Update on the Australian Domestic Gas Security Mechanism

Energy Oil & Gas

Key findings and recommendations from ADGSM

By way of background, the Australian Domestic Gas Security Mechanism (ADGSM) came into effect on 1 July 2017 in a response to a forecast gas supply shortfall in the eastern domestic gas market. The ADGSM gives the Commonwealth Government the power to impose LNG export restrictions until 2023. If the Minister for Resources and Northern Australia (Resources Minister) determines that there will be a shortfall of domestic gas supply in a calendar year, and that LNG exports contribute to the shortfall, the Minister may declare a 'domestic shortfall year', and LNG exports will be controlled for that year.

Since the introduction of the ADGSM in 2017, the Resources Minister has not declared a domestic shortfall year.

On 6 August 2019, the Government announced that the 2020 statutory review of the ADGSM would be brought forward. Following that review, the DIIS released a report titled, 'Review of the Australian Domestic Gas Security Mechanism' in January 2020 (ADGSM Review). A copy of the ADGSM Report can be found at this link.

Key findings of the ADGSM Review include:

  • the ADGSM has been working effectively to safeguard domestic gas supplies;
  • gas offers are around half the peak prices of over $20 per gigajoule from early 2017, before the ADGSM was introduced;
  • the improvement in the domestic supply outlook and subsequent market conditions can in part be attributed to the ADGSM. In particular, LNG exporters have increased their supply to the domestic market since the ADGSM was introduced and are currently, in aggregate, net contributors to the domestic market;
  • the ADGSM Review acknowledges the important role the Heads of Agreement between the Commonwealth Government and LNG exporters has played in encouraging more gas into the domestic market and safeguarding against a shortfall;
  • the ADGSM Review does not consider it likely that there will be a domestic gas shortfall over the life of the ADGSM, based on reporting by the ACCC and AEMO. As such, export restrictions are not envisaged particularly if LNG projects continue their contributions to domestic supply; and
  • the ADGSM Review does not recommend adopting a direct price trigger as part of the ADGSM.

The ADGSM Review recommends:

  • retaining the ADGSM until its scheduled repeal in 2023;
  • considering a change to the Total Market Security Obligation to better enable it to recover sufficient gas in the unlikely event of domestic shortfall; and
  • amending the ADGSM’s guidelines to reference the ACCC's LNG netback price series in estimating a potential shortfall, given that price is an important indicator in establishing whether the domestic market is functioning effectively.

The ADGSM Review also refers to AEMO's Gas Statement of Opportunities for eastern and south-eastern Australia dated March 2020 (GSO) which concluded that supply from existing and committed gas developments will be sufficient to meet gas demand across eastern and south-eastern Australia until at least 2023.

The Resources Minister is due to issue a notification of intent to consider whether to determine a shortfall year by 1 July 2020 and by no later than 1 October 2020.

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