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Client Update: Committee reports on managing gas supply disruptions in WA

14 October 2009

In brief: The WA Gas Supply and Emergency Management Committee has tabled its report to Government, which provides recommendations for managing future gas supply disruptions in WA and mitigating their impact. Partner Darren Murphy and Lawyer Robert French report.

Background

Two separate incidents last year caused significant gas supply disruptions in Western Australia, specifically the North West Shelf producers' outage of January 2008, and the Varanus Island explosion of June 2008. A report at Commonwealth level by the Senate Standing Committee on Economics recommended, among other things, that the Western Australian Government conduct a review of gas security, and that a forum of stakeholders be convened to consider improvements to the management of gas supply disruptions.

The Gas Supply and Emergency Management Committee (the committee) was established by the Western Australian Government in early 2009, with the task of reviewing and providing advice to the Government on Western Australia's gas security, gas supply disruption management, and mitigation options for gas supply disruptions.

The committee's membership was drawn from across the Western Australian domestic gas industry, and included representatives of the Western Australian Government, upstream producers, pipeline and distribution system operators, electricity system operators, gas and electricity retailers, and major downstream consumer representatives.

The committee's recommendations

Among the key recommendations made by the committee report to government (the report), tabled on 13 October 2009, are that the Government:

  • provide incentives for electricity generators to install or retrofit dual fuel (diesel and gas) generation capacity and to maintain adequate diesel stocks.
  • require gas retailers to have adequate back-up supply arrangements to ensure continuity of supply to small-use customers and provide an opt-in service for other customers (the committee identified the potential for a gas storage facility close to Perth).
  • implement a 'Gas Statement of Opportunities' to provide long-term gas supply and demand forecasts.
  • establish a web-based Gas Bulletin Board to provide up-to-date gas system and market information, including a non-compulsory trading market allowing for the sale and purchase of gas on standard transport and commodity contracts.
  • in the future, consider a compulsory short-term trading market, following a review of the operation of the gas bulletin board and gas market experiences in other Australian jurisdictions.
  • implement two strategic and operational plans to respond to gas supply disruption: the proposed 'Westplan – Gas Supply Disruption' and the 'Gas Supply Disruption Response Plan'.

Of course, an issue with such mechanisms, as recognised in the report, is the cost of implementation. The mechanisms would be expected to ultimately result in increased costs for consumers.

A Kwinana LNG terminal?

The report also evaluates as another mitigation option the prospect of an LNG terminal with storage facilities being developed at Kwinana. The committee considered this option to be too expensive, unless it was supported by a large industrial customer. However, the committee did note that LNG receiving capability could be considered further by gas market participants.

National Energy Security Assessment

The report expressly did not cover a number of broader issues relating to energy diversity and long-term energy security, which are currently being considered by the Commonwealth Department of Resources, Energy and Tourism as part of the National Energy Security Assessment (the NESA). The NESA will culminate in the publication of an Energy White Paper, which will outline the Commonwealth Government's long-term energy policy. This White Paper is expected in late 2009 or early 2010.

Next step

The next step is for the WA Government to consider the recommendations in the report, and this could result in policy and regulatory change.

For further information, please contact:

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