Cheaper energy nearer following completion of negotiations

26/7/94

Cheaper energy for Western Australia is closer to reality following the completion of negotiations for disaggregating the North West Shelf domestic gas contracts (Domgas).

Energy Minister Colin Barnett gave a detailed report to the industry during a function hosted by the Western Australian Chamber of Commerce and Industry in Perth this morning where he outlined the steps towards completing the deregulation process.

"The existing structure of the State Energy Commission of WA, together with its contractual obligations reduced competition and while this situation continues energy prices in WA will remain unacceptably high as was identified in the Carnegie Report," Mr Barnett said.

"The Coalition's energy policy aims to lower energy costs by introducing competition, including 'head to head' competition between gas and electricity and allowing direct sales between energy suppliers and consumers using the pipeline and grid systems.

"This will lead to the expansion of the energy sector, particularly WA's gas industry, and encourage downstream processing of the State's existing resource base."

Mr Barnett said major strides had been taken towards achieving deregulation of the gas industry.

"On January 1, 1995, SECWA will split into separate gas and electric utilities.

"A major hurdle in the way of cheaper energy is the Domestic Gas Sales Agreements (Domgas Contract) between SECWA and the North West Shelf Joint Venture Participants (JVPs) which was entered into in September 1980 for a 20-year period from July 1985 to 2004-5," he said.

While SECWA's commitment to buy gas from the joint venture partners was a fundamental step in establishing a gas market in WA it was unable to sell all the gas it was obliged to take. Prepayments for unused gas has built up to an inventory valued at about $300 million.

"The contract resulted in a monopoly gas market being created to enable a big volume of gas from a single seller to be marketed in WA.

"The JVPs were the main supplier, SECWA the main purchaser and ALCOA the main customer.

"SECWA had exclusive rights to the gas from the JVPs and was able to control access to the Dampier to Bunbury natural gas pipeline."

Mr Barnett said negotiations to disaggregate the Domgas contract began in July last year.  All outstanding issues are now resolved and are subject to final approval from a number of boards.

The three steps involved in disaggregating the contract included:

·       the JVPs having separate direct contracts with five major customers - Alcoa, Hamersley and Robe, and the gas and electric utilities - rather than a single contract with SECWA.

·       the gas utility withdrawing from the Pilbara industrial gas market for the contract period of between January 1, 1995 to June 30, 2005;

·       South-West deregulation to be phased in to allow the orderly rundown of the gas inventory and to ensure the gas entity was able to operate on a viable basis from inception.  In this context the south-west is all areas other than the Pilbara and the Eastern Goldfields regions.

The second major factor in deregulation would be the phasing in of access to the Dampier to Bunbury natural gas pipeline, enabling customers to contract for gas supplies with companies other than, but not excluding the gas utility.

"This effectively removes SECWA as the monopoly middleman and puts gas customers in direct contact with gas suppliers and reduces SECWA's take-or-pay commitment from 393 Tjs to 200 Tjs."

Under this system:

·       from January 1, 1995, any new gas customers taking at least 1,000 Tj/year through a single metered connection to the pipeline - will be able to contract directly with the gas supplier of  their choice;

·       from January 1, 1996, any gas customers taking at least 1,000 Tj/year through a single metered connection to the pipeline will be able to contract directly with the gas supplier of their choice; and -

·       from January 1, 1997, any gas customers taking at least 500 Tj/year through a single metered connection to either the pipeline or the downstream distribution system will be able to contract directly with the gas supplier of their choice.

Mr Barnett said the future for an expanded gas industry was looking good.

"WA's potential natural gas production will continue to increase in the next few years as the Goodwyn, Griffin, Roller/Skate and Cossack/Wanaea fields are already lined up for gas production," he said.

"In addition more recent discoveries such as East Spar, Macedon and other fields could also be developed over the next two to three years.

"The increased LNG export market demand, new downstream processing opportunities and the potential expansion of the local gas market are the driving forces behind maintaining gas discovery rates.

"The local gas market will benefit from projects such as the $400 million gas pipeline from the North-West to the North-Eastern and Goldfields regions of WA and the $300 million Pilbara energy project."

Mr Barnett said other significant changes which had already occurred in the energy sector included:

·       reduced electricity tariffs for business in both 1993-94 and 1994-95;

·       the abolition of the security deposit scheme for electricity customers which substantially reduced business start-up costs;

·       the cessation of undergound coal mining on June 30, 1994 on the basis it was no longer economical.   As a result, SECWA and Worsley Alumina were no longer required to buy underground coal - a saving to SECWA of $200 million in power generation fuel costs over the next 10 years; and -

·       the reduction of SECWA's workforce through a program of voluntary redundancies, redeployment and natural attrition.

"At the completion of the SECWA restructuring, further consideration may be given to the complete or partial privatisation of the Bunbury gas pipeline," Mr Barnett said.

"However, it is unlikely it would be privatised until the competitive industry structure is in place and working effectively.

"At the end of the day, introduction of competition will deliver cheaper energy for the State's existing and future downstream industry."

Media contact:  Caroline Lacy  222 9595