Western Australia’s DomGas Policy review – the final report

In this article, we consider some of the major findings and recommendations in the final report of the Western Australia (WA) Domestic Gas Reservation (DomGas) Policy review and assess the impact on both domestic and international LNG markets¹.

In previous LNG Bulletins², we have monitored the progress of the review, which commenced in June 2023 in response to concerns about the availability and price of gas in WA. The committee’s final report was tabled in August 2024. It reached over 70 conclusions and made 30 recommendations. 

Preliminary observations

The review was conducted by a parliamentary committee, not the WA State Government, so its recommendations are advisory only. This means that the committee was generally able to be franker and more fearless in its report. The WA State Government will consider and then implement the committee’s recommendations (or not) based on its policies and legislative priorities.

The committee’s interim report, tabled in February 2024, concluded that the DomGas Policy was no longer fit for purpose. The final report was therefore expected to shake-up the WA gas and LNG market. Given that, the final report brought some relief for LNG exporters, and possible disappointment for domestic gas buyers, because it did not recommend any of the more radical interventions mooted in the interim report. In large part, this can be attributed to the industry-led response to the interim report.  This included Woodside committing to increase its supply of domestic gas in 2024 and 2025 and Chevron committing to undertake investment in new fields to ensure its Gorgon and Wheatstone facilities can continue to operate at, or close to, full production capacity.

What were the key recommendations?

Scope of the DomGas Policy³

Unsurprisingly, the committee recommended that the scope of the DomGas Policy should be widened to become a broader domestic gas security policy, accommodating domestic-only gas projects, market dynamics (including the liquidity and transparency of gas trading markets), emergency responses, forecasting, the interface with the electricity system and gas transportation and storage.  It did so based on a finding that the reservation of gas destined for LNG is only one part of the puzzle of WA’s gas market.⁴

In response, the WA State Government noted that further investigation would be undertaken to consider how the DomGas Policy interacts with other parts of the gas supply chain, including transportation and storage, its role during emergency responses and the electricity market. This investigation is unlikely to be a priority before the next WA State election in March 2025.

15% reservation amount⁵

The committee did not recommend changing the 15% reservation amount for existing LNG projects, citing the sovereign risk and regulatory certainty issues that would arise from such a change. However, it did suggest that for new LNG projects, the percentage could be set at a level necessary to mitigate any forecast domestic gas shortfall. It saw no policy or commercial reason why government should be bound to the 15% reservation and noted that “no prospective new LNG project has any enshrined right to have its commitment capped at 15 per cent”. 

This recommendation was not supported by WA State Government, which has confirmed that the 15% reservation will continue for new LNG projects to ensure market and investment certainty.

On-shore and near-shore gas export ban

In a previous LNG Bulletin, we discussed the lifting of the current ban on the export of gas from on-shore and near-shore fields in WA, an issue which drew considerable interest. On this issue, the committee concluded that exposure to export LNG pricing would not necessarily improve the economic viability of Perth Basin projects, notwithstanding the proponents of those projects suggesting otherwise.⁶

Ultimately, the committee recommended that the WA State Government allow onshore gas projects to export LNG only if the domestic market is adequately supplied and is expected to be well supplied for an (unspecified) period of time.⁷

At the time of the final report, the committee observed that the domestic market was not well supplied. Based on the evidence about demand-sides changes and efforts by LNG producers to increase supply of gas into the domestic market, it concluded that the market would stay tightly balanced until 2030, and, from 2030 onwards, there were structural shortfalls to be addressed. 

Notwithstanding this observation, the WA State Government stated that it would implement an 80% domestic gas reservation policy for on-shore and near-shore gas producers until 31 December 2030.  After that date, the policy would increase to a 100% reservation. This should incentivise on-shore producers to develop their projects ahead of this deadline. However, given the regulatory and construction delays recently reported by Beach Energy chair Ryan Stokes (joint-venture partner of Mitsui E&P in the Waitsia Stage 2 gas project), the timing is tight for new projects.

Transparency in the market

A major theme in the committee’s final report was the need for increased transparency in the domestic  gas market to identify how much gas is available, over what time period and from whom⁸. Both producers and buyers appeared to support increasing transparency; however, there was little consensus about the specific information that should be released.

This theme permeated a number of recommendations, including that wholesale price information be considered as part of a review of the Gas Services Information regime (by which information is published on the public Gas Bulletin Board).⁹

The WA State Government was generally not supportive of the increased transparency recommendations in the final report because it had, in-effect, anticipated the committee’s conclusions by working with industry to develop the “WA Domestic Gas Statement”. This provides information on how LNG exporters are complying with their obligations to meet their 15% reservation requirements.

By way of example, the WA Domestic Gas Statement provides the following information for the Gorgon LNG project¹⁰:

While it does not provide any pricing information, this should prove useful for tracking the DomGas commitment of gas sellers. It will be revised annually and reviewed after 24 months.

HFW comment

Since its inception nearly 20 years ago, the DomGas Policy has generally ensured WA industry is well supplied with low-cost gas. In early 2023, with tightening gas supply and rising prices owing to increased demand and supply-side challenges, it was clear a review was necessary. The committee members should be commended on their depth of analysis and balanced consideration of the competing view points between gas buyers and sellers.

Not all the committee’s recommendations were accepted by the WA State Government. It remains to be seen whether those that were accepted will be implemented and have a meaningful impact on the challenges identified.

While the WA Domestic Gas Statement is undoubtedly an improvement, the quickest fix to supply-side challenges would be increased supply of domestic gas from new projects (assuming that the rapid development of renewable energy and the electrification of industrial gas users do not lower the demand for gas). 

The issues faced by the proponents of new gas projects have only been partly addressed by the final report.  For example, the construction delays experienced by Beach and Mitsui E&P as proponents of the Waitsia Stage 2 gas project, and the regulatory delays experienced by Woodside (amongst others) as proponents of the Browse gas project, were beyond the committee’s remit.  Issues with construction delays are complex and not unique to Australian energy projects. Regulatory issues, at both State and Federal level, can and should be addressed. In June 2024, the Federal Department of Industry, Sciences and Resources released the “Future Gas Strategy”, the Federal Government’s plan for how gas will support the Australian economy’s transition to net zero in partnership with the world.  It stated that “gas must remain affordable for Australian users throughout the transition to net zero” and that “new sources of gas supply are needed to meet demand during the economy-wide transition”.  The WA State Government has expressed similar sentiments. Having made this policy choice, governments at both State and Federal level should be working towards simplifying or clearing the regulatory hurdles that face new gas projects. Unless and until those fundamental market issues are resolved, tensions between LNG exporters and domestic gas buyers in WA will continue.

Footnotes

1. The DomGas Policy requires LNG export projects to reserve 15% of production to be marketed in WA and so it impacts the amount of gas that LNG producers have available to offer to international buyers.
2. LNG Bulletin, December 2023 – HFW and LNG bulletin July 2024 – HFW
3. Recommendation 7
4. Findings 34 and 35
5. Recommendations 4 and 5
6. Finding 77
7. Recommendation 30
8. Finding 50
9. Recommendations 15 and 20
10. https://www.wa.gov.au/government/publications/wa-domestic-gas-policy-wa-gas-domestic-statement-sep-2024