Australia: Proposed LNG export restrictions and Australian liability under international trade law


  • Foreign companies participating in or looking to participate in inbound investment opportunities in Australia, particularly in gas resources.


  • Foreign investors can be subject to the risk of government action such as legislative and other regulatory changes that diminish the value of an investment. Existing foreign investors may have recourse to certain bilateral investment treaties (BIT) or free trade agreements (FTA) if this situation arises. For potential foreign investors, these risks can be protected against by intelligent structuring of an investment so as to gain the protection of a BIT or FTA.


  • Contact us if you consider your foreign investment may be at risk of suffering financial damage as a result of government action.
  • Talk to our team about proactively structuring your investments to enjoy the protection afforded by BITs or FTAs.

The Turnbull government has announced that its Australian Domestic Gas Security Mechanism (ADGSM) will come into effect by 1 July 2017. Under the Mechanism, the government will be able to impose controls on the export of liquefied natural gas (LNG) when there is a shortfall in the domestic gas supply.

This article considers whether the export restrictions could trigger Australia's liability under international trade law and, in particular, whether certain LNG exporters may be able to bring an action against the government for breach of free trade agreements or bilateral investment treaties. It also briefly considers recourse available to affected Australian companies.

What is the Australian Domestic Gas Security Mechanism?
The government has stated that it will introduce export restrictions on gas companies that draw more LNG from the domestic market than they put in to ensure sufficient supply domestically. The regulations which will give effect to the ADGSM are due to come into effect on 1 July 2017 but currently remain in draft, with submissions being accepted by the government until 12 June 2017.

According to the draft, the government will create the ADGSM by amending the Customs (Prohibited Exports) Regulations 1958, which are made pursuant to the Customs Act 1901 (Cth). A new division will be inserted to enable the Resources Minister to mandate LNG export restrictions in his or her discretion.

Key characteristics of the proposed ADGSM include:

  • It will only operate for five years. The government sees the ADGSM as a temporary measure to put downward pressure on gas retail prices in Australia and restore certainty to the market, particularly for gas fired electricity production.
  • Export controls can only be triggered where the Resources Minister formally determines, on the basis of his or her reasonable belief, that there would not be sufficient supply of natural gas available for the Australian domestic gas market over a forthcoming calendar year.
  • In addition, the Resources Minister must provide at least 30 days' notice to the public before making such a decision.
  • When export controls are invoked, an LNG exporter must seek permission to export from the Resources Minister. Such permission will be made on a condition mandating the annual upper limit on the volume of LNG that can be exported.

At the moment, the only gas project that is not a net contributor (i.e. draws more from the market than it contributes) is the GLNG plant, jointly owned by Santos, Malaysia's PETRONAS, Total from France and Korea's KOGAS. The APLNG plant (owned by Origin Energy, Conoco Phillips and China's Sinopec) and the Queensland Curtis LNG plant (with train one jointly owned by Shell and China's CNOOC and train two by Shell, but with a small share held by Tokyo Gas) are likely to be safe from decisions made by the Resources Minister pursuant to the proposed ADGSM as they presently supply more to the domestic market than they withdraw.

What international obligations may Australia breach?
Australia owes a myriad of trade-related obligations under multilateral and bilateral treaties. These may be enforced by other nations or, in circumstances where investment treaties provide for investor-state dispute settlement (ISDS), by foreign investors themselves. Australia's tobacco plain-packaging laws were, for example, unsuccessfully challenged by Phillip Morris under Australia's bilateral investment treaty with Hong Kong. Separately, however, these same plain-packaging laws face a challenge by Cuba, Honduras, Indonesia, and the Dominican Republic in the World Trade Organisation (WTO) pursuant to the 1974 General Agreement on Tariffs and Trade (GATT). The distinction between the investor-state arbitration pathway and the WTO pathway is that the former is instigated by the foreign investor directly against Australia whereas the latter is instigated by a foreign government (or governments) but, in substance, is also predicated on safeguarding the investor's commercial interests.

Australia may expose itself to international legal claims if the ADGSM is unjustifiably prejudicial to the interests of Australia's trade partners or to foreign investors. Broadly speaking, it is unlikely that Australia will breach its obligations as the ADGSM in its proposed form under the Customs (Prohibited Exports) Regulations 1958 seeks to strike a balance between achieving supply security while, in the government's words, abiding by the 'requirements of a globally integrated and highly competitive export industry.' The ADGSM therefore seeks to ensure it is appropriately tailored to solving domestic supply shortfalls by:

  1. existing temporarily; and
  2. mandating that export controls can only be triggered where the Resources Minister formally determines that he or she has reasonable grounds for believing that there would not be sufficient supply of gas available for the domestic market over a forthcoming calendar year.

While (b) may be a "mouthful", it is carefully worded by the government so as to provide a minimum assurance to industry that export restrictions will not be mandated whimsically, while simultaneously protecting the Resources Minister with a comfortable level of legal discretion.

Each potentially applicable trade obligation must be considered individually.

GATT is a multilateral treaty which aims to minimise international trade barriers. Disputes under GATT, which are between nations, have sometimes concerned export quotas. In 2012, the United States made a complaint to the WTO against China's export restrictions (including export quotas) on a number of rare earths, tungsten, and molybdenum. Australia itself was a third party to this complaint. The WTO determined that China's export quotas were in breach of Article XI of GATT.

Importantly, GATT establishes leeway for nations where, for example, export quotas are established to protect the environment or secure products which are in short supply nationally (Article XX). China sought to make use of the exception for GATT-inconsistent measures 'relating to the conservation of exhaustible natural resources'. The WTO determined, however, that the design and structure of the export quotas unevenly burdened foreign consumers and were designed to achieve industrial policy goals rather than conservation.

China's fate at the WTO must be understood in its global economic context. The United States and others feared that China's export quotas enabled artificial inflation of international prices for raw materials critical to products such as smartphones, wind turbines, hybrid cars, and energy-efficient lighting. The implications were seen as extreme and an attempt by China to control the global distribution of raw materials.

Tempered LNG export restrictions falling within Australia's right under GATT to secure products which are in short supply nationally (Article XX of GATT) and which do not have harsh ramifications for the global market will be unlikely to breach GATT or galvanise the political will of potential complainants at the international level. There remains, however, the question of whether the Resources Minister's decisions under the ADGSM will be proportionate to securing domestic supply or merely setup to advantage domestic gas consumers by artificially lowering prices. In any case, it would presumably be difficult to prove the latter.

Australia is a party to 21 bilateral investment treaties (BIT) with countries in many regions of the world, including China, Hong Kong, Indonesia, India, Mexico, Papua New Guinea, and Turkey. A BIT is a binding agreement between two states by which each assumes obligations in relation to investments made by investors originating from the other state. Australia is also party to a series of free trade agreements (FTA) with significant trading partners. BITs and FTAs are aimed at fostering security and economic certainty for foreign investors, and may include investor-state dispute settlement provisions (as in Australia's FTAs with China, Korea, and Singapore).

The obligations Australia has assumed under BITs and FTAs typically include, for example, the obligation to promote favourable investment conditions, to treat investors fairly and equitably, and to not undertake expropriation or nationalisation.

Article 2.19 of the Malaysia-Australia Free Trade Agreement (MAFTA), regarding non-tariff trade measures, provides that Australia may not restrict the exportation of any good destined for Malaysia except in accordance with Article XI of GATT. As discussed above, appropriately tailored LNG export restrictions falling within Australia's right under GATT to secure products which are in short supply nationally (Article XX of GATT) will be unlikely to breach Article XI.

Under several BITs, including the Korea-Australia Free Trade Agreement (KAFTA) and the ASEAN-Australia-New Zealand FTA (AANZFTA) (to which Malaysia is a party), Australia must not commit expropriation or, in other words, deprive investors of their investments (direct expropriation) or subject investors to measures having effect equivalent to such deprivation (indirect expropriation). The LNG export restrictions may indirectly interfere with the value of foreign investments. It would, however, be difficult for a claimant to establish that they amount to an expropriation. KAFTA and AANZFTA state that non-discriminatory regulatory actions that are designed and applied to protect/achieve legitimate public welfare objectives do not constitute indirect expropriations (KAFTA Annex 11-B; AANZFTA Annex on Expropriation and Compensation). The LNG export restrictions will be safe if they apply generally to all investors in Australia (foreign and domestic) and are targeted at securing domestic supply, which is arguably a legitimate public welfare objective.

As foreshadowed, obligations under treaties like KAFTA and AANZFTA are directly enforceable against Australia by foreign investors by virtue of ISDS provisions.

Which foreign investors may be able to bring a claim under ISDS provisions?
The inclusion of ISDS provisions in a BIT, FTA or other treaty gives covered foreign investors standing to challenge Australia before an arbitral tribunal in the event Australia breaches its obligations under the treaty. It is worth mentioning that under general international law, through the law of diplomatic protection, states are able to espouse the claims of their nationals, including companies, in certain circumstances. ISDS provisions, however, allow covered foreign investors to bring their own actions against states. At the moment, it appears that measures restricting the exportation of LNG are most likely to affect the GLNG project. PETRONAS, being a Malaysian entity, could consider its options under AANZFTA. KOGAS could consider its options under KAFTA.

Under most BITs and FTAs to which Australia is a party, foreign investors seeking to sue Australia can only do so if they have the nationality of a State party to the treaty and are not nationals of Australia. Treaties such as BITs and FTAs, which seek to protect foreign investments, will often consider shares or even participation in companies as applicable forms of investment. For example, AANZFTA defines 'investments' as 'every kind of asset owned or controlled by an investor', and explicitly includes shares. PETRONAS, as a 27.5 per cent shareholder in the GLNG joint venture, would therefore be able to directly bring a claim against Australia under AANZFTA.

If there is no BIT or FTA presently in effect between the investor's state and Australia, it will be difficult for that investor to seek protection under a third country's agreement by way of, for example, restructuring. Philip Morris sought to bring a claim against Australia by restructuring its investment through Hong Kong to therefore take advantage of the BIT between Hong Kong and Australia. This action was dismissed at a preliminary hearing as an abuse of process where the tribunal commented that the 'main and determinative, if not sole, reason for the restructuring was the intention to bring a claim under the Treaty, using an entity from Hong Kong'.

Certain trade treaties, such as the Australia-United States FTA, may not provide for ISDS. Reportedly, APR Energy PLS (APR) has, however, brought an action against Australia by relying on the most favoured nation clause in the Australia-United States FTA to argue that the ISDS provisions in a separate BIT between Australia and Hong Kong should somehow be imported to enable its claim. The Attorney-General's Department has stated that APR "cannot rely on other agreements in order to create jurisdiction".

PETRONAS and KOGAS would not appear to experience jurisdictional difficulties analogous to those faced by Phillip Morris and APR, and bringing a claim could be relatively straightforward.

How would Australian companies go about challenging decisions by the Resources Minister?
Obligations owed by Australia under bilateral and regional trade treaties are only owed to foreign countries and applicable foreign investors. Australian companies adversely affected by a future decision of the Resources Minister under the ADGSM might, however, have recourse to administrative law remedies. Administrative law is the body of domestic law regulating government decision making.

The government has stated that the ADGSM will not provide for merits review of the Resources Minister's decisions. Decisions would, however, be judicially reviewable. In other words, the court cannot "stand in the shoes" of the Resources Minister and decide whether his or her decision under the ADGSM was the "correct or preferable" decision made. The court will be limited to assessing the legality of the decision i.e. whether it was made in accordance with the ADGSM.

Judicial review in Australia is available in the Federal Court or the Federal Magistrates Court under either the Administrative Decisions (Judicial Review) Act 1977 (Cth) or s 39B of the Judiciary Act 1903 (Cth), and in the High Court under s 75(v) of the Australian Constitution.

Short-term implications
At this stage it seems that the purpose and proposed design of the ADGSM make it unlikely that Australia will breach any of its international trade obligations either under GATT or under the numerous BITs and FTAs to which Australia is a party. Much may depend on how the Resources Minister implements the ADGSM on a case by case basis. The government should tread carefully in ensuring the ADGSM secures a legitimate public aim without unduly inflicting prejudice on foreign investors. Foreign investors adversely affected by the introduction of the Australian Domestic Gas Security Mechanism should consider what BITs and FTAs are currently in place between the investor's nation of origin and Australia, and seek advice regarding applicable protections, including those canvassed above, which might be available to them. Foreign investors looking to invest in Australia, particularly in the resources sector, should consider how their investment is to be structured to obtain the benefit of protections afforded by BITs and FTAs.

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.

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”

Related Topics
Related Articles
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
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions