The ERA says the state is likely to have domestic gas supply problems within five to seven years, a point reinforced by problems on the upgrading program at the Woodside Petroleum-operated domestic gas processing plant.

In a discussion paper released this week, the ERA said the North West Shelf Venture recently advised that the upgrading program currently being undertaken on its two domestic gas processing trains had run into technical difficulties.

“The upgrading program had been intended to increase the capacity of these trains by circa 100 terajoules per day to accommodate growing demand and align with pipeline expansions,” the ERA said.

There is restricted capability to further upgrade these trains once this expansion is completed and the NWSV would require an additional domestic gas processing train to meet any further demand for gas, according to the regulator.

The NWSV supplies about 70% of WA domestic gas and is the only realistic source for additional capacity until new gas fields unsuitable for liquefied natural gas export are discovered and brought into production.

The State Government is concerned that this could undermine WA’s ability to attract industrial projects, especially given Queensland’s abundance of cheaper coal seam methane.

Due to the NWSV’s domestic gas upgrade’s technical problems, further work on the program has been halted until a detailed diagnostic and technical evaluation of the problem is undertaken.

“North West Shelf Gas has suspended marketing of domestic gas and has withdrawn from gas contract negotiations underway at that time,” the ERA said.

But Woodside has denied this is the case.

However, even if the upgrading of NWSV’s gas processing trains proceeds, it is estimated that the 100 terajoules per day of capacity resulting from the upgrading program will have been taken up by about mid-2009, beyond which time no more domestic gas will be available from NWSV and companies requiring gas will be dependent on gas from Apache Energy-operated Varanus Island.

However, there is little new gas capacity available from the Varanus Island producers, so in the absence of new discoveries, there will be supply problems in the WA gas market.

In theory, gas could be sourced from LNG projects’ fields, but this would entail either paying a lot more for the gas or imposing domestic gas reservations. Both options are problematic.

LNG schemes such as Chevron’s Gorgon project and Woodside’s Pluto project are not likely to provide any medium-term relief.

It is not certain when Gorgon will proceed and the Gorgon partners have simply agreed to sell gas domestically if it is commercially viable, hardly an iron-clad guarantee.

Under a deal between the State Government and Woodside, gas from Pluto is not likely to reach the domestic market until 2018.

BHP Billiton’s Pyrenees oil project could supply some domestic gas, but that is still in the feasibility study stage.

Dark horses include Arc Energy’s Canning Basin exploration program and a string of recent modest offshore Perth Basin gas discoveries made by a Roc Oil-led venture that also includes Arc Energy.