The Australian Energy Market Operator’s (AEMO) December 2018 Western Australian Gas Statement of Opportunities and the March 2019 Gas Statement of Opportunities for Eastern and South-Eastern Australia provides a stark comparison between either side of the country.

While it might be easy to point to Western Australia’s abundant gas reserves, smaller population and favourable governmental policies as the reasons for WA’s apparent good fortunes, the reality is more complicated than that. What is clear, as AEMO points out, is the need for much greater planning and coordination in the east coast market to avoid the supply shortfalls that are expected from 2024.

AEMO’s December 2018 Western Australian Gas Statement of Opportunities and the March 2019 Gas Statement of Opportunities for Eastern and South-Eastern Australia provide a stark comparison. The west coast market is adequately supplied, but greater planning

Despite the differences between the two markets, the two markets contract on very similar terms and conditions. It was not that long ago that a tight market existed in Western Australia (indeed, this was partly the impetus for the Carpenter Labor government’s introduction of the WA domestic gas reservation policy) that ushered in contractual terms that are now witnessed on the east coast, such as:

  • much shorter contractual terms, which has inevitably lead to larger gas buyers buying gas on a portfolio basis which might include a mix of firm and interruptible term contracts and spot market trading
  • less flexibility in load factors, seasonal variances, take-or-pay obligations and gas banking rights, which need to be managed through portfolios, utilisation of gas storage, gas transportation delivery point flexibility and in-pipe trades
  • limited seller liability for delivery failures

While oil-linked pricing is still evident on both sides of the country, particularly on the east coast where there is much greater linkage of domestic gas prices to the LNG export price as evidenced by regulatory attempts to publish net-back prices at Wallumbilla, the volatility of the oil price in recent years has seen CPI-indexed prices return to prominence in some domestic gas contracts.

There is no doubt that gas pricing pressures are much more evident on the east coast and this naturally makes for more difficult contract negotiations. How this changes over the coming years will depend on the regulatory and market responses to the forthcoming shortfalls.