Australian Domestic Gas Security Mechanism extension

18 July 2022

The Hon Madeleine King MP
Minister for Energy and Minister for Northern Australia
Parliament House
Canberra ACT 2600

Dear Minister,

Extension of the ADGSM – Consultations – Chemistry Australia Submission

Chemistry Australia welcomes the opportunity to provide this submission to the review of extending the operation of the Australian Domestic Gas Security Mechanism to 1 January 2030.

The $38B chemistry industry plays a vital role in the Australian economy, underpinning more than 212k jobs and supplying products, technologies and innovations to 108 of Australia’s 114 industry sectors. It is essential to healthcare, mining, agriculture, construction, infrastructure, transport and manufacturing. In addition, the products of the chemistry industry support urban and regional communities and the daily lives of all
Australians, including providing clean and safe drinking water and keeping food fresh from farm to plate.

Chemistry will play a critical role in supplying the technologies, products and solutions that enable Australia to transition to carbon neutrality and leverage the benefits of a circular economy. However, our capacity to drive and support these ambitious outcomes relies on our continuing viability and global competitiveness.
Access to globally competitive gas and electricity is vital to ensuring our long-term viability and competitiveness.

The chemistry sector represents approximately 10% of east coast gas demand. Our members use gas as a feedstock for manufacturing explosives, fertilisers, plastics and by-products like Adblue® and industrial gases. Gas also provides process heat, steam and power for chemical and polymer-based manufacturing.

In 2019, ACIL Allen established the comparative economic contribution derived from a petajoule of gas used in the LNG export, electricity generation and chemistry sectors. The following table highlights that Australia received a significantly greater return on a petajoule of gas from the chemistry sector.

Comparative economic contribution per petajoule of gas 1
Jobs Value Add $mil
Chemistry Sector 1605 286.0
LNG Export 665 8.7
Power Generation 20 4.2

1
ACIL Allen, Chemical sector economic contribution analysis, 2019
The above analysis does not mean that LNG and power generation are less important to the economy.
However, it clearly supports prioritising competitively priced gas for industrial users over LNG export and electricity generation.

Regarding the current market conditions, Chemistry Australia members report that east coast gas suppliers are not willing to offer or negotiate gas supply contracts with industrial gas users. This is causing considerable uncertainty regarding the short and long-term viability of gas-dependent manufacturing. If nothing is done to guarantee a competitively priced gas supply urgently, manufacturing facilities will likely close or be significantly curtailed.

The current crisis is further exacerbated by gas banking as some east coast gas suppliers restrict the release of gas to maximise their return on the gas they supply into the market.

In terms of this review, Chemistry Australia is supportive of the concept of extending the ADGSM. However, as the government has acknowledged, there is cause and significant scope to improve the effectiveness of the current mechanism. We understand there will be a separate opportunity to make submissions on this second, more substantive issue. In advance of that, we would make the following comments:

• The ADGSM has not been effective. There is no better indication of this than the current gas crisis on
the east coast;
• The mechanism needs to be more responsive to provide more immediate solutions to address
shorter-term price and supply issues;
• The mechanism should be modified to incorporate a price trigger in addition to the current volume
trigger; and
• This price trigger could be based on percentage fluctuations in the gas price or preferably linked to a
deep and liquid market benchmark like Henry Hub;

Chemistry Australia continues to advocate for reforms that address the concentration of market power and improve competition. The review of the ADGSM should also consider the role that “gas swaps” might play in the east coast market. Gas swaps would enable market participants to substitute gas shipped from another location for gas that might otherwise be shipped from the east coast. Gas swaps would reduce GHG emissions and gas losses from liquifying imported and exported gas and potentially increase competition in the east coast market.

Chemistry Australia would welcome further engagement with the review team, including the opportunity to meet and discuss how the ADGSM can be improved.

Yours sincerely,

Bernard Lee
Director – Policy and Regulation