DomGas Alliance has weighed into the debate surrounding Australia’s energy future as the Federal Government continues to formulate its white paper on energy security.

DomGas – a Western Australian business alliance formed in 2006 in response to a shortage of gas for new developments in Western Australia – has been critical of the limited commitment secured from the Gorgon LNG Development joint venture participants to supply gas resources from the project to the Western Australian market. Five per cent of gas resources from the project have been committed to Western Australia’s domestic market, which depends on natural gas for over half of its primary energy needs.

Ensuring gas for domestic use

Earlier this year, DomGas Chairman Tony Peterson told ABC’s 7:30 Report that energy users wanted sufficient allocation of Australia’s gas reserves for domestic purposes to be a priority.

“It’s certainly a strange situation where you have a major exporting nation to be faced with a gas shortage, but that is the reality,” Mr Peterson said.

He went on to say “We have only two per cent of the world’s gas reserves, and in fact we’re aiming to be the world’s fourth largest exporter of LNG.”

DomGas commented on domestic pricing in Western Australia stating “Despite being a major exporter of LNG, Western Australia has one of the highest gas prices of any gas producing or exporting economy in the world.”

Executive Vice President of Woodside Energy Rob Cole rejected Mr Peterson’s claim in a letter published in the Australian Financial Review.

Mr Cole stated that according to information published by the Western Australian Department of Mines and Petroleum, average natural gas prices in Western Australia at the end of 2008 were around $3.70 per gigajoule (GJ) compared with $4.10/GJ on the east coast. He added that prices in the United States, United Kingdom and Europe were significantly higher, at more than $US6/GJ ($7.12), $US9 ($10.67)/GJ and $US12 ($14.23)/GJ.

In a move to secure long-term gas supplies for the state, the Western Australian Government tabled the Gas Supply (Gas Quality Specifications) Bill 2009 in August. The Government said the legislation would allow the development of a greater range of gas fields to supply the domestic market.

The bill was introduced to the Western Australian Parliament by state Energy Minister Peter Collier who said “This is expected to provide increased competition in supplying the state’s gas needs and ensuring improved security of energy supply through a more diverse range of gas sources.”

The Australian Petroleum Production & Exploration Association (APPEA) has rejected suggestions that government intervention is needed to force investment in Western Australia’s domestic gas market.

APPEA’s Western Australian Director Tom Baddeley said projects are being developed for the domestic market right now and more are being planned.

“Despite suggestions that Western Australia's gas security is at risk, there is an abundance of gas in Commonwealth waters off Western Australia – enough for both the export and domestic markets for many decades to come, with major new discoveries being made on a regular basis.

“The balance between gas exports and local use is already being achieved without the need for government intervention,” Mr Baddeley said.

Gas selling arrangements

DomGas has also expressed concerns over what it says is ‘cartel’ selling of natural gas to the Western Australian market by participants in the Gorgon LNG project, and has called on the ACCC to force Chevron, Shell and ExxonMobil to market their gas from the joint venture seperately.

Gorgon joint venture partners Shell, Chevron and ExxonMobil are seeking authorisation from the Australian Competition and Consumer Commission (ACCC) to combine together to set prices and conditions in selling domestic gas. If granted, authorisation would provide immunity under the Trade Practices Act for arrangements that might otherwise be anti-competitive.

Former DomGas Chairman Stuart Hohnen said “Currently, just two supplier groups control almost 100 per cent of the Western Australian gas market.

“This lack of competition is the direct result of joint selling arrangements of the North West Shelf joint venture. Extending joint selling to the Gorgon project would further extend the cartel arrangement as Shell and Chevron are also participants in the North West Shelf joint venture.”

Chief Executive of APPEA Belinda Robinson had a different view of the selling practice. “Referring to the Gorgon partners as a ‘cartel’ is a very serious allegation indeed and demonstrates a disturbing ignorance of the way joint ventures operate.

“Joint marketing of natural gas in a small market with very few customers and suppliers has served the industrial users of Western Australia well by guaranteeing long-term secure supplies of natural gas,” Ms Robinson said.

The ACCC has released its draft determination proposing to authorise the application.

ACCC Chairman Graeme Samuel said “Joint marketing is likely to mean Gorgon gas is supplied to Western Australia sooner than it otherwise would be. This will provide a much needed increase in gas supply for consumers in Western Australia.”

The ACCC is proposing a number of conditions to be imposed alongside the authorisation to prevent commercially sensitive information obtained from domestic gas customers from being transferred to competing parties or competing projects.

The draft determination proposes authorisation until 31 December 2015, which is a shorter timeframe than that sought by the joint venture partners.

“The ACCC considers it is appropriate to leave open the possibility of separate marketing by the Gorgon project in the future if the Western Australian gas market develops further,” said Mr Samuel.

The final determination on the application is expected to be released before the end of the year.