The Australian Government’s ability to restrict gas exports: a quick guide

24 June 2022

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Leah Ferris
Law and Bills Digest


The rising cost of gas in Australia has led to reports that the recently elected Albanese Government may consider using the so-called ‘gas trigger’ to stop the export of liquefied natural gas (LNG) and increase gas supply to Australia’s domestic market.

This Quick Guide sets out the legislative framework which governs the Australian Government’s ability to restrict gas exports, the limitations of that framework for addressing rising gas prices, and the trade law risks that may affect future reforms.

The Australian Domestic Gas Security Mechanism

On 30 June 2017, the Turnbull Government made the Customs (Prohibited Exports) Amendment (Liquefied Natural Gas) Regulations 2017 (the LNG Regulations), which amended the Customs (Prohibited Exports) Regulations 1958 (the Export Regulations) to insert a new Division 6 into Part 3 of the Export Regulations.

The purpose of these amendments was to establish a framework for restrictions on the export of LNG to be imposed where the Minister for Resources (Resources Minister) determines there is a reasonable prospect of a supply shortage in the domestic market during the following calendar year (a domestic shortfall year).

This mechanism is known as the Australian Domestic Gas Security Mechanism (ADGSM). The ADGSM was developed for the purpose of securing gas supply to the east coast of Australia due to shortfalls forecast by the Australian Energy Market Operator (AEMO) and the Australian Competition and Consumer Commission (ACCC). The ADGSM was designed to be a ‘short-term and targeted’ measure that would cease on 1 January 2023.

The Explanatory Statement to the LNG Regulations outlines how the ADGSM operates:

The ADGSM creates two decision points for the Resources Minister: firstly, the power to determine when a year will be a domestic shortfall year; and secondly, the power to grant permissions to LNG exporters to export LNG in a domestic shortfall year. [Emphasis added]

The former Resources Minister published the Customs (Prohibited Exports) (Operation of the Australian Domestic Gas Security Mechanism) Guidelines 2020 (the Guidelines), which set out the ‘requirements, indicative timing, processes, and considerations associated with the operation of the ADGSM’. In making determinations, the Resources Minister also follows the ‘Stepped Process and Timeframes for the ADGSM’.

Determining when a shortfall year has occurred

The Resources Minister can only make a determination that a year will be a domestic shortfall year when they have reasonable grounds to believe that there will not be a sufficient supply of natural gas for Australian consumers during the year unless LNG exports are controlled; and that LNG exports would contribute to that lack of supply.

A determination must be made on or before 1 November in the preceding year. Therefore, if the Resources Minister intended to declare 2023 a domestic shortfall year, she would need to make that determination on or before 1 November 2022. A determination cannot be made retrospectively.

The Resources Minister must issue a prior notification of her intention to determine whether the forthcoming calendar year will be a domestic shortfall year, and she is expected to write to and consult with:

  • relevant market bodies and agencies (for example AEMO and the ACCC), requesting advice on the potential for a domestic gas shortfall, and associated analysis
  • LNG projects, requesting information on gas production, planned export volumes, etc. (LNG projects are invited to submit their views on the market outlook)
  • other relevant Australian Government Ministers (including the Prime Minister, Energy Minister, Industry Minister and Trade Minister)
  • any other stakeholders she considers appropriate.

Importantly, subsection 9(7) of the Guidelines requires the Resources Minister to consider:

Estimates of the likelihood and extent of a potential shortfall … developed using a reasonable price … which reflects that Australian gas consumers (at a wholesale level) should, on average, pay no more for their gas than the value of that same gas if sold for export. [Emphasis added]

The LNG ‘netback price’ as reported by the ACCC is used for this purpose.

As such, while a ‘reasonable price’ for domestic customers is indirectly considered as part of shortfall year determination, it is only for the purposes of estimating the probability that a shortfall year will occur. Further, the price used for this purpose is linked to export market prices. If export prices are high, and domestic prices are also high (but not significantly higher, on average), then the domestic price is considered ‘reasonable’ in this context.

Effect of export controls

If export controls are invoked, the export of LNG requires permission in writing from the Resources Minister. The Minister can impose ‘whatever conditions he or she deems necessary and appropriate’ (subsection 11(15) of the Guidelines), noting that such conditions must still comply with the relevant provisions in the Export Regulations.

While the Minister can include conditions relating to the export of gas, there is no ability for the Minister to require the exporter to decrease the price for the domestic market.

Once permission has been granted, the Resources Minister cannot vary the permission unless the exporter agrees. If the exporter does not comply with one of the conditions of the permission, then the Resources Minister may vary the conditions or revoke the permission.

‘Heads of’ Agreement with east coast LNG exporters

In 2017, East Coast LNG exporters established an ‘industry-led, voluntary and non-binding agreement’ with the Australian Government committing them to first offer uncontracted gas to the domestic market in the event of a shortfall (p. 21).

On 21 January 2021, the Morrison Government announced it had signed a new Heads of Agreement with major east coast LNG exporters (Australia Pacific LNG, Queensland Curtis LNG and Gladstone LNG). The Agreement commits these exporters to:

  • offer uncontracted gas to the domestic market before exporting it overseas and
  • regard the ACCC’s LNG netback price when offering gas domestically.

This reflects the design intent of the ADGSM to ensure that domestic gas prices will be no more than the export value of the gas. However, nothing in the Head of Agreement would enable the Australian Government to prevent gas from being exported overseas.

The current agreement operates until 1 January 2023.

Extension of the ADGSM

With the ADGSM set to expire on 1 January 2023, the new Albanese Government has announced it will seek to renew it ‘as soon as possible’. This will require amendments to the Export Regulations. The Resources Minister, Madeleine King, has also announced that the Government will conduct a review of the ADGSM.

In 2020, a review conducted by the then Department of Industry, Innovation and Science recommended that the ADGSM continue operating until 1 January 2023, noting that ‘while there have been clear improvements in the eastern gas market, the market remains uncertain and persisting pressures still need to be addressed’ (p. 5).

The Review noted that while the ADGSM can restrict exports:

  • ‘Prices would still be determined by market forces in the event the ADGSM is triggered, and its activation may not deliver a targeted price level’
  • ‘[the ADGSM] does not require LNG exporters to increase sales to the domestic market, nor at a specified price’ and
  • that ‘it is possible that only a small proportion of any ADGSM-triggered exports would flow to the domestic market as high-cost production may be cancelled or delayed’ (p. 34).

In 2018, as part of its National Platform, the Australian Labor Party (ALP) stated that the ADGSM ‘is a weak and insufficient policy response that would not provide effective price relief for households and manufacturers’ (p. 248). They proposed to introduce ‘a new permanent gas export control trigger, which will be activated if the domestic gas price rises above a benchmark price, to be set, monitored and policed by the ACCC’ (p. 248). The ALP’s 2021 National Platform also referred to support for a ‘a price related export control trigger’ (p. 41).

Trade law risks to reforming the ADGSM

Any extension of the ADGSM will need to be considered in the context of Australia’s commitments as a member of the World Trade Organization (WTO). WTO rules generally prohibit WTO members from introducing or maintaining any form of export prohibition or restriction other than duties, taxes or other charges, except where they have been ‘temporarily applied to prevent or relieve critical shortages of foodstuffs or other products essential to the exporting contracting party’.

When introducing the ADGSM, the then Resources Minister, Matt Canavan, stated that ‘the ADGSM is a mechanism of last resort to be applied in accordance with our international trade obligations and will only be used if there will not be a sufficient supply of gas for Australian consumers’.

Any gas export control trigger that was specifically based on pricing would need to be carefully constructed in accordance with WTO rules. Were the Australian Government to impose export restrictions on gas under the current scheme, it would likely be required to notify the WTO, including any justification for the restrictions. This would also provide other trading partners with the opportunity to raise questions about the operation of the ADGSM through formal WTO processes, including challenging the mechanism if they viewed it as an unjustified restriction on trade.


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