Chapter 3 - Government Response
Immediate response
3.1
The Western Australian Government established a five point plan
after the Premier met with industry leaders on the Sunday after the explosions.
The Coordinator of Energy, Mr Jason Banks, outlined the government's response
in the immediate aftermath of the incident:
The first two days of the incident involved intelligence
gathering and establishment of communication lines with key stakeholders to
ascertain the impact and magnitude of the disruption...
The Office of Energy assisted in convening the meeting of 8 June
between the previous Premier and key industry stakeholders...The outcome of
this meeting was the establishment of a Gas Supply Coordination Committee[1]...
to assist the state to identify and manage the potential impacts of the gas
supply disruption on the Western Australian community, in particular operation
on energy supply levels and the implementation of the previous government’s
five-point plan in response to the incident.
The five-point plan involved accessing gas from the North West
Shelf and other suppliers, accessing energy from other sources to free up gas
such as displacing gas from power generation with distillate fuel, encouraging
gas and electricity customers not to waste energy, working with industry to
shift demand to low-peak times and ensuring that diesel was available to
replace natural gas where possible. The office convened the first meeting of
the Gas Supply Coordination Committee on Monday, 9 June with the key output of
that meeting being an agreed set of guiding principles for the allocation of
available energy.[2]
Emergency powers and plans
3.2
Without declaring an emergency, there are limits to the extent
to which the government can intervene in commercial arrangements.
3.3
A minority view was that the government should invoke emergency
powers. However in general those witnesses who supported this position seemed
unaware of the limitations that apply to the invocation of emergency powers or
the potential litigation that may result if such action had been taken by the
state government. However most witnesses seemed supportive of the decision not
to invoke emergency powers.
We strongly endorse the government’s decision, which was taken
at an early stage, not to intervene in gas production and delivery arrangements
by invoking emergency powers and instead allowing, to the extent possible,
market forces to resolve issues which arose as a consequence of the incident.[3]
Industry and the Chamber were supportive of the State
Government’s preferred strategy of not invoking emergency powers but of seeking
voluntary contributions to a managed outcome.[4]
... our view that we expressed at the time was that the market
should prevail, and I mention that contracts should remain intact. I think the
preference for the market prevailing, even though there are consequences and
they are in the form of cost increases, overwhelmingly is a better option than
having intervention in the marketplace.[5]
There is a point at which emergency powers become relevant. I do
not think emergency powers were appropriate in this particular situation...[6]
3.4
Other witnesses such as the Food Industry Association of Western
Australia argued that the government should have had plans to 'step in and take
some control so that (a) there is no profiteering and (b) there is allocation
where it is required.'[7]
Emergencies under the Energy
Coordination Act 1994 (WA)
3.5
There are specific provisions under the Energy Coordination
Act 1994 (WA) relating to gas supply system emergencies. If a state of
emergency exists in relation to the gas supply system the Minister is able to
make emergency orders under the Act.
3.6
In relation to these emergency powers, the former Minister for
Energy, Hon Fran Logan MLA, told the committee that:
...you can only issue those gas and electricity emergency orders
if there is a likelihood of a collapse or depressurisation of the gas system,
which was not the case; we only lost a third of the gas in this instance. But
before you issue any orders, the first thing you have to do is get people who
are likely to be affected or who can have an impact on addressing the
situation, get as many of them as possible together, to work in a collaborative
manner. That is what those gas emergency orders ask you to do. They say it is
far better to work in a collaborative manner than to have the government
standing there issuing orders to people; and that is what was done. That is
what was done.[8]
For the government to intervene—which is what people were asking
for—and allocate that gas, even if you were to try to do it under the emergency
powers...somebody else would miss out. Remember, this is gas that is all
contracted and...for a government to jump in to break up a contract between two
parties and take that gas and allocate it to another party is a recipe for disaster. [9]
Emergencies under the Emergency
Management Act 2005 (WA)
3.7
More general emergency powers can be invoked under the Emergency
Management Act 2005 (WA). Emergency powers under the Act apply when an
'emergency situation' (declared by a Hazard Management Agency, such as the Department
of Consumer and Employment Protection) or a 'state of emergency' (declared by
the Minister for Emergency Services) occur.[10]
3.8
The legislation requires the establishment of State emergency
management policies and plans in relation to all hazards. An emergency
management plan for fuel shortage emergencies was approved by the State
Emergency Management Committee on 31 January 2006.[11]
It appears that this plan was not implemented after the Varanus Island incident.[12]
The Western Australian Local Government Association suggested that the state
emergency management plan for fuel shortage emergencies 'be revised and used to
determine the priorities for allocation of limited gas'.[13]
The committee notes that the plan is currently being reviewed. [14]
Committee view
3.9
The committee recognises that some businesses were severely affected
by the disruption to their gas supplies following the Varanus Island incident.
However, the committee believes that given the circumstances of the incident
where there was no collapse or depressurisation of the gas system (only 30 per
cent of Western Australia's gas supply was disrupted), and the consequences of forcing
unaffected energy suppliers to break contracts and arbitrarily taking gas away
from one user to give to another, the government had limited capacity to invoke
emergency powers. In the circumstances the steps taken by the state government
were appropriate.
Contingency planning
3.10
The government was criticised by some witnesses for lacking a
contingency plan or strategic reserve:
Why is there no contingency plan for infrastructure assets vital
to industry in this state?[15]
This potential of emergency storage facilities of gas has not
been examined or debated widely as evidenced by the State Government’s ineffectiveness
during the crisis. This is a contingency action the State Government could have
implemented in response to the crisis...[16]
The Food Industry Association’s view is that the state
government is responsible for the reliable and economic provision of essential
utilities, including gas, to food and beverage and other industries. It
controls that supply through the issue of licences and therefore it is
ultimately responsible for the risk management and contingency plans required
to ensure secure supply is maintained...[17]
The Western Australian State Government needs to ensure that a
reliable, secondary, replacement supply of energy is constructed and able to be
brought online in case of a similar emergency.[18]
There needs to be a LPG receiving, storage and distribution
centre in Perth (or preferably the south west) that can compete with the
natural gas pipeline for customers, and provide its own distribution system to
reduce reliance on the pipeline.[19]
3.11
The committee was informed that some gas is already being stored
in depleted reserves around the Perth basin. However it was suggested that
'storage facilities are not going to be able to overcome the shortages of the
size experienced by the Varanus Island gas incident...'[20]
In outlining the option of a gas storage facility near Perth the Office of
Energy told the committee:
You would need a large reservoir to be able to store the
quantity of gas that would be required to sustain a 30 per cent reduction in
gas supply for the whole state for at least two months. There would be a
significant cost involved and there would be significant costs in actually
filling the facility with gas and carrying that gas, the point being that the
gas cannot be utilised on a daily basis. It effectively has to be a redundancy.
It has to sit there and be available for a contingency which is a one‑in‑thirty-year
event. So you have a large carrying cost in terms of the capital tied up in
having that type of resource stored.[21]
3.12
The Office of Energy suggested that another possible contingency
option would be the development of an offshore LNG receival terminal so that
LNG could be delivered by ship directly to the Perth basin:
Other options have been proposed as well—for example, an
offshore LNG receival terminal. But, again, you would need ships that
effectively are idle, because if they are integrated into the market and used
on a daily basis, if you have an event like this they will not be there to
provide additional supplies, they will only be part of the integrated daily
usage.[22]
3.13
The former Minister for Energy, Hon Fran Logan MLA, suggested
that such a facility would cost at least $1.8 billion:
...because you have to have cryogenic storage facilities. You have
to have that system integrated with the current gas distribution system, you
have to have regasification facilities and you have to have cryogenic unloading
facilities as well. These have been put in place around the world. They are
very expensive and someone has to pay for it.[23]
3.14
Similarly, on the question of constructing a regasification terminal
the Commonwealth Department of Resources, Energy and Tourism told the committee
that the challenge would be in the cost of building such a facility.[24]
3.15
Mr Logan suggested that the given the significant cost of
developing such contingencies any proposal would require 'support from all the
players in the market, because someone at the end of the day has to pick up the
cost'.[25]
3.16
He further suggested that such support would probably not be
forthcoming:
They do supply domestic gas and they are the major suppliers of
domestic gas but, as you know, they are focusing on LNG exports as the prime
income driver for their operations. They are responsible to shareholders and I
do not think those boards would take kindly to any proposal put before them to
spend money on building domestic gas operations.[26]
3.17
The Chamber of Minerals and Energy told the committee that
'emergency storage of a sufficient volume to be meaningful (i.e. beyond a few
days) is both technically and environmentally challenging and may not be
economically feasible.'[27]
3.18
The committee was informed that just prior to the election the
former government asked the Office of Energy to conduct a review looking into
these sorts of contingencies.[28]
This was announced as an expansion of the review that was being conducted by
the Office of Energy into the circumstances surrounding the incident where gas
supplies from the North West Shelf Joint Venture's Karratha gas plant were cut
for several days in January 2008. The new government has now been provided
advice regarding the endorsement of terms of reference for the inquiry.[29]
Committee view
3.19
Given the importance of gas supplies to the Western Australian
economy it is appropriate that the initiative of the former government to
commence the development of an energy security plan should be continued by the
newly elected state government. The energy security plan should include a
thorough review of possible contingency options. The committee therefore notes the
announcement of the review into gas security announced by the Western
Australian Government on 6 August 2008. This review should be conducted in
coordination with the broader review of energy security detailed in Chapter 5
and the National Energy Security Assessment currently being conducted by the
Commonwealth Department of Resources, Energy and Tourism.
3.20
The committee does however note that any contingency option that
would be of sufficient scope to mitigate significantly the impact of a gas
shortage on the scale of that experience after the Varanus Island incident
would be very expensive and could present significant technical and
environmental challenges.
Consultation with industry
3.21
The Chamber of Commerce and Industry of Western Australia (CCIWA)
described the Government's consultation with industry:
In terms of the communications effort, the government did engage
my chamber and the Chamber of Minerals and Energy directly, and it was clear
that the government looked to our chambers to play an important role in
facilitating communication in both directions—between the government and
industry.[30]
3.22
Some subsidiary business groups did not feel this adequately
represented their perspectives:
...food and beverage was not well represented across the broad
spectrum that CCI were representing...we should have been there to represent
the food and beverage industry. We communicated with CCI, but it was a small
part of their broader interest...they did not strongly enough represent our
industry.[31]
I think it is fair to say that CCIWA have a different view of
the world. They have a view that is
more aligned to the major corporate structure in this state.[32]
3.23
There was also criticism about a perceived lack of openness by
the government. A survey of hoteliers found that 87 per cent were dissatisfied 'with
the government's failure to release key documents and facts pertaining to the Varanus
Island explosion.'[33]
The Food Industry Association of Western Australia (FIA) explained that they:
...made requests for information during the crisis from the Office
of Energy, the Department of Agriculture and Food, the Minister for Agriculture
and Food and the Premier. Industry and business wanted to gain clarity about
the status of the crisis situation, the expected outlook, potential ways to
effectively manage and improve the situation, the long term impact, and assurances
that similar situations can be avoided and better managed in the future by
effective and efficient planning. The lack of provision of this information on
request was not explained or declared as confidential...[34]
3.24
Although the FIA did note that 'the Minister for Agriculture and
Food was available to meet and discuss the industries and business concerns,
but his office's ability to assist was of limited use...'[35]
3.25
Similarly, the Bunbury Chamber of Commerce and Industries
reported being able to speak directly to the minister:
Yes, we had access directly to the minister for energy on two
occasions through our local members. I think we were given a fair hearing but
there was in my view an underlying concern that the domestic market in Perth
had to be protected.[36]
3.26
Mr Jason Banks, from the Office of Energy, explained that some
information was commercial-in-confidence and therefore could not be released:
We had a very good response from industry and they provided us
very good information, but much of it was subject to commercial confidentiality
concerns, which were raised with us. So we kept that in confidence and the
information we were releasing was at a more aggregated general level.
...from my office's perspective, we were providing public updates
from the 4th.[37]
3.27
There was also concern among businesses that they were not
informed about the expected duration of the gas shortage following the
incident. The Office of Energy explained that information about the duration of
the disruption was made available once Apache had made the appropriate
assessment.[38]
3.28
The former Minister for Energy, Hon Fran Logan MLA, acknowledged
that small to medium sized businesses felt that they were not being
communicated with directly by government. Although he pointed out that the gas
supply system in Western Australia is a private system and:
They would have to have spoken in the first instance to their
supplier of gas and, when they did, as you will find out tomorrow—and I can
address some of those issues through the questioning—people were upset about
the way in which their supplier was dealing with them. We were encouraging
people to go on websites. There was a daily update of what was happening with
the gas issue through the Office of Energy website. Alinta itself also had a
website dedicated to the gas outage and what people could do about it, and who
to contact. Of course, we had various hotlines in place, which we were
advertising on radio, TV, newspapers, to ensure that people had someone to go
to, to talk to.[39]
3.29
On the question of releasing documents relating to the National
Offshore Petroleum Safety Authority (NOPSA) investigation into the causes of
the explosion, Mr Logan told the committee that while it would not have been
appropriate to release documents that related specifically to NOPSA's
investigation because it would have undermined their investigation:
The questions asked, allegations made, particularly about
inspections of pipelines, and documents demanded, would have undermined the
investigation, and that was the strong advice that I received from the
department itself, and I believe that was confirmed by the state solicitors.
For example, you do not start releasing information during the investigation of
an air crash, nor do the police start releasing documents when they are halfway
through an investigation or part of the way through an investigation into
incidents or explosions that may not be of this nature. It just does not
happen, and this is no different, though through FOI—and there were a number of
FOI applications put in—all relevant information was supplied to both the
opposition at the time and the media in terms of what documents they needed.
But in terms of documents that related specifically to the work that was being
undertaken by NOPSA and that may well have skewed the outcome of this
investigation, we did not release those documents and we were advised not to
release them for obvious reasons.[40]
Gas Supply Coordination Committee
and Gas Supply Disruption Recovery Committee
3.30
Soon after the explosions on Varanus Island the government set up
two committees – the Gas Supply Coordination Committee and the Gas Supply
Disruption Recovery Committee. In essence the Coordination Committee was
responsible for dealing with energy supply issues and met on regular occasions
to work through the five-point plan which was designed to minimise the impact
of the incident.[41]
The membership and remit of the Coordination Committee is discussed at
paragraph 3.1.
3.31
A communications subcommittee of the Coordination Committee was
also established 'in order to maintain consistency of messages to the public,
industry and other government agencies'. Membership of the subcommittee
included government departments, electricity utilities, Alinta, the CCIWA, the CME
and a media company, Marketforce.[42]
3.32
With regard to the Gas Supply Disruption Recovery Committee, the
then Premier outlined its membership and remit in state parliament on 12 June 2008:
Of course, we are dealing not just with the restoration of
energy supplies; the issue is broader than that. Our other key priority is to
deal with the fallout from the disruption to gas supplies; that is, the
economic, social and employment consequences of that disruption...I have
instructed the Director General of the Department of the Premier and Cabinet,
Mr Mal Wauchope, the most senior public servant in the state, to bring together
a high-powered team to coordinate our response to the economic and social
impacts of this event. The group is holding its first meeting as we speak. The
group will meet as often as required and will report to me, other relevant
ministers and the Gas Supply Coordination Committee...The aim of the [Gas Supply
Disruption Recovery Committee][43]
is to support industry, businesses, services and communities that have been
affected by the gas supply disruption, so that they can return as quickly as
possible to normal function. In particular, I want the team to focus on
industry concerns about the impact of the gas shortage, such as the shutdown
and closure of some businesses; concerns about the potential for job losses and
flow-on effects for businesses and the community; the effect on essential
services, including food supplies and hospitals; and the effect on future
economic growth and the mining industry.[44]
3.33
The Chief Executive of the Chamber of Minerals and Energy of
Western Australia told the committee:
I have no criticism of the Gas Supply Coordination Committee. I
think there are some suggestions that we would make of how a committee of that
nature could work better and perhaps have a better redundancy situation. It put
significant pressure on key individuals. There are comments one would make
about the Gas Supply Disruption Recovery Group. I think that some parties that
were part of that were clearly well organised, others less organised, and I think
there are some observations that can be made about how that could be improved
if there were a major incident in Western Australia.'[45]
3.34
Mr Stuart Hohnen, Chairman of the DomGas Alliance, told the
committee that:
having started with the premise that the government determined
that they wanted to deal with it, to the extent possible, through market
mechanisms, I think the [coordination] committee operated quite effectively.[46]
3.35
The Food Industry Association of Western Australia was critical
of both committees:
The State Government has reinstated two committees in response
to the crisis: (1) Gas Supply Coordination Committee dealing with the priority
allocation of gas and (2) a Recovery Committee. At the first committee, the
food and beverage industry appeared to be unrepresented. The responsibility of
this committee was unclear or no noticeable actions were taken and/or
communicated to the wider business community. This Committee appeared to have
determined a priority order of gas allocation as published on its internet
site, however this priority was not enforced with any authority and seemed to
have been the sole responsibility of Alinta, whose gas supply was severely
decimated. The question can be raised what was the actual function, impact and
achievement of this committee? For the Recovery Committee – no apparent action,
outcomes have been reported/or communicated. As with the first committee the
effectiveness should be questioned.[47]
3.36
In response to questions about the membership of the Coordination
Committee and in particular the apparent lack of representation of small
customers, Mr Logan told the committee that:
...what we were trying to do was have on the committee those
people who could actually take actions to ensure that the maximum amount of gas
was available to those small customers.[48]
3.37
In its submission the Western Australian Local Government
Association (WALGA) informed the committee that it accepted an invitation to
participate in the Gas Supply Disruption Recovery Committee:
This committee met on three occasions and provided two way
communications through daily email updates between meetings. This committee was
considered a worthwhile undertaking by local governments, although its impact
on decision-making at the local level was limited.[49]
3.38
At the hearing WALGA expanded on what they thought the Recovery
Committee achieved:
I think our view would be that it achieved some degree of
dialogue, a marginal degree of improved understanding of the situation, an
awareness of the situation that others were trying to respond to, but it never
gained the status of managing an emergency and therefore it never, within the
sorts of spheres that we operate in, drove decision making in an emergency type
of mindset.[50]
3.39
WALGA representatives noted that these observations were with the
benefit of hindsight and they raised no objections at the time.[51]
Committee view
3.40
The committee recognises that some small and medium-sized
businesses felt that they were not being communicated with directly by the
government during the gas shortage. However, the committee notes that the gas
system in Western Australia is privatised and therefore information about the
operations of the system beyond a more aggregated general level is subject to
commercial confidentiality concerns which limited the government's ability to
provide specific information to businesses. In relation to non commercial in
confidence information the committee believes that processes should be put in
place to enhance transparency and information for the public.
3.41
With regard to the release of documents relating to the NOPSA
investigation into the causes of the explosions, the committee notes that the
former government received advice from the relevant department and the State
Solicitor's Office that releasing certain information would undermine NOPSA's
investigation. The committee also notes that the only documents that were not
released were those that related specifically to the work that was being
undertaken by NOPSA.
Government involvement in the allocation of available energy
3.42
With a privatised gas market based on contractual obligations and
limited capacity for government intervention the government had little option
but to operate within a market based approach in response to the gas shortage. The
government therefore adopted a collaborative approach to the allocation of
available energy after the initial priority order had been determined.
3.43
On 9 June, the Gas Supply Coordination Committee agreed on a set
of guiding principles for the allocation of available energy. The Office of
Energy explained that the priority order was based on the need to protect the
health, safety and property of the community, minimise broad community
disruption and minimise economic impact.[52]
The guiding principles were published and they were used as a guide for
suppliers of energy in terms of their allocation.[53]
The Office of Energy outlined the priority schedule as follows:
1. Energy infrastructure is to be given top priority to maintain
the State’s capability to supply gas and electricity to users.
2. Essential Services are defined as those critical services
that have the potential to seriously impact on the health and safety of the
community and include essential public transport and communications.
3. Essential Supply to Residential Customers will minimise the
potential for health impacts and disruption to the community. Consumers are
encouraged to reduce energy consumption.
4. Industries providing essential goods and services to the WA
community will have a higher priority in the allocation of energy than those
that do not. This is to minimise disruption to the community and recognise the
important services that these industries provide.
5. For all other industries, every effort will be made to
maximise the availability of supply, recognising their importance to the State
and National economy.[54]
3.44
The Office of Energy noted that the priority schedule would not
override contractual arrangements, that in assessing allocation to industries
consideration would be given as to whether they have alternative supplies, and
that there are physical limitations to the operations of the gas and
electricity supply system which would impact on the application of the
schedule.[55]
3.45
The committee heard that there was some criticism of the overall
priority schedule:
It is also our view that the priority structure developed by the
Office of Energy was flawed and more consideration of the needs of industry was
required.[56]
Industry was given the lowest priority by the government in the
gas allocation policy, and there was no consideration of gas rationing to non
essential domestic users.[57]
A more equitable system would have been for all parties affected
by the explosion to have their gas allocation reduced by 30%.[58]
Committee view
3.46
The priority schedule for the allocation of available energy
developed by the Gas Supply Coordination Committee was designed to minimise
broad community disruption and economic impact by allocating available energy to
energy infrastructure in the first instance, followed by:
- critical health and safety services, including public transport
and communications;
- residential customers;
-
industries providing essential goods and services; and
- other industries.
3.47
The committee believes that this broad priority schedule was sensible
and appropriate in the circumstances following the Varanus Island incident. In
particular, the committee agrees that supply of energy to residential customers
was crucial to ensure that negative health impacts were minimised, particularly
as the incident occurred in winter.
3.48
There was also criticism about how available energy was allocated
and distributed by the retailer, Alinta. This is discussed in Chapter 4.
Energy saving measures
3.49
Some witnesses suggested that not enough was done to reduce
household usage of energy:
...more could have been done at an earlier stage in terms of
encouraging the household sector to adopt energy conservation efforts.[59]
It is our strong view that not enough was done early enough to
encourage the domestic market to decrease their use of energy. A significant
decrease in domestic demand would have led directly to a valuable increase in
available supplies to the commercial and industrial market...[60]
3.50
The government did however issue press releases from 8 June and
the Premier appeared on television urging households and businesses to use less
energy. About $950 000 was spent encouraging households to use less energy.[61]
The Government also highlighted that gas is used to produce electricity so it
would not help to simply replace one with the other.[62]
In late June it was reported that five per cent reductions in energy use were
being recorded at peak morning and evening times.[63]
3.51
The former Minister for Energy, Hon Fran Logan MLA, noted that:
Demand management from industry and households was magnificent.
There was a real sense of working together to overcome the situation facing the
State. Clearly our communications to the public and industry were working
properly as electricity consumption fell consistently. From 18th
June until 1st August, 28,858 fewer megawatt hours were used than
expected, showing a dramatic response by both households and business to the
call for energy savings. Gas consumption was also reduced over this period, but
to a much lesser extent, due to some very cold days during the period.[64]
3.52
On the other hand, it was also suggested that this emphasis on
households reducing consumption was misplaced as they only directly account for
around three to five per cent of overall gas consumption. However, the
Coordinator of Energy told the committee that 'as a portion of Alinta’s portfolio—and
the Alinta customers were being seriously affected by the disruption—it is a
significantly larger quantity.' He argued that the rationale behind the energy
saving campaign was that any gas saving out of the Alinta portfolio would
increase the ability of Alinta to allocate gas to its other customers that were
subject to disruption.[65]
The Chairman of the DomGas Alliance, Mr Stuart Hohnen also considered that the energy
saving campaign was important, particularly because of the amount of gas that
is used to generate electricity in Western Australia and the timing of the
incident:
...there is a much bigger proportion of gas that flows into
electricity and that electricity is then used by household consumers, so it is
householders’ savings in electricity that become more significant than savings
in gas, but I might also say that that five per cent is an annual average, and
home heating causes that to spike considerably more than five per cent during
the winter months. So, given that this Varanus incident happened during winter,
a call for householders to reduce their gas consumption and electricity
consumption was relevant. [66]
Committee view
3.53
The evidence presented to the committee demonstrated that there
was a need to encourage residential users to minimise their energy consumption
during the disruption. The committee notes that the government publicly called
for a reduction in residential energy usage from 8 June, and developed a print,
radio and television campaign along those lines. Suggestions that the
government had not done enough to reduce household energy use were inconsistent
with evidence presented to the inquiry and unfounded.
Gas Bulletin Board
3.54
On 2 July 2008 the government announced that it would set up an
email-based secondary market for gas, known as the Gas Bulletin Board (GBB).
The bulletin board was designed to make it easier for businesses to get access
to gas by allowing gas users and producers to make trades, facilitated by the
Independent Market Operator (IMO). The Energy Minister at the time noted the
despite the gas shortage 'there are still days when some gas is available for
spot sale. The bulletin board will provide a forum for this gas to be sold.'[67]
The GBB commenced operations on 3 July 2008. As a result of the partial
resumption of gas supplies from Varanus Island, and no gas being offered for
sale on the GBB since 29 August 2008, the IMO recommended to the Office of
Energy that the GBB be closed down. This recommendation was accepted and the
GBB ceased operation on Monday 13 October 2008.[68]
3.55
Three sellers of gas offered gas for sale on the GBB during its
operation. A total of 532.5 terajoules of gas was offered for sale at prices
ranging from $10.00 to $35.00 per gigajoule. Nine registered traders were
successfully matched as buyers on the GBB and all successful matches were
priced between $15.50 and $18.50 per gigajoule. A total of 47.8 terajoules was
traded. The IMO states that 'while trading volumes on the GBB were significant,
given the limited operating duration, it appeared that a number of gas traders,
once introduced through a GBB match, continued to trade bilaterally outside of
the GBB'.[69]
3.56
The IMO outlined a number of impediments to trade on the GBB that
they became aware of during its operation. They included:
- The ability to negotiate commercially acceptable gas transport
agreements.
- The logistics of arranging transport on the Dampier to Bunbury
Natural Gas Pipeline and the Metro distribution network. This raised concerns
for gas traders matched in initial trading on the GBB, however once the various
contracting parties established procedures and protocols for GBB trades it
became less of an issue.
-
A restriction on the ability of some gas users, under the terms
of their gas supply contracts, to on-sell surplus gas to other parties. This
provision limited the amount of gas traded on the GBB.
- Competition concerns which prevented a major gas industry
participant from aggregating their customer’s gas supply requirements and
buying from the GBB on their behalf.
- Once the partial supplies of gas from Varanus Island resumed, the
IMO became aware that transport arrangements were withdrawn for gas traders
connected to the Metro distribution network. This significantly reduced the
number of potential traders on the GBB.[70]
3.57
However, despite these impediments the IMO viewed the GBB as a
success for the following reasons:
- The GBB provided transparent trade data, including pricing
information, which allowed Western Australian gas users to evaluate the cost of
securing gas supplies. This information was published on the IMO website.
- The IMO received a great deal of cooperation from the gas
traders, gas pipeline owners and the Office of Energy during the design and
implementation of the GBB.
- Despite the limited time the GBB operated, with 27 registered
traders, 14 active traders, and trading volumes of 47.8 TJs this initiative
could only be viewed as a success.
The GBB demonstrated that a formal
regulated gas market could be successfully implemented in Western Australia.[71]
3.58
The IMO told the committee that 'a gas bulletin board or some
sort of transparent market for gas in Western Australia would be quite a
significant asset to Western Australia and its industry. The transparency of
price and an understanding of the supply and demand parameters under which the
gas market functions would be of huge benefit economically to Western Australia's
economy.'[72]
The Economic Regulation Authority also expressed support for such an
initiative.[73]
3.59
Some witnesses, such as the Chamber of Commerce and Industry of
Western Australia (CCIWA), also regarded the GBB as a useful initiative. Mr James
Pearson, CCIWA's Chief Executive, told the committee that the CCIWA had
encouraged the government to establish the GBB 'in order to add more
transparency into the market and provide more information about what supply was
there and what demand was there and, indirectly, to help set a price for that.'[74]
3.60
Initially the minimum purchase through the GBB was 0.5 terajoules
and this appeared to be too large for some very small businesses:
To pick up the point of the very small businesses, we realised
that the actual amount that we had set for trading of gas was too high and
therefore—again, because of the feedback that we got—we set up a secondary
bulletin board that allowed much smaller volumes of gas to be traded.[75]
3.61
The minimum purchase through the secondary board was 0.1
terajoules. In his submission, the former Minister for Energy, Hon Fran Logan
MLA, told the committee that 'these trade would normally not even have been
considered, given the low volumes demanded and the cost of transportation to
the premises.'[76]
3.62
Other witnesses, such as the Food Industry Association of Western
Australia, suggested that the GBB 'appeared to lead to profiteering'.[77]
This allegation is considered in Chapter 4.
3.63
The Australian Petroleum Production and Exploration Association
called for measures to establish a more competitive market for gas in Western
Australia:
Encouraging development of a 'spot' market in Western Australia
by establishing a gas market bulletin board will increase opportunities for gas
trading and result in market growth and more competition. APPEA welcomed the
State Government announcements of an online bulletin board for gas sales as an
important step forward in facilitating trade in natural gas in Western
Australia. This system closely resembles the National Gas Market Bulletin
Board that came into effect in all States expect Western Australia on 1 July
this year. One important feature of the national scheme that has not been
adopted in WA is the provision of information on pipeline capacity and flows.
Transparency in gas transportation is as essential to a fair and effectively
functioning gas market as transparency in gas production and gas use.[78]
3.64
Mr Logan explained that information on pipeline capacity and
flows was not included as part of the Western Australia GBB due to the short
timeframe in which it was developed. He did, however, agree that if the GBB
were to stay in place information on pipeline capacity and flows should be
included:
If the bulletin board is to stay in place in Western Australia,
that is the sort of thing that should be put in it, because we need to know,
for example, that the gas coming down the Dampier to Bunbury pipeline is going
to those customers that need it or that it is contracted to, because there were
allegations of gas hoarding in the pipeline itself, in the major Dampier to
Bunbury pipeline. We had no visibility of that and we had no legal way of being
able to examine it.[79]
3.65
Mr Logan also suggested that if the Office of Energy was given
the power to examine in detail the transportation figures from the DBNGP and
the GGP and therefore be able to see the volumes of gas coming down the
pipelines (and their final destination), advice on maximising gas demand
management becomes easier and accusations of gas hoarding or unfair consumption
practices can be clarified.[80]
Committee view
3.66
The committee notes that the introduction of the Gas Bulletin
Board (GBB) was generally welcomed by industry representatives and allowed for
some gas to be supplied to businesses affected by the gas shortage. The GBB
also demonstrated that a formal regulated gas market could be successfully
implemented in Western Australia.
3.67
It was suggested to the committee that the establishment of a
permanent GBB in Western Australia would increase opportunities for gas trading
and could therefore result in market growth and more competition. The committee
notes that the National Gas Market Bulletin Board includes the provision of
information on pipeline capacity and flows.[81]
Evidence was provided to the committee suggesting that this should be included
in any future permanent Western Australian GBB to increase transparency in gas
transportation.
Government hotlines
3.68
The government established several hotlines to assist people
affected by the gas shortage. At the hearing Mr Logan informed the committee
that:
We had a significant number and a variety of hotlines set up to
deal with the complaints and issues of people who were affected by the gas
shortage: wage hotlines, gas disruption hotlines, employment related hotlines,
small business hotlines. The gas disruption hotline, for example, over that
period of time that I just referred to, 9 June until 6 August, which was
primarily the whole of the incident, had received 71 calls over that period.
Twenty were employment related, 28 were non-employment-related and 23 were
wrong numbers or hang-ups.
The demand on government resources, whether federal or state,
for those impacted by the gas shortage directly as employees was significantly
lower than we initially expected.
3.69
With regard to the small business hotline, the Minister for Small
Business at the time noted that a number of businesses had scaled back
operations and that many small businesses would be affected by increased costs
passed on by suppliers and a drop in consumer spending. The Minister
encouraged small business owners affected by the incident to take advantage of
the hotline which would be operated through the Small Business Development
Corporation which 'has a team of experienced business advisers who can assist
small business operators to deal with these situations.'[82]
The role of Commonwealth Government agencies
3.70
In the weeks after the explosion the Commonwealth Government
undertook a number of initiatives to try to minimise the impact of the
explosion.
Defence
3.71
The Minister for Defence agreed to surrender an order of six
megalitres of diesel for the Royal Australian Navy, which allowed the BP
refinery at Kwinana to concentrate on bolstering diesel supplies for Western
Australian industry. The Minister also advised that he would consider releasing
additional diesel from strategic reserves if required.[83]
In the end the release of additional diesel from these reserves was not
required as companies were able to supply it.[84]
Critical Infrastructure Protection
Modelling and Analysis Program
3.72
The Department of Resources, Energy and Tourism (DRET) made a
formal request to the Attorney-General's Department for the Critical
Infrastructure Protection Modelling and Analysis Program (CIPMA) team to
undertake some modelling and analysis on the economic impact of the Varanus Island
disruption. The analysis was undertaken by Geoscience Australia and a report on
the disruption was delivered to DRET on 3 October.[85]
A summary of the report was provided to the committee and is discussed in
Chapter 2.
Gas Supply Disruption Recovery
Committee
3.73
Several commonwealth agencies, including the Australian Bureau of
Statistics, Centrelink and the Department of Education, Employment and
Workplace Relations were members of the Gas Supply Disruption Recovery
Committee. As noted in paragraph 3.32 above, the aim of the Recovery Committee
was to support industry, businesses, services and communities that have been
affected by the gas supply disruption, so that they can return as quickly as
possible to normal function.
3.74
The Australian Bureau of Statistics was also a member of the
Recovery Committee and they offered assistance to the government in relation to
measuring the economic impact of the gas supply disruption.[86]
Centrelink
3.75
JobSearch support through Centrelink was made available for those
who were directly affected by the incident.[87]
However, the number of workers approaching Centrelink was much less than the
impression given by some media reports:
From 9 June until gas resumption by Apache on 6 August,
Centrelink had received 101 inquiries from people whose employment had been
affected by the gas disruption. Fifty-six of those resulted in claims for the
Newstart allowance or equivalent unemployment benefits.[88]
3.76
The committee heard from one business that Centrelink were quick
to offer support:
Within a day or so of the crisis we had had contact from the
local Centrelink office, who were offering assistance should redundancies or
layoffs be necessary. We did not get to that stage but the offer was there from
the Centrelink office which we appreciated.[89]
3.77
As noted in Chapter 2, the committee received evidence from several
contractors in the south west who were severely affected by the gas shortage.[90]
It was reported that Centrelink are limited in the assistance they can provide
to independent contractors.[91]
The former Minister for Energy, Hon Fran Logan MLA, suggested that this could
be an area for improvement in the future:
One of the issues, particularly for the federal government, is
how it deals with contractors in a situation like this. You will hear from a
number of companies in Bunbury, quite rightly, that they would not have gone to
Centrelink seeking unemployment benefits, and those that did actually were rejected
because they are contractors and therefore they were not entitled to the
Centrelink payments. That is one of the issues that came out of this incident
and I am sure it will be one of the issues that will be raised with you
tomorrow in the south west. There were a number of contractors in the south west
who were affected by this who are incidental to the gas issue—that is, log
haulers in the south west, because the production processors had closed down.
They were not delivering logs to the production processors; therefore, they
were laid off and were unable to get Centrelink payments because they were
contractors.[92]
Commonwealth liquid fuel emergency
powers
3.78
The Commonwealth Government can also invoke emergency powers in
the event of a liquid fuel supply emergency; however it would only be invoked
when there was a liquid fuel emergency that crossed state borders.[93]
Committee view
3.79
While the direct consequences of the explosions on Varanus Island
were largely limited to Western Australia, the Commonwealth Government acted
promptly to provide significant logistical and practical support to the former
Western Australian government and the community. The question on what
assistance Centrelink should provide to independent contractors in the case of
such incidents is complex, nevertheless this should be examined by the
Department of Human Services with a view to ensuring prompt and effective
advice and support is available to citizens affected by incidents such as the Varanus
Island gas explosion.
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