Analysis: ADGSM activation and other key drivers for the east coast gas market

By Logan Reese, Laurent Ruseckas, and Greg McAndrews

On 1 August 2022, Australia’s minister for resources announced the start of a process that could lead to the government invoking the Australian Domestic Gas Security Mechanism (ADGSM), which would allow it to restrict LNG exports to ensure domestic needs are met. This came in response to a regulatory assessment projecting a potential shortfall of 56 petajoules (PJ) (1.4 Bcm, 1.0 MMt) in eastern Australia in 2023.

According to the ACCC report, the three Queensland export projects are expected to produce 167 PJ (3.0 MMt) of gas beyond what would be required to meet their LNG export commitments—this additional gas being available for sale into either the domestic or international markets. The analysis suggests that a decision by LNG export projects to maximize exports (and spot market sales) at the expense of the domestic market, the shortfall in the east coast domestic market could be 56 PJ (1.0 MMt).

New government, new approach: Since taking office after its May 2022 election victory, the Labor government has been more assertive about ensuring domestic gas supply. The ADGSM—which was set to expire on 1 January 2023—has been renewed through 2030, and a process of reforming the mechanism has begun.

There are several binding and non-binding measures in place to ensure adequate supply to the
domestic market. In parallel to the ADGSM process, the government has begun negotiations with LNG exporters on a new HOA, with an intent to replace the current HOA before it expires
on 1 January 2023. 

The risks of an east coast supply shortfall in 2023 relate to a range of issues: the ability of operators to increase gas production, the level of gas demand in power generation, and the level of peak winter demand based on weather conditions. It also relates more subtly to pricing - on one hand, the willingness of buyers to pay prices that compete with the LNG market, and on the other hand, the willingness of LNG operators to show pricing flexibility (with one eye on the government’s ADGSM process). What is the outlook for and the implications of the supply and demand balance in 2023? 

This situation in Australia’s east coast gas market is being seen as an early warning sign for the future: Steep declines in legacy production, limited north-to-south pipeline capacity, the hangover from overestimation of coal-bed methane resources, and the contractual commitments of LNG exporters will all continue to create a tight supply and demand balance in the near term and generate increasing concerns for domestic supply security in the long term. 

For now, will a voluntary arrangement with LNG exporters in Queensland be sufficient to avert the activation of ADGSM? What are the implications for LNG exporters in meeting domestic demand? How likely will a new HOA be agreed before the expiration of the existing agreement?


Will Southeastern Australia require some imports of LNG over time? How will yet-to-find resources, LNG export demand, LNG imports and pipeline flows from the Northern Territory impact the long-term outlook?

Access the full report from S&P Global Commodity Insights to discover:

• Australia’s new government reaches for its most powerful took: LNG export restrictions
• Measures in place to ensure adequate supply for the domestic market
• The cost of meeting domestic demand: Lucrative spot sales trade-offs
• The potential for and implications of supply shortfall for 2023
• Long-term gas outlook for Eastern Australia