American Woodside chief executive, and a need for secure gas supply.

After the inquiry hands down its final report and recommendations in May, Cook will be expected to extract what the community expects from Woodside’s biggest revenue-earner.

A bureaucrat from Cook’s department JTSI told the inquiry last year that for many gas producers, their supply to the local market was a centrepiece of their social licence. The department suspected more transparency on how well they were meeting their commitments would encourage them to sell more gas locally.

To rely on a bit of bad publicity, easily minimised by advertising and lobbying, to sway a significant decision by a major company displays the same level of naivety as Carpenter omitting crucial details to be agreed later.

As Tinley wrote in the report released in January, while Carpenter erred on the side of flexibility in dealing with gas producers, later governments may be disposed to legislate.

It is advice Cook should listen to if he does not want to be the third Labor premier to ineffectively deal with Woodside over Pluto.

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