The economics of Western Australia’s domestic gas reservation policy

Western Australia's domestic gas reservation policy nominally requires Liquefied Natural Gas (LNG) exporters to supply the equivalent of 15 per cent of their export volumes to the Western Australian market. This research offers the first quantitative assessment of the economic impact of the policy in Western Australia. A partial equilibrium model of the State's gas industry is developed, representing its key features. While gas users may benefit from the policy, this trade restriction is found to impose a net cost across all Australian households, since gas resources are diverted inefficiently and the incentive for gas production and exploration is reduced.