Announcement date
25 October 2022
Link to announcement
Improving energy security, reliability and affordability - Minister for Resources and Northern Australia
Problem being addressed
The Australian Government established the Australian Domestic Gas Security Mechanism (ADGSM) in July 2017 as a ‘backstop’ to manage exports in case of a domestic shortfall. The ADGSM provides the Minister of Resources (the Minister) with the ability to control LNG exports on the basis of insufficient domestic supply.
At the time the ADGSM review commenced, the East Coast gas market was expected to face a potential 56 PJ shortfall in 2023. This posed a significant risk to commercial, industrial and domestic buyers of gas. Were the shortfall to eventuate, gas shortages could occur, prices may spike further, and deindustrialisation may take place as gas-intensive industries confront unaffordable and unreliable supplies of gas.
In this context, the following issues have been considered as part of the evaluation of the current design of the ADGSM:
- The ADGSM’s activation timeline is not aligned with the timeframe for the emergence of natural gas supply risks.
- The ADGSM cannot be activated on the basis of price.
- An activated ADGSM may not recover sufficient gas for domestic users.
Proposal
On 25 October 2022, the government announced the ADGSM would be reformed to incorporate the following three elements, which were selected from a broader set of options considered within the RIS:
- Activation to be considered every three months to align risk mitigation timelines with risk emergence timelines.
- All LNG exporters in a shortfall market to share the shortfall liability equally (in volumetric terms). This would ensure enough gas stays in Australia to prevent an emerging shortfall, and is administratively simple.
- Export permissions to be made tradable to improve the economic efficiency of an activated ADGSM.
Assessed RIS outcome
Adequate