The Australian Domestic Gas Supply Security Mechanism (ADGSSM) has been introduced to give the government the power to impose export controls on companies when there is a shortfall of gas supply in the domestic market.
“Gas companies are aware they operate with a social licence from the Australian people,” said the Prime Minister in a press release.
“They cannot expect to maintain that licence if Australians are shortchanged because of excessive exports.”
The Prime Minister said that the government had sought commitments from the gas industry at multiple meetings earlier this year, and while progress had been made, the requirements had not been met.
Under the ADGSSM, the Minister for Resources will impose export controls based on advice from the market operator and regulator.
If an exporter is not a net contributor to the domestic market (draw more gas from the market than what they put in) they will be required to outline how they will fill the shortfall of domestic gas as part of their overall production and exports.
The Government will not prescribe how the exporter must respond, which gives companies flexibility in finding commercial solutions – such as swapping cargoes out of portfolios or on the spot market.
LNG exporters who a drawing from the domestic market will be ordered to limit exports to ensure local supply.
The ADGSSM is expected to apply only to east coast exporters and will comply with international obligations.
“The government expects the decision to be a targeted temporary measure of repair to restore certainty to the market during this time of transition,” said the Prime Minister.
“The long term goal remains boosting the supply of gas by removing state restrictions on exploration and development.”
However, the move has been criticised by the Australian Petroleum Production and Exploration Association (APPEA), who say the controls are are a short-term measure that risk exacerbating tight market conditions unless accompanied by genuine reforms.
“Restricting exports is almost unprecedented for Australia,” said APPEA Chief Executive Malcolm Roberts.
“At a time when we need billions in new investment to create more gas supply, any intervention that creates sovereign risk is alarming.
“There is no doubt the east coast gas market today is tight, for years APPEA has been warning governments that the political and regulatory barriers to developing new gas supplies must be addressed urgently.
“The industry will need to carefully consider the details of the Commonwealth announcement, there is a very short consultation period.
“However, governments must address the real problem – a lack of supply created by high regulatory costs and political barriers.
“With exploration at a 30-year low, the pipeline for future supply is precarious.”
Full consultation with the industry is underway with the regulations to be in place by 1 July 2017.
