The federal government and East Coast liquefied natural gas (LNG) exporters have inked a new heads of agreement (HoA) to prevent a gas supply shortfall and secure competitively priced gas for the domestic market, negating the need to activate the Australian Domestic Gas Security Mechanism (ADGSM).
Minister for Resources and Northern Australia Madeleine King said on Thursday that the negotiations ensure additional gas supply, improving security and affordability of domestic gas supplies in future years, while also introducing transparency measures to improve the information available to customers.
In July, the Australian Competition and Consumer Commission (ACCC) forecast a gas shortfall of 56 petajoules (PJ) for the domestic market in 2023.
The new commitments from LNG exporters will lead to an extra 157 PJ for the domestic market in 2023, with the gas to be supplied in line with seasonal demand.
This agreement will ensure Australians continue to have access to secure and reliable gas,” King said.
“The new supply commitments, and HoA, will deliver gas to the domestic market when needed, and ensures future uncontracted gas will be offered to the domestic market first, on competitive and reasonable terms, before it is offered for export.”
The new HoA would see LNG exporters first offer uncontracted gas to the domestic market, on competitive terms, with reasonable notice, before exporting, and in respect of uncontracted gas, the principle that domestic gas customers will not pay more for the LNG exporters’ gas than international customers.
Furthermore, LNG exporters have committed to offering gas on terms consistent with a code of conduct; and to enhanced transparency and accountability, with quarterly compliance reporting to the Minister for Resources, with oversight by the competition regulator the ACCC.
King will meet every quarter with each east-coast LNG exporter to review whether they are meeting their individual commitments and ensure they are compliant with the Code.
The HoA was signed by King and representatives from Australia Pacific LNG (APLNG), QGC Pty Ltd, as operator of QCLNG, and Gladstone LNG (GLNG).
The Australian Petroleum Production & Exploration Association (Appea) said the signing of the HoA demonstrated the industry’s commitment to Australian homes and businesses.
“The industry has always been committed to delivering reliable and competitively priced gas supplies to the domestic market and today’s agreement confirms that,” Appea CEO Samantha McColloch said.
“The importance of gas in our energy mix has never been clearer. Australian households and businesses can be assured that local supply will continue to be prioritised, despite broad energy market challenges locally and globally.
“Gas is increasingly in demand as coal-fired generation declines and because its flexibility makes it a natural partner for renewable energy – just as we saw during the recent winter.
“Ultimately, the long-term solution is encouraging investment in new supply with positive policy settings. Policy settings and market signals must be there to encourage a diversity of gas producers and projects to develop more gas supply and increase competition in the market.”
Oil and gas major Santos on Thursday welcomed the new HoA, saying it removed sovereign risk by recognising the importance of honouring LNG contracts and would help to maintain Australia’s reputation as a trusted and reliable LNG exporter to its trade and investment partners.
“The HoA is a good outcome for Santos and very welcome to remove sovereign risk and ensure long-term LNG supply contracts are honoured. Australia is arguably the most important energy-producing nation in the Asia Pacific. While our own energy security must be assured, Australia’s role in regional energy security and in turn, the social, economic and geopolitical security of our region, is absolutely critical,” said Santos MD and CEO Kevin Gallagher.
“The only long-term solution to energy security is investment in new gas supply sources to support the energy transition while renewables, batteries and many other necessary low-emissions technologies are developed and deployed at the required scale.
“Gas is going to be required for decades to come both here and in Asia. Investment in more supply is the only way to ensure reliability and affordability while we decarbonise our energy system. I hope all Australian governments will recognise the importance of investment in new gas supply sources going forward, including Santos’ Narrabri project in New South Wales, which is a domestic gas-only project. Gas from Narrabri will always be cheaper for New South Wales customers than gas imported from other states or overseas,” Gallagher said.
The new HoA is not expected to have an adverse impact on either Santos or the GLNG project, Gallagher said.
“This is just one of a suite of measures being taken by the Albanese government to deliver enduring improvements to the domestic gas market and strengthen the security of domestic gas users’ access to affordable gas,” King said on Thursday.
“Given the agreement means the projected shortfall will be avoided, I am satisfied I do not need to take steps to activate the ADGSM at this time.
“This is a great outcome for Australia, will strengthen confidence in the domestic gas market and safeguard our global reputation as a stable and reliable energy exporter to our regional partners.”
Appea said that the Minister’s decision not to activate the ADGSM was a welcomed decision, and confirmed that there was sufficient gas to supply the domestic market while honouring export contracts and trading relationships.
“This ability to deliver domestically is underpinned by our world-leading gas export industry. Today’s HoA also ensures these exports can continue uninterrupted for our overseas trade partners,” McCulloch said.
“The domestic benefits of these exports will also continue to flow for Australians, with billions of dollars in royalties helping fund hospitals, roads and schools while allowing importing customers to reduce emissions by switching to the cleaner fuel of gas.”
