Western Australia is the only Australian State or Territory with a Domestic Gas Policy in place. The policy "seeks" to make gas equivalent to 15% of exports available for WA consumers. This is important for the local market (residential, commercial and industrial users) as is means that gas supplied domestically is not priced at export prices (which can be very high and subject to significant volatility).

An analysis of WA's Domestic Gas Policy is useful given that its benefits are now more appreciated by the East Coast jurisdictions and others around the world. Many of those who criticised the policy as an interference with markets and not "economically rationale" now look on enviously at the benefits of the Policy. Western Australia had the foresight to introduce the Policy in 2006. Around the same time, Western Australia also persisted with a reserve capacity mechanism in the electricity market, which separated the capacity of the electricity generation from the operation of facilities.

This was similarly criticised (for various reasons) but is now also looked on enviously by other jurisdictions which are exposed to much more volatile energy pricing. Time and again we see small players, who can't afford to get things wrong, taking thoughtful and considered policy positions which go against the prevailing zeitgeist. There is perhaps a lesson for Team Australia in the way the small and isolated province of Western Australia goes quietly and successfully about its business.

However, the application of the Policy in Western Australia in not without its challenges. The first and most obvious challenges is that the Policy is not set out in, or mandated by, regulation or legislation. The Policy is implemented by the Department of Jobs, Tourism, Science and Innovation on behalf of the Minister for State Development, Jobs and Trade.

The Policy is given effect in the approval process for WA liquefied natural gas (LNG) projects. This means that it involves negotiation and may requires there to be some sort of leverage of the State. Approvals must be given according to relevant legislation and principles of administrative law after all. The Policy and can be viewed by clicking on this link: WA Domestic Gas Policy.

Currently, there are eight domestic gas commitment agreements between the State and various LNG project owners. Each implements a customised version of the Policy negotiated at the project's inception. Of the eight domgas agreements currently in place, the most recent is the 2021 Scarborough Gas Commitment Agreement.

Although each of the eight domgas agreements contain different arrangements, the three main principles of the Policy to be reflected in each agreement are that the LNG exporters must make domestic gas available by:

• reserving gas equivalent to 15 per cent of LNG production from the project for the domestic market;
• ensuring that necessary infrastructure is in place to meet the domestic gas commitment; and
• marketing gas in good faith to existing and prospective consumers.

In August 2024, a Parliamentary Inquiry reported on the Policy. At the time of the Parliamentary Inquiry, the 2020 Domestic Gas Policy update purported to prohibit all domgas agreement holders, with the exception of the 2020 Waitsia Joint Venture Domestic Gas Commitment Agreement, from exporting onshore gas produced in WA to other countries or Australian States.

The Parliamentary Inquiry Final Report highlights 74 findings on WA's Domestic Gas Policy, amongst their findings, the Report highlights several challenges in implementing the Policy principles through contractual agreements, some pertinent findings include the following:

• Finding 17: Most domestic gas commitment agreements allow considerable flexibility in the timing of delivery of reserved gas, requiring it to be delivered over the life of a project. This means that producers can increase or decrease the amount of gas supplied to the domestic market in response to market conditions. While this has been lauded for the flexibility it affords producers and the market, it allows producers to withhold gas for strategic reasons, and exposes domestic consumers to significant risk of under-delivery.
• Finding 18: The WA Domestic Gas Policy relies on a vague and imprecise obligation on commitment holders to show diligence and good faith in marketing gas. This does not allow effective public compliance monitoring or enforcement.
• Finding 25: Variations in contractual terms mean that the State has different degrees of enforcement power according to each domestic gas agreement. Most domestic gas agreements provide for arbitration to enforce compliance with the terms of the agreement.

In response to the Parliamentary Inquiry, the WA government has updated the Policy in the following ways:

• onshore gas projects must reserve 80% of gas production for WA domestic use until 31 December 2030, after which 100% must be reserved for the local market;
• increased market transparency regarding LNG producers' compliance with domestic gas obligations, is to be achieved through the publication of an annual WA Domestic Gas Statement; and
• a commitment to enforcing the 'use it or lose it' provisions in the Petroleum and Geothermal Energy Resources Act 1967 (WA) is included to prevent land banking of onshore petroleum tenements.

The update aims to stimulate the market and ensure more gas is supplied domestically over the next decade. However, it does not address compliance and enforcement issues arising from private contracting.

Although the Parliamentary Inquiry recommends against the 'heavier-handed approach' of legislative intervention to maintain Policy flexibility, such measures may be required to ensure enforceability and allow consistency between agreements.

If you would like to identify the impacts of the Policy amendment to your organisation, please contact us below.