A key WA industry body has reinforced fears of a gas crunch within a decade unless Woodside Petroleum and the State Government reach agreement over future domestic sales.
The Independent Market Operator says a failure of the Woodside-led North West Shelf joint venture to extend domestic gas contracts expiring in 2020 could create a supply shortage that would likely trigger "substantially" increased prices.
"Anecdotal evidence suggests this potential outcome is currently being reflected in discussions related to the renewal of legacy gas contracts," the IMO said in its latest report.
The NWS venture meets more than 60 per cent of WA's domestic gas needs, supplying utilities and major industrial customers such as Synergy and Alcoa.
However, Woodside has signalled that it would not extend the existing supply arrangements by tapping undeveloped reserves unless it is paid more for the gas, flagging that WA domestic volumes could be redirected into the LNG market.
While Woodside declined to comment on its discussions with the Government, a NWS spokesman noted the venture was "a mature project with the majority of proved reserves produced or committed to existing LNG and domestic gas contracts".
"The development of remaining and uncommitted gas reserves is subject to a series of future investment decisions."
The IMO's Gas Statement of Opportunities is the second in seven months, with the first report criticised for not fully exploring the potential impact of the loss of the NWS contracts.
It looms as another flashpoint in the debate around WA's gas reservation policy, which requires that 15 per cent of the State's gas be reserved for domestic use.
In fact, the country's peak oil and gas industry body, the Australian Petroleum Production and Exploration Association, said the report supported its calls for the abolition of the "protectionist" policy, citing increased competition in the gas sector from new suppliers such as Devil Creek, Macedon and Red Gully.
"These projects were the result of buyers willing to commit to commercial terms that underpin the enormous investment required to develop and construct a gas processing facility," APPEA's western region chief, Stedman Ellis, said.
"They have been driven by market forces, not by government intervention in the form of a reservation policy."