The West Australian newspaper reported today that Premier Alan Carpenter has confirmed talks have ceased over a possible state agreement for Pluto.
The North West Shelf and Gorgon LNG projects are covered by state agreements but no such agreement has been organised for Pluto.
Woodside believes that no such agreement is necessary for it to develop Pluto and says the North West Shelf and Gorgon are special cases.
Neither the North West Shelf nor Gorgon has gas reservations as such.
WA’s North West Shelf project was set up at a time of much lower LNG prices and the State Government committed to buying substantial quantities of gas over decades in order to underwrite the development’s viability.
Gorgon requires a state agreement because it is to be built on an A-Class nature reserve. The Gorgon partners have an agreement with the state to bring gas onshore for the domestic market, providing it is commercially viable. However, it is unlikely that it will be commercially viable to build a pipeline from Barrow Island to the mainland unless WA gas prices rise significantly.
Carpenter has now said state agreements for new projects will be considered on a case-by-case basis and the government expects to reach agreement with LNG producers on possible gas reservations via negotiations rather than through legislation.
The State’s ability to impose reservations, therefore, is looking very shaky.
It is clear that the State will not be able to impose reservations on projects that use offshore processing facilities and source their gas from Federal waters.
Because future projects will only have to build their facilities outside state waters to evade any gas reservations, the State Government will be unable to impose significant gas reservations on any producer. The 20% threshold that Carpenter has mooted will certainly be untenable.
Of the projects currently being considered, only Pluto and the Pilbara LNG development, which will draw gas from the BHP Billiton and ExxonMobil-held Scarborough field, are irrevocably wedded to an onshore development.
Pluto already seems to have evaded gas reservations and the economics of Pilbara LNG are such that any reservations would probably kill the project.
With Carpenter saying that gas reservations will be imposed flexibly so that projects are not crippled, it is doubtful whether any substantial reservations can be imposed on future WA LNG projects.
