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On 27 April 2017, the Commonwealth Government announced that it would implement the Australian Domestic Gas Security Mechanism (ADGSM) to ensure there is a sufficient supply of natural gas to meet Australia’s domestic demand. In short, the ADGSM allows the Minister to impose export controls on LNG projects where the Minister considers that such measure could increase gas supply to domestic consumers during periods of domestic gas shortfall.
The ADGSM will be implemented through amendments to the Customs (Prohibited Exports) Regulations 1958 (Cth).
On 5 June 2017, the Commonwealth Government released:
The key measures proposed under the Amendment Regulations are:
Division 6 establishes the broad framework for the operation of the ADGSM, while the Guideline sets out the detail of how the Minister will implement the ADGSM in practice and deals with:
The Guideline also sets out the types of export permissions that may be granted under Division 6. These include an ‘Unlimited Volume’ permission, which allows an exporter to export an unlimited volume of LNG from a project over the domestic shortfall year, and an ‘Allowable Volume’ permission, which allows a maximum volume of LNG to be exported from a project over the domestic shortfall year. The person that owns the LNG at the point it is exported from Australia will need to hold the permission granted under Division 6.
Importantly, the provisions of Division 6 will apply Australia wide. As such, if the Minister determines a year to be a domestic shortfall year, then the export restrictions under Division 6 will apply Australia wide and not just to that part of the Australian domestic gas market that is identified as having a shortfall. However, an LNG project which does not draw its feed gas for LNG from the domestic gas market (that is (i) the total gas used by the LNG project is less than the sum of its “Own gas” and “Third party export compatible gas” (as described in the Guideline) and (ii) the LNG project’s gas purchases from the domestic market are less than its gas sales to the domestic market) will be a net-contributor and may be eligible for an Unlimited Volume permission to export LNG if its project cannot deliver gas at a reasonable price to a market experiencing the shortfall.
Submissions on the proposed Amendment Regulations and Guideline are due by 12 June 2017.
It is expected that Division 6 will commence on 1 July 2017.
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