Australia: New controls for LNG exports - How do they work?

Last Updated: 14 June 2017
Article by Lucy Snelling

On 6 June, the Commonwealth Government released, for consultation, the draft regulation and guidelines for its proposed new control of LNG exports - the Customs (Prohibited Exports) Amendment (Liquefied Natural Gas) Regulation 2017 and Customs (Prohibited Exports) (Operation of the Australian Domestic Gas Security Mechanism) Guidelines 2017. The Regulation is set to come into effect on 1 July 2017.

In accordance with prior indications, the regime looks to solve shortfalls not on the basis of "all hands to the pump", but by effectively penalising Projects that could be regarded as "at fault". LNG Projects taking gas from the domestic market will be stopped from exporting the amount of LNG which equates to the domestic gas shortfall, irrespective of their export contract commitments. Presumably, this gas is redirected to the domestic market. Projects which are "net contributors" to the market (that is selling more gas into than they are taking out of the market) will be "light touch" regulated; their volumes will be limited but to their own export forecast for the relevant year. That forecast could include anticipated spot volumes on top of contract commitments. As currently drafted; the forecast exports of a net contributor Project cannot be reduced.

The Minister (currently Matthew Canavan) decides whether a domestic market shortfall exists. He must do so on advice (AEMO and the ACCC) and after consultation, but while the Guidelines set out considerations, his discretion is broad. Once the decision (which could have material commercial impacts) has been made it cannot be subject to a review of the merits, only judicial review of the process.

Structure of proposed regime

The structure of the proposed new regime is:

  • If the Resources Minister is concerned that a domestic gas market may experience a shortfall the following calendar year, he or she is to issue a "Declaration" to that effect. This Declaration triggers an information seeking process where the Minister is to consult with market bodies (i.e. AEMO and the ACCC), LNG Projects, relevant Commonwealth Ministers, and any others they see fit. It is likely the Department will call for submissions.
  • "Where practical", Declarations are to be made by 1 July in a year, but can be made as late as 2 October.
  • The market bodies are to provide formal advice on the likelihood and quantum of a domestic market shortfall and whether export controls are likely to assist. The LNG Projects are to provide advice on gas production, consumption, purchases, sales and reserves, as well as LNG exports, for previous, current or future years, (as may be requested by the Minister).
  • If, upon consideration of the submissions, the Minister forms the view that a domestic market will be in shortfall for the coming year, he or she will make a "Determination" (notified in the Federal Register) to that effect.
  • Determinations for a year must be made on or before 1 November the previous year, but can be made in one year for several future years. A Determination cannot be made for a year during that year (providing some certainty to industry), but can be revoked at any time (e.g. if an anticipated shortfall does not eventuate).

What happens if there's a shortfall?

The Determination triggers the application of the LNG export controls Australia-wide. A permit is required for all LNG exported from Australia during a year for which a Determination is in place.

Two types of permits may be issued:

  1. Unlimited volume permits will be issued for the export of LNG from an LNG Project connected to a domestic market which is not in shortfall. So, in the current market the new regime is an administrative burden, but not a business constraint for the Western Australian LNG Projects.
  2. For export of LNG from an LNG Project connected to a domestic market in shortfall (in the current context, the three Queensland LNG Projects) the permits will be for a specified maximum volume.
  • The maximum export volume permitted from an LNG Project will be determined by an assessment of the LNG Project's "net market position", that is, whether it is a "net contributor" or "in net deficit."
  • The maximum allowable volume of LNG exports from a "net contributor" LNG Project will be the Project's forecast of exports for the year as advised to the Minister during the consultation process.
  • Those LNG Projects that are "in net deficit" will be required to make up the domestic shortfall. If there is one LNG Project in net deficit, the full amount by which the domestic market is in shortfall will be deducted from that LNG Project's forecast exports and the result will be the maximum volume of LNG that can be exported from that Project. If there is more than one LNG Project in net deficit, the market shortfall volume will be apportioned between them based on the extent to which they are in net deficit.
  • The Regulation includes a sunset date: the regime will expire on 1 January 2023.

The "net market position" test

The "net market position" test becomes a crucial concept for an LNG Project. If an LNG Project either:

  • buys more gas from the domestic market than it sells into it; or
  • consumes gas from non-dedicated sources,

then that LNG Project will be "in net deficit". Otherwise it will be a "net contributor."

  • Gas will count as dedicated if:
    • it is from tenements owned by the LNG Project; or
    • the gas is contracted directly to the LNG Project and was either contract prior to the Project's FID or was developed primarily to meet the export market.

This test is intended to encourage development of new fields for export purposes, rather than redirection of gas from existing supplies. Interestingly, it places a premium on direct contracting without intermediaries such as market agents or aggregators.

Redirection to the domestic market

What happens if gas that a "net deficit" LNG Project has contracted to buy but can no longer process and export as LNG is not addressed? Presumably, it will be redirected to the domestic market. The imposition of export controls on LNG will not necessarily be an event of Force Majeure under the relevant gas supply agreement, it will depend on the GSA. It may be the supplier or the LNG Project which suddenly has gas on its hands, and is looking to enter into new agreements for its sale, swap or transportation. Unless Determinations and export permits are made for several years at a time it is likely such new arrangements would be short term.

Future gas sales to an LNG Project

Projects with limited own gas supplies can still count third party gas.

© HopgoodGanim Lawyers

Award-winning law firm HopgoodGanim offers commercially-focused advice, coupled with reliable and responsive service, to clients throughout Australia and across international borders.

2015 AFR Beaton Client Choice Awards:
Best Law Firm (revenue $50m - $200m)
Best Professional Services Firm (revenue $50m - $200m)

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Lucy Snelling
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.