The Australian Domestic Gas Security Mechanism

On 20 June 2017, the government announced that it would implement the Australian Domestic Gas Security Mechanism (ADGSM).

The objective of the ADGSM is to ensure there is a sufficient supply of natural gas to meet the forecast needs of Australian consumers by requiring, if necessary, LNG projects which are drawing gas from the domestic market to limit exports or find offsetting sources of new gas.

The ADGSM sits within Division 6 of the Customs (Prohibited Exports) Regulations 1958 (the Regulations) which have been amended by the Customs (Prohibited Exports) Amendment (Liquefied Natural Gas) Regulations 2017. The ADGSM came into effect on 1 July 2017.

Details about the operation of the ADGSM are contained in the Customs (Prohibited Exports) (Operation of the Australian Domestic Gas Security Mechanism) Guidelines 2017.

The process for implementing the ADGSM is illustrated in the ADGSM Stepped Process.

In accordance with the Regulations, on 24 July 2017 the then Minister for Resources and Northern Australia issued a Notification of his intention to consider whether to determine 2018 as a domestic shortfall year.

The Minister for Resources and Northern Australia has consulted with gas producers, LNG exporters and other stakeholders including the Australian Energy Market Operator (AEMO), the Australian Consumer and Competition Commission (ACCC) and major gas users.

Industry led-solution

On 3 October 2017, the Hon Malcolm Turnbull MP, Prime Minister of Australia, signed the Heads of Agreement – The Australian East Coast Domestic Gas Supply Commitment with the east coast LNG exporters to maintain a secure and affordable supply of gas to the domestic market.

The agreement requires that east coast LNG exporters’ will offer sufficient gas to meet the forecast shortfall in 2018 and 2019.

This agreement requires gas to be made available on reasonable terms and that uncontracted volumes of gas will first be offered to domestic consumers at competitive market terms before being offered to the international market. The agreement also includes a commitment to discuss with AEMO the likely extent of any additional shortfall that could occur under high gas demand scenarios, and measures that can be taken to address it.

The LNG exporters’ compliance with these requirements will be monitored by and reported by the ACCC. The ACCC will monitor sales, offers to sell and bids declined, and the terms and conditions in such transactions. The ACCC will also monitor and report on the operation and conduct of other domestic market participants.

The ADGSM was designed to allow the Minister for Resources to take into account the availability of an industry-led solution to an identified shortfall when considering if there are reasonable grounds to believe that there will not be a sufficient supply of natural gas for Australian consumers unless exports are controlled.

Enquiries

Enquiries can be directed to Nicole Hinton, Manager, Onshore Gas Section at: nicole.hinton@industry.gov.au.

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