ACCC report recommends review, renegotiation of gas security agreement

The Australian Competition and Consumer Commission has released its July 2022 interim report on the Australian east coast gas market which suggests the supply outlook has significantly worsened in the last 12 months.

The report forecasts a potential shortfall of 56 petajoules in 2023.

The Commission has recommended the Federal Government Minister for Resources initiate the first step of the Australian Domestic Gas Security Mechanism (ADGSM), said Gina Cass-Gottlieb, ACCC chair, while urging east coast LNG exporters at Queensland’s Curtis Island LNG plants to immediately increase supply into the domestic market.

The report said the LNG exporters had influence over nearly 90% of the proven and probable gas reserves in the east coast last year through direct interests, joint ventures, and exclusivity arrangements.

Forecast gas production for 2023 is around 1,981 petajoules, of which 1,299 petajoules (65.6%) is expected to be exported under long-term contracts. The LNG companies are expected to produce around 167 petajoules over what is required to meet contractual commitments.

Cass-Gottlieb said that LNG exporters have increasingly diverted up to 70% of their excess gas to overseas spot markets in recent years. If all the uncontracted gas went overseas, east coast domestic markets would face a supply shortfall, she said.

The ACCC report expressed concerns that some LNG exporters are not engaging with the domestic market in the spirit of the heads of agreement signed early in 2021 which commits exporters to offer uncontracted gas to the domestic market first on internationally competitive market terms.

The ACCC has also examined the upstream competition and timeliness of gas supply and found that the market is highly concentrated and dominated by three LNG exporters and their associates.

The LNG companies influence supply through numerous joint ventures and exclusivity agreements, contributing to the lack of effective upstream competition in the east coast, the Commission said.

In response to the report, the Federal Government has committed to a review and renegotiation of the ADGSM and the heads of agreement with LNG exporters.