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WA could face gas supply shortages for years, according to new report

Western Australia's increasingly fragile electricity system has been issued another warning, with a caution that demand for gas could outstrip supply for much of the coming decade.

The alarm was raised in a report from the Australian Energy Market Operator (AEMO) to be released on Thursday, considering the next 10 years of WA's gas supplies.

It predicts a small, but likely manageable, gap between supply and demand from 2023 and 2026, before supplies increase significantly in 2027 – largely due to the Woodside's Scarborough gas project coming online.

But beyond 2030 is when the biggest gap exists on current forecasts, largely as a result of the WA government closing all of its coal-fired power plants by then.

The government is hoping to replace much of those plants' capacity with renewable energy sources, but has acknowledged gas will play an important role in generating power renewables cannot provide.

AEMO estimated the task of gas would be significant, with demand in the state's main electricity grid, the South West Interconnected System, more than doubling between 2023 and 2032.

"The strong linkages between WA's gas and electricity sectors mean that changes occurring in one sector will have an impact on the other," AEMO's WA manager Kate Ryan said.

"This reiterates the importance of timely investment in new gas developments, firming technology and storage solutions to maintain a secure and reliable energy system."

The report notes that pressures have been reduced slightly by decarbonisation efforts within iron ore mining, with demand to reduce by about a third despite production forecast to increase.

It comes as concerns linger over the system's capacity to supply power to West Australians this summer, in part because of issues with a number of gas plants.

'Sizeable' gap to be filled

Chief executive of Perth-based Energy Market Strategies, Mark Hanna, said the larger of the forecast gaps – estimated at around 200 terajoules and predicted to begin in 2030 – left a "sizeable amount" to be filled.

"However, I think Western Australia with the amount of gas, and infrastructure we have in place, it should be something given the seven or eight year time frame … it's something that the market could look at and confidently feel it could be filled," he said.

WA's domestic gas reservation policy – which keeps 15 per cent of gas for the domestic market – was a key reason for his confidence, Mr Hanna said.

Premier Mark McGowan was singing the praises of the policy on Wednesday, as the Commonwealth prepared to pass legislation to cap coal and gas prices to reign in power bills on the east coast.

"In 2006, Alan Carpenter brought in our domestic reservation scheme in Western Australia," he said.

"Some of the major oil and gas companies at that point in time said it was a catastrophe, compared us to Venezuela, said there'd be no further investment.

"We've had hundreds of billions of dollars of investment since then, despite all those claims, and we've got plentiful local gas at a reasonable price."

Mr Hanna said the other factor was the state government's positive attitude towards gas.

"When you look at the east coast, one could argue it is actually anti-gas," he said.

"The big advantage we have with respect to that 200 terajoules that may be needing to be filled is that we do have the infrastructure.

"We do have the Dampier to Bunbury pipeline, which would take that amount of gas, and we do have massive amounts, billions of dollars of investment, on the ground with each of the suppliers."

Range of options to keep power on

Ms Ryan said there were are variety of ways WA could tackle the shortfall.

"Including drawing from WA's existing gas storage … and developing gas fields not currently included in the forecasts," Ms Ryan said.

In a statement, a state government spokesperson said AEMO's report "identifies several options to increase gas supply, including drawing on WA's existing gas storage and developing new gas fields, like those reserves in the Perth Basin that are not included in the report's forecasts".

"Other new sources of energy supply are expected to enter the market before the retirement of state-owned coal-fired power plants by 2030," they said.

"More rapid decarbonisation by large gas users would also free up capacity.

"There are always challenges in managing WA's unique electricity system.

"Because we are on a separate network, we can't rely on other parts of the country and we are supplying one of the largest grids with a comparatively small population, but it's well prepared for summer and the years ahead."

Mr Hanna said in any case, many would be watching the looming gap between 2023 and 2026 closely.

He said while most energy in the state, particularly for consumers, is generated from gas provided through long-term contracts, the deficit of supply was "not helpful" and could decrease the system's margin of error.

"At times where the system is under stress, that would occur … but I wouldn't expect these small shortfalls to make the problem materially worse," he said.

"Relatively speaking, it's a small amount of gas.

"But in my experience gas prices tend to be elastic, which means even small amounts of shortfall, for example, particularly around the margins, around spot pricing, you could find there could be significant increases in gas [prices]."

But Mr Hanna expected those increases to be "much less" than what is being experienced elsewhere in Australia and around the globe and have a greater effect on sectors which rely heavily on short-term gas contracts, like in the mining sector.

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