Review finds gas policy boosts domestic supply and helps lower prices

A comprehensive review of the Australian Domestic Gas Security Mechanism (ADGSM) has found it has helped lower domestic gas prices while contributing to more secure gas supplies for Australian consumers.

The Liberal/Nationals Government introduced the ADGSM in July 2017 to help guarantee domestic gas supplies with forecast shortages caused by growing exports and reduced production from gas fields offshore from Victoria.

The Minister for Resources and Northern Australia Matt Canavan said in releasing the review, “The review confirms the measures taken by the Government in 2017 have been instrumental in stabilising the domestic gas market and keeping a lid on gas prices.”

The review’s findings on the ADGSM’s effectiveness are supported by the competition watchdog the Australian Competition and Consumer Commission (ACCC) and Australia’s energy market bodies including the Australian Energy Market Operator (AEMO) and the Australian Energy Regulator (AER). Gas offers are around half the peak prices of over $20 per gigajoule from early 2017, before the ADGSM was introduced.

Short term gas prices at the Wallumbilla Gas Supply Hub have fallen around 46 per cent between February 2017 and December 2019. December 2019 prices at Wallumbilla averaged $6.71 per gigajoule compared to the February 2017 average price of $12.49 per gigajoule. This is also a 32 per cent fall from the December 2018 average price.  

“However, I recognise that some businesses are still finding it difficult to get longer term gas offers and that some price offers remain higher than I want to see, especially when international LNG prices are low,” Minister Canavan said.

“That is why we will keep the ADGSM in place until its scheduled end in 2023 and the ACCC will continue to monitor the gas sector out until 2025.

“In addition, I am going to work with states and territories during the next 12 months to consider options to establish a prospective national gas reservation policy. We can’t repeat the mistakes of the past in just letting our gas be shipped overseas with no thought to our domestic requirements.

“In doing this I will be mindful of the major contribution the LNG sector has made to energy security at home and abroad and the business opportunities and jobs provided in many rural and regional communities. Maintaining Australia’s place as an attractive investment destination and reliable LNG supplier is a key priority for the Liberal/Nationals Government,” Minister Canavan said.

The review also recommends the Government strengthen the ADGSM’s mechanism for securing domestic gas - the Total Market Security Obligation (TMSO) and that the ADGSM’s guidelines include the ACCC’s LNG netback price series as a signal of how well a market is functioning in estimating any potential supply shortfall. These measures will help ensure that the ADGSM achieves its objective of securing gas supply for domestic users.

The Government will further consult stakeholders on the proposed changes to the TMSO

Through the ADGSM, the Government is balancing our LNG priorities against the fundamental need to ensure a secure and affordable gas supply for all Australian consumers.

The full report from the ADGSM review is available on the Department of Industry, Innovation and Science website here.

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