Corporate giants clash over gas price surge

Corporate giants clash over gas price surge

Some of the country's biggest companies are fighting each other over the rocketing cost of gas in Western Australia, where prices have eclipsed even those in the eastern states.

Wesfarmers and mining giant South32 are among a group of corporate heavyweights calling for a shake-up of WA's vaunted domestic gas reservation policy, which has been largely ignored by some producers.

Wesfarmers has taken the extreme step of singing out Australia's biggest oil and gas producer Woodside, accusing it of failing to deliver sufficient quantities of gas from its $12 billion Pluto project.

The barbs come ahead of a state parliamentary inquiry, which is looking at whether WA's domestic gas reservation policy is working as intended.

Under the policy, which was instituted in 2006 by former Labor Premier Alan Carpenter, 15 percent of gas reserves within the state's jurisdiction are supposed to be set aside for the local market.

The policy covers some of Australia's biggest resources projects, including the mammoth Gorgon and Wheatstone gas projects operated by US company Chevron.

In its own defence, Woodside held by its contribution, saying it supported the intent of the policy while stressing that it provided gas to the domestic market 'in accordance with' its legal obligations.

The firm, which has a market capitalisation of $43 billion, also said it had supplied 'domestic gas volumes equivalent to more than one-third of our exported volumes over the past 40 years.

Miner South32, which uses gas at an alumina refinery in WA's south west, said some producers appeared to be thumbing their noses at the policy.

Michael Brooks from South32 said some producers were forces on buyers for unreasonable terms, exploiting a lack of competition in the market.

As of 2020, domestic gas prices in WA had soared from as little as $2 a gigajoule in 2020 to as much as $11 a gigajoule this year.

Gas prices have risen more than $12 a gigajoule - above the cap imposed by the federal government on the east coast market.

Mr Brooks said the WA market had become so lopsided that it was users - rather than suppliers - who were responsible and liable for the quality of the gas they bought, even though they had no control over the product that was delivered.

Brooks wrote in an email that he wrote to the editor-in-chief, The Huffington Post.

The conglomerate, which operates chemical and fertiliser plants that use gas as a feedstock, said the gas reservation policy had been a success story for WA but no longer appeared to be working properly.

Some producers appear to be gaming the market, Wesfarmers said.

It claimed that some producers may be deliberately delaying the development of new gas fields in order to secure better returns in a projected higher price environment in the future.

And the firm took particular aim at fellow Perth-based behemoth Woodside, which it said has met just a fraction of its obligations from the Pluto project near Karratha in WA's north-west.

Wesfarmers said such actions were putting at risk investments by it and other companies in green manufacturing facilities, including lithium refineries, that would underpin WA's economic future.

Woodside said the answer to rising prices was increased supply.

This highlighted the need to bring forward projects such as browse, a $30 billion liquefied natural gas development off the Kimberley coast.

South32 argued that the government should enforce the 'use it or lose it' provisions on companies that sat on reserve for an inordinate length of time.

Wesfarmers said that the government needed to strengthen a provision requiring producers to show 'diligence and good faith' when marketing gas to customers.

Wesfarmers said some producers were also given far too much leeway to meet their commitments, arguing such flexibility may be taken advantage of '' to the detriment of customers''.

WA Premier Roger Cook has declined to be drawn directly on the spat between the corporations.

The prime minister proposed the reasons for the lack of supply to the local market from the Pluto projects 'logical and infrastructure complications'.

However, he emphasised that WA's gas reserves belonged to the state.

I'm satisfied Woodside understand what their obligations are in relation to our domestic gas requirements, he said.