Gas Industry – Voluntary Code of Conduct

On 1 December 2021, the Australian Petroleum Production & Exploration Association (APPEA) announced the finalisation of the Voluntary Code of Conduct for the negotiation and development of Gas Supply Agreements as agreed between Gas Suppliers and Gas Customers on the East Coast of Australia (Code).

The Code, which will sit alongside other gas market reform measures in the domestic gas industry, will apply to the negotiation of gas supply agreements (GSAs) on the East Coast of Australia where a gas supplier has signed up to the Code and the proposed supply is for at least 0.5 petajoules of gas over a 12 month period.

Development of the Code

On 15 September 2020, the Prime Minister, the Minister for Energy and Emissions Reduction, and the Minister for Resources, Water and Northern Australia published a media release, in which the Prime Minister announced a series of reforms for the gas industry, including “a voluntary industry-led code of conduct” designed to “level the negotiating playing field for gas producers and consumers”.[1]

On 12 November 2020, the Minister for Energy and Emissions Reduction and the Minister for Resources, Water and Northern Australia hosted a Gas Industry Roundtable (Roundtable), which aimed to “kick-start the discussion between producers and users” to create a code of conduct “in a way that continues to grow this industry”.[2]

From November 2020 to December 2021, gas producers (represented by APPEA) and gas customers (represented by Australian Industry Group, Chemistry Australia, Energy Users’ Association of Australia and Manufacturing Australia) negotiated the details and provisions of the Code in consultation with the Federal Government and the Australian Competition and Consumer Commission (ACCC).

On 1 December 2021, following comprehensive collaboration with all stakeholders, APPEA presented the final Code to the Federal Government.

Key Components of the Code

The Code is split into multiple parts, dealing with provisions regarding the application and scope of the Code, the obligations on gas suppliers, dispute resolution management and administration. The key components include:

• Application and Signing up to the Code – highlighting the process by which a gas supplier may sign up to the Code and the scope of the Code, including what conduct is covered, and the transitional arrangements for GSAs executed before the commencement date of the Code.
• Operative Provisions – outlining the obligations on gas suppliers such as the obligation to act in good faith in negotiations with gas customers, disclose particular information to gas customers when issuing expressions of interest or offers to enter into a GSA, and apply minimum standards to all GSAs agreed under the Code;
• Pricing Principles – providing the factors that a gas supplier must consider when determining the price of gas in an offer, including obligations requiring gas suppliers to disclose what factors were considered in determining the price of an offer;
• Dispute Resolution – outlining the appointment process and function of a Code Arbiter to manage disputes relating to the Code, including the investigation, determination and reporting of complaints issued by gas customers; and
• Administrative Matters – providing for the appointment of a Committee to manage the administration of the Code and a Code Reviewer to review the effectiveness of the Code, including provisions regarding variation of the Code.

What does this mean for the gas industry?

The Code is a voluntary code of conduct and is one of several measures in the larger gas market reform announced by the Prime Minister in November 2020. In accordance with continued reform in the gas industry such as the development of the Australian gas hub at Wallumbilla and the ACCC review of gas market supply, the Code will improve transparency and effectiveness of negotiations for the large supply of gas in the Australian domestic gas market.

The Code will commence on 1 June 2022.

Sar Katdare and Blake Hunt of Johnson Winter & Slattery advised APPEA in the drafting and negotiation of the Code with gas customer representatives, and the consultation with the Federal Government and ACCC.