WA Treasury has warned rising gas prices threaten to blow a hole in the bottom line of the State's regional electricity generator Horizon Power, amid uncertainty over new domestic supplies from Gorgon in 2015.
The warning is contained in Treasury's midyear review, and comes as a debate flares on the east coast over whether global gas giants are diverting too much gas to LNG exports at the expense of local industry.
"Horizon Power's current gas supply arrangements are estimated to expire towards the end of the forward estimates (in 2015-16)," Treasury said.
"Horizon Power will need to source gas from the market and this is likely to be at a higher cost than currently budgeted."
Given the confidential nature of the contracts, neither Horizon nor Treasury would provide an estimate of the potential cost to the utility. However some guide is provided in its sibling Synergy's most recent annual report.
The taxpayer-owned power retailer is also a big buyer of gas and last year, along with Verve Energy, bought 125 terajoules per day of gas from Chevron's Gorgon project for 20 years from 2015.
Synergy's report shows that its share of the deal has cost it the better part of $4 billion in extra gas costs over the life of the contract.
The value of its energy procurement contracts longer than five years jumped from $12.3 billion to $16.7 billion.
Synergy and Verve are paying about $2.50 to $3 a gigajoule under their old legacy contracts, but the new price will more than double to about $6/GJ, in line with rising prices in the rest of the industry.
Blair Stratton, Synergy general manager of strategy, confirmed that the main contributor to the increase in its gas procurement costs was the new Gorgon supply agreement.
A Horizon Power spokeswoman said it could not comment on confidential negotiations, but the utility was "monitoring the situation closely" and there were a number of gas projects it could buy from in coming years, not just Gorgon.
However September 2015 looms as a crucial date. It is when Chevron says first domestic gas will be flowing to WA industry - six months after its first LNG exports start.
Any further slip in the Gorgon project, already delayed by three months, would create a short-term crunch and a spike in prices, given utilities would be nearing the tail-end of their supplies from the dominant North West Shelf project.
The developments have prompted an alliance of domestic gas users to call for more government action to ensure cheaper gas supplies for industry.
However gas producers say that if they were forced to subsidise domestic industry, investment would be scared off and the sector would dwindle to a marginal rump of operators, threatening supplies. Gorgon bonus $64b The projected increase in Australia's GDP generated by the Gorgon project
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