The association said the incident, which slashed WA's gas supply by a third, highlighted WA's reliance on a small number of gas suppliers and the "need to encourage greater diversity in all aspects of the domestic energy market".
APPEA called for incentives for the development of tight gas and smaller onshore gas fields, streamlining regulatory and approvals processes as well as increasing state government investment in pre-competitive geoscience to encourage further onshore exploration and discovery of new gas resources.
Chief executive Belinda Robinson said the "lengthy and complex approvals process" in WA had caused the state to be perceived as a difficult place to invest, particularly in the petroleum industry, where a single project crossed several jurisdictions and had to navigate a myriad regulatory requirements.
She added there was a need for the environmental approvals process in particular to be simplified, streamlined and made more transparent, and called for the establishment of a body with clear authority to coordinate and fast-track approvals for "projects of state significance".
Australia's leading gas export state has just two major sources of domestic gas supply - the North West Shelf and Varanus Island, with the NWS being by far the larger of the two projects, supplying almost 70% of the state's gas.
The prospects for expanding this supply are good, but it also has to be noted that demand is expected to continue growing rapidly.
Apache Energy has started work in the Devil Creek gas plant which will sell gas from the Reindeer field and probably later from the multi-trillion cubic feet Julimar Trend gas fields.
Devil Creek is expected to come online in mid to late 2010, producing about 38 billion cubic feet of gas per annum.
By the end of the following year, Apache aims to expand production to up to 100Bcf a year.
Another US giant, Chevron, said earlier this year it was planning to develop a domestic gas plant in tandem with its Wheatstone LNG project.
This week, documents submitted by the company to the federal Department Environment outlined a plan to expand Wheatstone to up to five trains, or 25 million tonnes per annum, and to add to the domestic gas capacity as each new LNG train is added. The first LNG train and domestic gas plant are due to start operating in 2015. The plant will produce 91Bcf per annum.
This is all welcome news, but WA will need still more domestic gas to meet the needs of its growing population and mining and industrial base.
There are further possibilities for expanding the state's gas supply.
Small gas fields in the northern Perth Basin supply only a tiny fraction of the state's gas supply.
The gas is transported from Dongara to Perth via the Parmelia pipeline, which is operating at less than a third of its capacity, so any gas found in the northern Perth basin can be commercialised very quickly.
One exciting prospect in this region is the Warro field, a known tight gas discovery about 200km north of Perth.
Tight gas is becoming an increasingly important resource in North America, but little work has been on it in Australia.
Unlisted private company Latent Petroleum has teamed up with alumina refiner Alcoa and is aiming to bring cutting-edge technology to bear on Warro with the aim of delivering new production from as early as next year.
Meanwhile, south of Perth, Whicher Range Energy and Advanced Well Technologies are working on the Whicher Range tight gas field inland from the town of Busselton.
Warro and Whicher are multi-trillion cubic feet fields, but the question is not only, can these fields be successfully tapped, but also what will the recovery rates be?
Latent Petroleum's partner in Warro, Alcoa, is leaving no stone unturned. It has also entered WA frontier exploration in partnership with Buru Energy, a spin-off from Arc Energy, which is currently being acquired by Australian Worldwide Exploration.
Alcoa is underwriting Buru's Canning Basin exploration through a $40 million prepayment on a gas supply deal.
The gas is as yet undiscovered, but if Buru makes commercial finds it is to earmark at least four of its wells for Alcoa, supplying up to 500Bcf of gas to the alumina refiner.
APPEA also said in its submission that the Dampier to Bunbury Natural Gas Pipeline (DBNGP) should increase the range of gases it accepted by adopting the broader scope of the Australian standard for gas quality so that gas from a bigger range of fields could be used to supply the domestic market.
"Incremental expansions of the DBNGP are becoming increasingly costly, so at some point the construction of a second pipeline could become more cost effective as well as provide greater competition and energy security," Robinson said.
Other submissions to the Senate inquiry have also called for greater energy diversity with the WA Chamber of Mines and Energy saying in its submission that diversity of fuels would be a key driver of a competitive market and secure, stable and competitively priced electricity for consumers.
The chamber also warned that because of the heavy use of gas by industrial users in WA's South West, emergency storage of sufficient volumes is both technically and environmentally challenging and may not be economically feasible.
The DomGas Alliance, which includes Alcoa, Alinta and DBNGP, said the incident reinforces the importance of domestic gas supply for local industry and households, and the need for greater consideration to be given to increased competition, diversity and security of supply.
The alliance called on the state and federal governments to strengthen the retention lease system to ensure that gas fields that can supply the domestic market are developed and that producers do not withhold supply.
The disruption caused by the Varanus Island accident is estimated to have cost $2.4 billion in June and July and the WA Treasury has forecast a 0.5 per cent fall in 2007-08 growth due to the incident.
Partial gas supply has since resumed from Varanus Island though a return to full production of 300 million cubic feet per day is not expected until the end of this year.