In recent years,due to the drastic fluctuations in the international natural gas market,especially the significant increase in Europes demand for liquefied natural gas (LNG),the Australian government is considering implementing a new Australian Domestic Gas Security Mechanism (ADGSM).This mechanism will impose stricter restrictions on LNG exports to ensure an adequate domestic natural gas supply.For Chinese enterprises,especially those relying on Australian LNG,this change may have a significant impact.

What is ADGSM?

ADGSM stands for Australian Domestic Gas Security Mechanism,which is a policy mechanism established by the Australian government to ensure an adequate domestic natural gas supply.The core purpose of ADGSM is to control the export of liquefied natural gas (LNG) in case of domestic natural gas supply shortages,giving priority to meeting the needs of the domestic market.

Main provisions of the new ADGSM

Overview of the new version ADGSM

The ADGSM revised in 2023 aims to address the shortage of domestic natural gas supply in Australia by restricting LNG exports to meet the needs of the domestic market.

2.Activation Conditions and Process

The Australian Minister for Resources will decide whether to activate ADGSM based on expert opinions,as well as the recommendations of the Australian Energy Market Operator (AEMO) and the Australian Competition and Consumer Commission (ACCC).

3.Export Permits

Once an LNG supply shortage is determined,all LNG exporters must obtain an export permit to continue exporting.Permits are divided into unlimited export permits and limited - quantity export permits.

4.Protection of Long - term Contracts

The new version of ADGSM provides special protection for long - term contracts that support the final investment decision (FID) of LNG projects.

Response Strategies of Chinese Enterprises

1.Review and Adjustment of Contract Terms

Chinese enterprises should review existing contracts,particularly checking for force majeure clauses related to government-imposed export controls.Additionally,they should consider explicitly stipulating in new contracts that "ADGSM export restrictions" constitute force majeure.

2.Risk Management and Diversification Strategies

Enterprises should strengthen risk management,consider a diversification strategy for procurement,and reduce dependence on a single source,especially in the spot market.

3.Negotiation with Australian Suppliers

Actively negotiate with Australian LNG suppliers to explore possible countermeasures,such as suppliers purchasing the permitted volume from other sellers or procuring alternative gas sources to continue fulfilling contracts.

4.Signing of Long - term Contracts

In view of the special protection of long - term contracts by the new version of ADGSM,Chinese enterprises should consider signing long - term contracts with Australian suppliers to reduce the risk of future export restrictions.

5.Utilization of International Treaty Rights

Consider arbitration or litigation for possible unfair losses in accordance with international treaties such as the Agreement between the Government of the Peoples Republic of China and the Government of Australia on the Reciprocal Encouragement and Protection of Investments.

The implementation of the new Australian ADGSM has brought new challenges to Chinese enterprises in natural gas procurement.Enterprises should respond to this challenge through contract review,risk management,diversification strategies,negotiation with suppliers,and utilization of international treaty rights.Through these strategies,enterprises can better adapt to market changes and ensure the stability and safety of natural gas supply.