Minister to review ADGSM

10th June 2022 By: Esmarie Iannucci - Creamer Media Senior Deputy Editor: Australasia

Minister to review ADGSM

Photo by: Bloomberg

PERTH (miningweekly.com) – Federal Resources Minister Madeleine King has announced an "urgent review" of the Australian Domestic Gas Security Mechanism (ADGSM) to ensure its suitability.

The announcement comes as electricity prices on Australia’s east coast surge following outages at a number of coal-fired power stations. Power plants have been affected by planned outages, while others are facing unplanned outages owing to lack of maintenance during Covid-19 lockdowns, as well as staffing issues owing to Covid-19 infections.

It is estimated that 30% of energy capacity has currently been taken offline.

King and Federal Energy Minister Chris Bowen have been in discussions with gas producers in an effort to bridge the gap, with Bowen this week undertaking an emergency meeting with state and territory Energy Ministers, which resulted in an 11-point action plan.

King said that the Cabinet had also resolved to review the ADGSM, which was due to expire on January 1 next year, to ensure future gas supply in the country.

“Right now, it’s a long and complicated, convoluted, ineffective mechanism that takes a very long time for it to produce results. We are determined to change that, and we’re determined to make sure that this mechanism, as well as the other tools available to us, are all on the table so that we can ensure gas supplies are appropriate, adequate and affordable for Australians right across the country,” King told a press briefing.

“We will also, and the Cabinet has also agreed, to start pretty much as soon as possible to renegotiate the heads of agreement (HoA) between the gas companies and the Prime Minister, who signed it, and this government to make sure that that remains on foot also as a tool of government, but it will have a distinctive edge to it brought on by this government’s urgent and very measured response to the gas crisis.

“We need to have this HoA renewed so that we can again, along with the domestic gas security mechanism, ensure that there are gas supplies that are affordable and adequate for southern Australian states.”

The ADGSM was introduced in 2017 in response to a forecast gas supply shortfall in the eastern domestic gas market, and allows the government the ability to restrict liquefied natural gas (LNG) exports to secure domestic supply.

A 2020 statutory review to assess if the ADGSM was still fit-for-purpose found that the mechanism had been working effectively to safeguard domestic gas supplies.

The review recommends the government strengthen the ADGSM’s mechanism for securing domestic gas - the Total Market Security Obligation - and that the ADGSM’s guidelines include the Australian Competition and Consumer Commission’s  (ACCC’s) LNG netback price series as a signal of how well a market is functioning in estimating any potential supply shortfall.

The Australian Petroleum Production & Exploration Association (Appea) said that the industry would work with the newly elected government in reviewing the ADGSM and to renegotiate a new HoA, but added that changes to the agreement had to be carefully considered to maintain investment confidence in Australia.

“The ADGSM has never been triggered, as the gas market has always been in surplus. This has been confirmed in eleven consecutive reports by the ACCC. In addition, the industry has met all of its obligations under each of the three HoAs that have been in place since October 2017,” said Appea acting CEO Damian Dwyer.

“As the government looks to review the ADGSM, it is important to note that Australia’s oil and gas industry has been working with government already about how to resolve pressures in the energy system and we look forward to further discussions following today’s announcement.

“The industry has invested more than A$70-billion in the Australian economy to develop an onshore domestic and export gas sector in Queensland. It is those companies, along with other Appea members operating in the southern gas market, that have brought more gas to market in recent days to provide energy security, when coal outages occurred and when renewables proved unable to respond as required,” said Dwyer.

He added that encouraging further investment in gas supply in Australia was key and any changes that might be considered must factor this in.

“In particular, any proposed reforms must recognise the key role signatories play in the domestic market and the key trade and diplomatic relationships we have developed over generations with major trading partners in Asia.”

The HoA is an agreement between LNG exporters and the Australian government and contains commitments provided by the government, including to advocate for the removal of state and territory-based gas exploration and development bans and moratoria and encourage jurisdictions to accelerate exploration and development. These commitments also need to be honoured in future agreements.