Gas Security Amendment Bill

The Queensland State Government has recently introduced the State Gas Security Amendment Bill. The legislation has a number of objectives which include:

Short Term Trading Market

The proposed legislation seeks to establish a Short Term Trading Market for gas in Brisbane. The introduction of the Short Term Trading Market is intended to increase gas usage through greater market access and is intended to improve price competition and transparency. The provisions of the National Gas Law relating to Short Term Trading Markets are to apply.

Security of Domestic Gas Supply

The Bill provides a legislative framework to reflect the Queensland State Government's policy in relation to security of domestic gas supply. Please see more detailed comments below.

Carpentaria Gas Pipeline- Access Regime

The proposed legislation includes provisions to confirm the access arrangements relating to the Carpentaria Gas Pipeline. The Carpentaria Gas Pipeline is taken to be a covered pipeline and a transmission pipeline. For the period ending on 30 April 2023, the services provided by the pipeline are taken to be the subject of a light regulation determination and cannot be made subject to a full access arrangement.

Ownership of Pipeline Land

The proposed legislation also clarifies ownership of land in circumstances where the Coordinator General has acquired an easement over land for a purpose that includes providing for construction and operation of a pipeline. In those circumstances, the Coordinator General is taken to be the only owner of the land and may grant easements to third parties for construction and operation of a pipeline over that land. These provisions are particularly relevant to the Callide Infrastructure Corridor which is the multipurpose pipeline corridor for CSM entering Gladstone/Curtis Island but would also apply to other lands acquired by the Coordinator General for pipeline purposes.

Petroleum Tenure Applications

The Bill contains a number of provisions which are intended to streamline and improve the process for application for petroleum tenures particularly in circumstances where there may be competing interests. With a view to ensuring earlier disclosure an initial application for a petroleum lease must include independent certification as to the level of resources and reserves in the relevant area and plans for development.

Domestic Supply - Production Reserve

Under proposed amendments, the relevant Minister may issue authorities to prospect and petroleum leases on the basis that an "Australian market supply condition" applies to all or part of the area of the relevant petroleum tenure. An Australian market supply condition is a condition under which:

a) gas produced from the relevant land must not be supplied other than to the Australian market; and
b) any contract or other arrangement for the supply of gas must include a condition that gas must not be further supplied other than to the Australian market.

The 'Australian market' is defined by reference to the place of consumption. If gas is supplied to entities that will either consume gas within Australia or will supply gas to others who will consume that gas within Australia, supply is to the Australian market.

Where land is subject to an Australian market supply condition, the relevant land is referred to as "Prospective Gas Production Land Reserve" or PGPLR land. Significantly, any contract entered into by the holder of a petroleum tenure for PGPLR land or by any entity to which gas produced from PGPLR land is supplied must include a condition that the relevant gas must not be further supplied other than to the Australian market.

Suspension or Exemption from Australian market supply condition

Under the proposed legislation, a consumer of gas may seek an exemption or suspension of an Australian market supply condition in circumstances where the consumer is unable to consume gas because of technical or operational problems. The applicant for relief must show that it has taken all reasonable steps to supply the gas to the Australian market but it is not commercially viable to do so.

Additionally, the holder of a petroleum tenure for PGPLR land or a company to which gas produced from PGPLR land is supplied, may apply for suspension or exemption from an Australian market supply condition. An application may be made in circumstances where:

1. market analysis indicates that during the proposed period of exemption or suspension, sufficient gas may be produced from existing and proposed petroleum tenures in Queensland to supply both the Australian market and export market; OR
2. the applicant has taken all reasonable steps to supply the gas to the Australian market but it is not commercially viable to do so.

Assessing Commercial Viability

In assessing commercial viability for the supply of gas, the following are relevant:

a) whether the rate of return on investment required to produce gas from the land and supply it to the Australian market at least meets the rate of return considered acceptable by a reasonable petroleum producer or a lender to a petroleum producer (there is no method specified for determining rate of return);
b) the market conditions at the relevant time including, for example, access to markets, expected duration of a contract or other arrangement for the supply of the gas, the price likely to be paid for the gas and the certainty and timing of the market opportunities; and
c) where commercial viability is dependant on the applicant reaching agreement with another party or dependant upon using another party's facilities or technology, whether the applicant for exemption can complete the agreement or use the facilities or technology on terms the applicant considers provide a reasonable rate of return for the applicant.

Keeping Records

Both the holder of a petroleum lease for PGPLR land and any other entity that is supplied gas produced from PGPLR land are required to keep records of gas produced and supplied. Records may be required to be produced to the State on reasonable notice.

Future Action

Relevant provisions will need to be considered in applications for new tenures and in drafting supply contracts. Provisions relating to domestic gas supply will be incorporated in the Petroleum and Gas (Production and Safety) Act 2004.

Whilst no tenures have yet been issued subject to an Australian market supply condition, the provisions may be relevant to forward supply contracts. The Gas Security Amendment Bill proceeded to its second reading on 6 April 2011 and is expected to be passed and come in to operation in the very near future.

Important Disclaimer: The material contained in this article is comment of a general nature only and is not and nor is it intended to be advice on any specific professional matter. In that the effectiveness or accuracy of any professional advice depends upon the particular circumstances of each case, neither the firm nor any individual author accepts any responsibility whatsoever for any acts or omissions resulting from reliance upon the content of any articles. Before acting on the basis of any material contained in this publication, we recommend that you consult your professional adviser. Liability limited by a scheme approved under Professional Standards Legislation (Australia-wide except in Tasmania).