“Slow moving train wreck:” Gas prices triple since Woodside cut special deal with state government

Wholesale Western Australia gas prices have tripled since August 2020 after the state allowed its domestic onshore gas reserve to be exported by Woodside through its North West Shelf export terminal, according to a new analysis.

A report by The Australia Institute reviewed the wholesale gas price in the four years since the Western Australian state government gave Woodside, one of the world’s biggest oil and gas producers, approval to tap its domestic gas reserve for export.

It says the state government’s decision plugged the average Western Australian household directly into the international gas market – repeating the same mistake that occurred on the east coast before large price increases made headlines.

Under the arrangement, Woodside was given an initial five-year approval to export 250TJ a day through its North West Shelf (NWS) export terminal, equivalent to almost a quarter of Western Australia’s entire domestic gas demand of 1,100TJ a day.

Mark Ogge, a co-author on the report, described the NWS as a “monster that is going to suck up as much gas as it can from wherever it can” that had flow on effects for Western Australian households who could once rely on low-cost gas.

“It’s a slow-moving train wreck,” Ogge said. “It’s astonishing that the Western Australian government could make exactly the same mistake as east coast governments, exposing their constituents to global gas prices”

The report examined wholesale gas prices on the spot market, as contract prices are considered commercial-in-confidence and not made public.

On the east coast, wholesale prices have been used as a signal or indicator of price increases that will flow through to households and businesses. As supply contracts are rolled over and are renewed, the changing dynamics of the gas market will mean higher prices are expected to be carried forward into new agreements.

It notes that Western Australian households have so far been buffered from direct price increases through a combination of rebates and subsidies to the publicly-owned gas and electricity supplier, Synergy, even if households are paying indirectly as taxpayers.

Western Australian industry, however, is heavily reliant on gas and has been bearing the brunt of the price increases.

Ogge said a pending government decision to extend Woodside’s ability to draw from the state’s domestic gas reserve for another 50-years would “lock in enormous pressure on WA gas prices for decades.”

“And households and businesses are paying for – the other bottom line is that every dollar extra that Western Australians pay because we allow for the export of domestic gas reserves, is a dollar of windfall profit,” he said.

“It’s a direct transfer of wealth from Australian households, business and industry to gas producers.”

Jay Gordon, a gas market analyst with IEEFA who was not involved in the report’s production, said the results suggest a link between domestic and export gas prices would mirror what’s happened on the east coast.

“Gas and electricity prices are highly correlated, so any increase in gas prices would likely flow through to electricity prices,” Gordon said. “We’ve already seen this play out on the east coast, and the effect could be equal or stronger in Western Australia, where there’s proportionally more gas generation.”

Gordon said Western Australia is more reliant on gas for heavy industry than the east coast “and that demand is expected to grow”.

“Higher gas prices could definitely be a material problem for WA industry, and we’ve seen industrial closures in response to high gas prices on the east coast.”

Ogge said the Western Australian government should follow the example of Victoria, which has been working to help households across the state to electrify.

“Until it does that Western Australians will have higher energy bills than they should have,” Ogge said. “Gas is a ridiculously expensive way to generate electricity.”