Victorian Government proposes reforms to reserve domestic gas production

In brief

The Victorian Government has today proposed significant gas market reforms, primarily involving the introduction of a temporary cap on the export of gas, in order to facilitate the reservation of domestic gas production for domestic supply. The proposed reforms are aimed at reducing domestic gas prices, preserving jobs in the industry and ensuring the security of supply for Victorian homes and businesses. Partner Igor Bogdanich and Lawyer Darcy McLennan report.

How does it affect you?

• The Victorian Government is calling for a 'tough, temporary cap' on the amount of gas that can be exported.
• While the reforms have been announced, details as to how and when the cap on export would work do not appear to have been released by the Victorian Government.

Background

In announcing these proposed reforms, the Andrews Government highlighted what it sees as a 'major market failure' involving substantial proportions of domestically produced gas being exported, leading to local businesses reporting difficulties in accessing gas supply. The Government's press release cited that it is currently 'cheaper to buy Australian gas in Japan than it is in Victoria'. 

The Victorian Government also acknowledged the Federal Government's recently announced plan to place export controls on major liquefied natural gas (LNG) exporters as part of its Australian Domestic Gas Security Mechanism. While suggesting that the Federal Government's plans are a step in the right direction, Victorian Minister for Energy, Environment and Climate Change Lily D'Ambrosio stated that they 'don't go far enough, soon enough'. Please see our Client Update: Budget measures to increase gas supply for more information on the Federal Government's recent action in this area.

The Government's press release does not refer to the ongoing moratoria on all onshore gas exploration and development in Victoria.¹

What are the proposed reforms?

The proposed reforms include:

• a 'tough, temporary cap' on the volumes of gas that are allowed to be exported overseas, with the aim of protecting the needs of local Victorian consumers and businesses;
• subsidies and co-investments for energy efficiency measures; and
• increased powers and oversight being afforded to the Australian Competition and Consumer Commission (ACCC) in respect of relevant markets.

In addition, the Andrews Government noted that it is also considering the development of an LNG import terminal in Victoria. This proposal will be examined at the Council of Australian Governments meeting in Hobart later this week.

Conclusion

The details of these proposed reforms are yet to be seen, including the mechanism to determine how and when the cap on exports would apply, as well as the extent of the cap in terms of the volume of gas that companies will be allowed to export. 

Further detail is also required in relation to the reforms proposed to Government investment in and subsidisation of energy efficiency measures, as well as the proposed heightened powers of the ACCC. No indication was provided in today's press release as to when further detail in relation to the proposed cap might be developed or published, and whether industry feedback would be sought.