Market Outlook Sees Steep Increase for Western Australian Domestic Gas Demand

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Researched by Industrial Info Resources (Perth, Australia)--While Western Australia houses one of the largest reserves of natural gas and is home to some of the largest gas processing facilities, there is still much concern over the availability of gas for the domestic market. This is because much of the gas sourced in Western Australia is sold as liquefied natural gas (LNG) overseas.

Western Australia currently consumes about 1,000 terajoules per day (TJ/d), of which about 570 TJ/d is supplied by the North West Shelf Project. The remainder is supplied by producers in the Perth Basin and a joint venture led by Apache Corporation (NYSE:APA) (Houston, Texas).

Supply from the North West Shelf Project (NWS Project) is expected to fall sharply before ending in 2020, when the last long-term domestic supply contract expires. The NWS Project operators have shown little interest in renewing existing contracts or even in renegotiating new ones.

Studies on the Western Australia domestic gas market have forecast an annual increase of about 2.5% from current use. Applying a 2.5% annual growth rate to the state's current consumption of 1,000 TJ/d would see demand rise to about 1,190 TJ/d in 2020. This assessment excludes any new major sources of demand.

A 2010 report by Energy Consulting Services identified a number of potential new projects that, if given the go-ahead, will significantly increase domestic gas demand. Their estimates were for an increase of about 435 TJ/d for projects in the Pilbara and throughout the rest of the state.

Excluding these potential projects, the state will need 760 TJ/d in new domestic supply by 2020 to replace the NWS Projects and to meet annual consumption growth forecasts.

Four new gas projects are being completed or under construction. Devil Creek, owned by Apache and Santos (ASX:STO) (Adelaide, South Australia) is expected to produce 120 TJ/d of domestic production. Macedon, a joint venture between BHP Billiton (NYSE:BHP) (Melbourne, Victoria) and Apache, is slightly larger with expected domestic production of about 220 TJ/d. Wheatstone is expected to produce 200 TJ/d and is owned by a consortium led by Chevron Corporation (NYSE:CVX) (San Ramon, California) and Apache. The largest of these projects is the Gorgon project; a consortium led by Chevron, Royal Dutch Shell plc (NYSE:RDS.A) (The Hauge, Netherlands) and ExxonMobil (NYSE:XOM) (Irving, Texas) is expected to produce 300 TJ/d of domestic gas supply.

It should be noted that these figures are the expected domestic gas processing capacities and are not guarantees of actual supply outcomes. The NWS Project, for example, has historically supplied well below its domestic gas processing capacity of 700 TJ/d. The current actual supply is closer to 570 TJ/d, which is about 80% of capacity.

These new gas developments should help meet the state's growing domestic gas needs; however, the market will continue to be characterised by joint-selling and cross ownership by a small number of key players, such as Shell, Chevron and Woodside Petroleum (ASX:WPL) (Perth, Western Australia). This will limit any potential downward pressure on domestic gas prices.

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