More price hikes on the way

Gorgon gas deal to put the heat on power bills

Households can expect further power price pain after State-owned electricity utilities signed landmark contracts yesterday with the $43 billion Gorgon joint venture that are expected to triple the price the utilities pay for WA gas.

Generating company Verve and retailer Synergy have agreed to take a combined 125 terajoules of Gorgon gas each day for the next 20 years.

The deal, which is set to begin in 2015, was hailed by the State Government as securing WA's future energy supplies.

The contracts are the first for domestic gas supplies signed by Gorgon's joint venture partners, led by American giant Chevron.

While the terms of the deal are confidential, industry sources said Verve and Synergy would pay $6-$8 a gigajoule for gas.

Historically, the State-owned utilities have paid about $2.50 a gigajoule from Woodside's North West Shelf project under the long-term take-or-pay contracts that underpinned the development of that project in the 1980s.

It is unclear how much household bills will rise when the new contracts kick in because the State Government is ultimately responsible for setting electricity tariffs.

But it is expected to place upward pressure on Verve's cost structure because gas will play an increasingly important part in its fuel mix in the wake of the Federal Government's carbon tax.

The deal represents about half of Verve's total gas consumption.

Verve uses gas to generate about 35 per cent of its electricity, with most of the rest generated by burning coal.

Synergy will use its allocation to sell gas to business customers.

Under the State agreement that governs its operation, Gorgon is required to supply 300 terajoules a day to the domestic market.

Gorgon is expected to market the rest of its domestic gas as the project, on Barrow Island off the Pilbara coast, draws closer to production.

"These contracts are of strategic importance to the State and provide a firm foundation for Verve's and Synergy's gas portfolios, both of which are expected to grow significantly in the future,"Energy Minister Peter Collier said.

Chevron Australia managing director Roy Krzywosinski hailed the deal as bolstering WA's energy security.

"Domestic gas is an important energy source for WA and these contracts mean more gas and competition for the local market," he said.

Verve chief Shirley In't Veld said the generator was continuing discussions with other potential suppliers as it approached the expiry of its contract with the North West Shelf joint venture in 2015-16.

Synergy chief Trevor James said the deal cemented Synergy#39;s role in the WA gas market for the next 25 years.

DomGas Alliance chairman Tony Petersen welcomed the deal and said industry looked forward to Gorgon quickly delivering on its full domestic supply commitment of 300 terajoules.

The Australian