Western Australia faces surging gas prices as a looming shortage of supplies coincides with exports from a major project linked to the state's biggest media mogul Kerry Stokes.
Industry experts say domestic gas prices in WA have almost tripled in the past two years and are set to rise further, buffeting some manufacturers and putting upward pressure on power prices.
They also say a decision by the McGowan government to allow a major project to ship 50 per cent of its reserves overseas – in spite of an onshore gas export ban – is set to make the situation worse.
Under the decision, owners of the Waitsia project north of Perth, which include the Stokes-affiliated Beach Energy, will be able to sell the gas into lucrative overseas markets from 2024 until 2029.
Beach Energy is 30 per cent owned by Seven Group, which Mr Stokes chaired until last year and whose managing director is his son Ryan.
Japanese conglomerate Mitsui is a 50 per cent owner and operator of the project.
The warning comes amid forecasts by the Australian Energy Market Operator (AEMO) that WA's gas market would slide from a period of abundance to one of shortage from 2025 until later in the decade.
Prices already on the move
At the heart of the forecast is the winding down of production at the North West Shelf in WA's north-west — Australia's original and biggest gas export plant.
Another contributor, AEMO noted, was delays in the development of replacement projects such as Woodside's Scarborough reserve, which was only sanctioned in November.
Data published by Gas Trading Australia shows spot market prices in WA have leapt from just $2 a gigajoule in 2020 to almost $6/gj late last year.
There have also been reports of producers quoting prices of up to $8/gj for 2026, when the forecast supply crunch is tipped to hit hardest.
Gas firms have been buoyed by recent events, where a combination of surging demand and tight supply has sent international prices to record highs of up to $40/gj, netting producers as much as $200 million for single shipments.
Perth-based resources analyst Peter Strachan said WA's predicament had "echoes of the east coast", where soaring gas prices had crippled some industry and undermined the fuel's attractiveness as a cleaner alternative to coal-fired electricity.
Mr Strachan said the importance of gas to WA's economy was not limited to major users such as alumina or fertiliser producers but included small and medium-sized firms that employed thousands of people.
"There are lots of smaller users … the butcher, the baker, the candlestick maker, the coffee grinder, the brickmaker, the glass manufacturer," Mr Strachan said.
Gas 'vital' for WA economy
Richard Harris from the DomGas Alliance, which represents big gas users in WA such as Wesfarmers and Alcoa, said buyers were already feeling the pinch from a rising market.
Mr Harris said prices pressures would in large part flow through to households and businesses in the form of higher gas and electricity bills, especially given the fuel was used to generate a third of power in the state's main grid.
However, Mr Harris warned that some users were unable to pass on any price hikes and there was a limit to their capacity to absorb cost increases.
"In WA, gas is incredibly important," Mr Harris said.
"We use gas in all sorts of ways in WA and a huge number of jobs are connected with gas, so it's a vital part of our economy."
According to Mr Harris, WA consumed about 40 per cent of the total amount of natural gas used in Australia despite having 10 per cent of the population and its economy was particularly vulnerable to price spikes.
Exemption a 'risky' precedent
But he cautioned that the government had set a risky precedent by allowing the Waitsia exemption, saying that other onshore gas producers would want similar treatment.
"We certainly don't want to see any more exemptions given," he said.
However, industry insiders say gas prices have been held artificially low in WA by the state's domestic gas reservation policy, which sets aside 15 per cent of a project's reserves for local buyers.
They say the low prices are unsustainable and recent increases are more reflective of a balanced market.
The state government said it had struck several deals with suppliers including Woodside to ensure there would be a surplus of domestic gas from 2027.
In the meantime, the government quoted analysis from research firm ACIL Allen to claim prices would be "adequate to meet the needs of gas-based downstream industries".
A spokesman also indicated the government made the decision to exempt Waitsia from the export ban before two major fields that supply the domestic market were downgraded last year.
The spokesman suggested other projects might be offered similar deals to Waitsia, noting that allowing onshore gas to be exported could bring more into production and help backfill the North West Shelf.
Calls for government action
Nationals MP and State Opposition Leader Mia Davies said the government needed to ensure AEMO's forecasts did not turn into a reality.
Ms Davies said part of the response should include pressing major exporters to make more gas available for the local market at reasonable prices.
But she said the government also needed to properly explain why the operators of Waitsia were being allowed to ship onshore gas overseas at a time of domestic shortage.
"It would be a failure of government policy if we face a shortfall of gas supplies into Western Australia with the natural resources we have on our doorstep," Ms Davies said.
"The West Australian public expects that we see the benefit either through downstream processing or the supply of reliable energy."
