Chevron joins Ryan Stokes in warning against a Federal override of WA’s existing domestic gas reserve

Energy giant Chevron added its voice to growing warnings that the Federal Government’s domestic gas reservation scheme risks decimating WA’s well-functioning industry and dragging Australia’s economy backwards.

Chevron joined calls by SGH chief executive Ryan Stokes for Canberra to not override WA’s existing domestic gas reservation policy with its proposed blanket rule forcing all Australian LNG exporters to set aside 20 per cent of production for the domestic market.

US-headquartered Chevron operates the massive Gorgon and Wheatstone processing hubs in WA’s north-west, which together supply about 40 per cent of WA’s gas.

As part of the company’s submission to the Federal Government, Chevron Australia president Balaji Krishnamurthy said the WA market has seen a “consistent and reliable supply of natural gas” under the existing State-run regime, resulting “in lower domestic gas prices relative to East Coast and international markets”.

Gas for most of the East Coast market is about double the price of WA.

“If all WA LNG projects delivered 20 percent of LNG exports into WA, this would result in a significantly oversupplied WA domestic gas market,” Chevron stated in its submission.

“A potential oversupply of this magnitude, and the resulting impact on price, could materially weaken investment conditions for domestic-only producers . . . ultimately, this would reduce returns for suppliers, especially domestic-only producers, and increase the likelihood of future shortages due to lack of investment.

“Over the longer-term, declining investment in gas supply risks placing upward pressure on both gas and electricity prices – the opposite of what the scheme is designed to achieve.”

Chevron stated that further in increases in domestic gas production at Gorgon and Wheatstone required “significant capital investment”, which would be “difficult to justify on a commercial basis”.

“Based on current production forecasts, reducing Gorgon LNG exports so that existing domestic gas deliveries represent 20 percent of exports would lower volumes by approximately 6 to 7 million tonnes per annum.”

Chevron’s submission comes after Mr Stokes on Wednesday also strongly urged a policy rethink.

“It’s not in the national interest to go and have a short-term relief on price at a long-term detriment to the reliable supply of that resource,” Mr Stokes said.

“You’ll have that loss of the domestic sector, which has been investing in gas for decades, and once the LNG projects wind down you lose that domestic supply.”

SGH owns a 15.5 per cent interest in the Crux LNG project off WA’s north west coast. Crux’s production will feed into Shell’s massive Prelude floating platform.

Crux would be forced to send 20 per cent of its output onshore under the Government’s proposed policy, even though there is no infrastructure linking it — or Prelude — to the domestic gas supply chain.

WA’s gas reservation policy only obligates onshore producers to supply the domestic market.