Media conference, Parliament House, to discuss new Heads of Agreement
MADELEINE KING: So thank you all for coming along this afternoon. Today I can confirm that my negotiations with the east coast LNG exporters have concluded and we have reached agreement on a revised heads of agreement. This is a great achievement. We have come a long way in our discussions, and I thank for producers for their willingness to work with me and my team.
Now, I just want to remind everyone where we started. Back in July the ACCC forecast the domestic gas market would see a shortfall in domestic supply. This shortfall was forecast to be 56 petajoules if the LNG exporters were to export all of the gas that they produce.
To prevent this predicted supply shortfall I asked the Gladstone LNG producers to provide me with plans to avoid that shortfall. In aggregate, their plans that they have given to me will provide an estimated additional 157 petajoules of gas to the east coast gas market in 2023. So that is almost three times the shortfall forecast by the ACCC earlier this year.
This additional gas will be made available to the market through a combination of seasonal shaping, voluntary forfeiting gas contracted from domestic gas producers, offering sales and swaps packages and reallocating existing international supply for the domestic market. These LNG producers have also confirmed that there is 195 petajoules of gas already under contract in the domestic market for 2023.
The revised heads of agreement has three main themes: price, transparency and accountability. Under this new heads of agreement the key principle is that Australian gas customers will not pay more for their gas than international customers pay on contracted gas. They will not pay more. The heads of agreement also commits LNG exporters to offer gas to the domestic market in accordance with a code of conduct. For the first time this code is tied to the heads of agreement and sets behavioural expectations of how gas is to be offered to buyers. Gas must be offered with sufficient notice in volumes that can actually be taken by customers and with clear pricing structures.
The code of conduct was agreed in 2021. It was not welcomed by all gas users at the time. The Australian Industry Group rightly pointed out that the success of the code would be up to the gas supply sector participants that sign it. The onus will be on LNG exporters to demonstrate that the code of conduct combined with the heads of agreement can work.
The heads of agreement also ensures all of the information regarding notice and volumes will be easily found on company websites. This new level of transparency as well as increased supply will put downward pressure on prices.
The new heads of agreement also increases producers’ accountability. They will report to me quarterly on their actions to supply the domestic market and provide the ACCC whatever information it requests.
With this new heads of agreement and the commitments made in writing to me, including plans to prevent the shortfall of gas in 2023, I do not need to pull the trigger on the Australian domestic gas supply mechanism. This agreement will not impact supplies to overseas customers and does not impact existing contracts. I want to state very firmly and clearly that Australia will always be a trusted and reliable trading partner and a safe place to invest.
The Albanese government is committed to ensuring affordable reliable and secure energy for Australian households and businesses. Under the Albanese government, Australia has a stable energy policy and a clear path forward working with the states, industry and investors on addressing the mess left by the former government.
And, lastly, I just want to thank my team, the department and everyone that has been involved in negotiation on the heads of agreement that were a great deal of work since we started this activity in July. And it has come to a successful conclusion.
With that, I’m happy to take questions.
JOURNALIST: Minister, how did you – can you just explain how you will ensure competitive and reasonable terms? What's the mechanism for making that the case?
MADELEINE KING: The mechanism there is that there’s a definition in the heads of agreement but also through the code of conduct itself. And the ACCC monitoring as well, obviously with competition, that being their main job.
JOURNALIST: So it’s wording? It’s not a specific benchmark or anything like that?
MADELEINE KING: Well, it’s a code of conduct that sets an expectation around behaviour. And because of – you know, I put into this agreement that there would be those quarterly reporting meetings so that we can make sure – I can make sure – that that code of conduct is being adhered to. And if we see any missteps or unexpected events out of this or an impression that the code of conduct is not being adhered to, that will be an opportunity for me to address that directly with the LNG exporters, and also a chance for them to explain how the supply is going to continue into those winter peaks and also summer high demands.
JOURNALIST: When can consumers start to see this flow through to their gas bills and contracts? And are the sort of prices of $10 a gigajoule, are those days over?
MADELEINE KING: There is no doubt gas prices are very unlikely to return to the low points of like $6 or $8 or even $10. I do expect with the increased supply that there will be downward pressure on prices. That is consistently the advice we have been provided with. And I do expect to see that. And I expect the LNG exporters to make sure that that happens.
For commercial and industrial users now is the time for them to start renegotiating with exporters under the terms set out in this heads of agreement, particularly the code, acknowledging, as I said in my statement earlier, that they weren’t all happy with this. But it is a starting point and an important starting point that sets out that transparency and certainty around volumes and timings – all of the things that the ACCC report pointed out was not happening in those purchasing agreements.
JOURNALIST: And just on those long-term prices, that’s never going to happen again? It’s not like –
MADELEINE KING: You couldn’t say it would never happen again. But the truth is at the moment we’re in a global energy crisis. I mean, we’ve all seen what’s happening in Europe. So and, you know, we’ve had trading partners who have had, you know, their gas supply cut off from other sources as well. So it will continue to be a pretty heavy crunch on gas prices and other energy prices for that matter. So I don’t see this changing in the short term, and it won’t change without the war in Ukraine ending, right? Like, it’s a pretty volatile set of circumstances the globe is facing. But I do expect that increasing domestic supply and certainty around domestic supply will bring downward pressure on those prices.
JOURNALIST: Minister, so it stipulates that netback price parity for the domestic market on exports. Industry groups and, you know, heavy gas users like brick makers, food processors, have been lobbying for financial assistance or either for the government to impose cut-price gas contracts on to gas producers. Has the government ruled that out? Or, if not, are you willing to see demand destruction in the manufacturing sector and see some businesses close potentially?
MADELEINE KING: I’m not willing to see any businesses close. Absolutely not. But what we have agreed is it is an important principle that domestic customers won’t pay more than what international customers pay on that spot market for international shipments. And that was a demand that was made pretty clear. As to bringing prices to the very low levels which was spoken about before, which was very low level of gas prices during Covid when some of the producers themselves were close to going out of business, so, you know, we are in an open international market. We made this country face the world in the 80s and it has been responsible for a great deal of our prosperity. The flipside of that is when there are international price crunches like now is that we do get those knock-on effects. So I expect manufacturers now to be able to start negotiations that they might have been putting off with the somewhat unfounded expectation that there might have been a very low price cap put on what is an open market and has been for some time.
Sorry, you had a question.
JOURNALIST: Thanks, Minister. How will that agreement, like, [indistinct] interact with what we’ve seen with the early closure, for example, of the coal-fired power station within Victoria today? Obviously, that is, you know, still years away, but we have seen across the board coal-fired power being taken out of the market sooner. Is the way to sure up supply and secure [indistinct] further agreements like this, do we need to do more to ensure there’s domestic gas in the system?
MADELEINE KING: Certainly, well, the closure announced today is what we’re seeing, you know, all over the country where different states are moving to move away from coal-fired power generation. Every coal-fired power station has announced a closure date now. That’s somewhat a reflection of the times, and that transition, as you mentioned. What we need to ensure is that those closures are properly managed and that there – as they move out of the power generation system we make sure there is supply of other power sources. As you know, this government is very committed – absolutely committed – to taking action on climate change. We have enacted the two acts that commit us to that aim of net zero emissions by 2050. And we’re committed, and Minister Bowen, he’s working with state ministers on the energy plan on ensuring we transform the energy system and ensure we invest in renewables so that we can backfill, so to speak, the quite heavy reliance on coal at the moment in this country.
JOURNALIST: What role will gas then play in that?
MADELEINE KING: Well, gas will play a different role for different states, too. We’ve got to be very cognisant of that. South Australia uses more gas – very much more gas than Victoria, and Western Australia uses more gas than anyone. So we have to acknowledge that there’ll be different roles in different places. So gas in Victoria and New South Wales will not be relied upon as much. Nonetheless, there is demand for that in the feed stock part of it, which is for the manufacturers. So that supply will continue to come from Queensland and any domestic deposits that end up opening up in those states.
Can I go to someone who hasn’t asked a question? Yes.
JOURNALIST: Was the trigger mechanism effective in encouraging companies to do a deal, or is there a case to decrease the red tape to make it easier to pull that in future or a more plausible threat to pull that in future?
MADELEINE KING: Well, the trigger is always part of the – well, has been since it was created a mechanism available to government. And under the current trigger created by the former government the option to exercise that, well, it didn’t exist when we came into government and we had to renew that very quickly. That was one of the first acts of this government – to make sure it remained a tool available. But in its current form that ability to trigger that mechanism ends on Saturday, and that’s why if we come to the conclusion this was the kind of deadline I set for the industry for us to reach agreement. And that’s why I have announced that we won’t be pulling that trigger. And after that date in the existing mechanism, it’s not available again until next year. So as you would know from previous announcements, we are reviewing the ADGSM, and part of the examination of that will look into different means of triggering it, including being able to trigger it at different times of the year, not just one time of the year.
JOURNALIST: Going back to price, is the government still looking at that, putting –
MADELEINE KING: As was set out in the principles for the review, yes.
Can I go to someone who hasn’t asked a question and I’ll come back.
JOURNALIST: Can I just ask how – what’s the explanation from the gas companies about how they went from there being this shortfall to now suddenly finding three times as much gas? Were they just sitting on supplies?
MADELEINE KING: No, no, they were not sitting on supplies. Gas moves around quite quickly in the system. It’s not stored as much as maybe other countries store in Australia. I think what happened is that they weren’t under the governmental pressure to ensure that that domestic supply was there. And we also had a particular set of circumstances that we hadn’t seen before, where coal-fired power generation failed because of – well, the generators themselves had issues, unplanned outages, wet coal mines where the coal wasn’t available as well as, you know, other incidents around. So it was – and I said this before – the perfect storm of events led to the kind of supply crunch we saw, and a really extraordinary demand for gas that hadn’t been demanded before at the same time as local gas supplies in the most populous states were not there because Bass Strait is in decline. Well, they weren’t there as much as one might have hoped. So now we know that Victoria and New South Wales will continue to rely on the Queensland gas industry.
JOURNALIST: Could I just follow up on that question?
MADELEINE KING: Yeah.
JOURNALIST: Are you still confident and sure that all three of the proponents you’ve been dealing with, given there’s now this play on the uncontracted gas for the domestic market, can all three of them maintain their contracts with foreign buyers?
MADELEINE KING: Yes. I’m very confident. And that was, again, very much a part of the underlying principles in this negotiation. It’s very important for Australia to respect its international trading partners. We’re a nation that relies on trade and has ever since European settlement. So that principle was very important. And we’ve been in touch with the relevant embassies to let them know of our intentions today.
JOURNALIST: Just on green energy, Rio has been critical of the amount of lithium mining that’s currently being undertaken in Australia saying it’s not nearly enough to meet demand if we want to become a green manufacturing hub and want to export lithium around the world. I mean, how can we ramp up production of lithium? Is there anything beyond what the government is already planning to do around that?
MADELEINE KING: Sure. Rio is not the only one pointing this out. I think the International Energy Agency has pointed out that the vast need for more lithium in this country. So we are working with industry to progress mining in lithium but also all the critical minerals and the rare earths. And I might add that gas is going to be really important to processing those minerals as well in the places where they’re found. We have in this country an amazing institution called Geoscience Australia, which is focusing heavily on that pre-competitive exploration for critical minerals, which, of course, includes lithium. The largest lithium spodumene mine is in Greenbushes in Western Australia, which is one of the oldest tenements in Western Australia and is, you know, the revival around lithium is one of the most extraordinary stories of in zero emissions ambitions of the globe. We know there is demand from around the world for these minerals, and this government will do all that it can to make sure its extracted responsibly and with environmental standards. I might add that all the proponents that are seeking to mine lithium are all very much on board with that too.
JOURNALIST: Minister, given that we have been in this situation before with industry, you know, jointly committing to fulfil forecast shortfalls and then things going awry in terms of supply in the market and the ACCC subsequently coming out and making accusations up to and including cartel-like behaviour from the east coast exporters, could you just outline to – I know it’s in the terms of agreement but could you outline to gas users in Australia what your trigger points and what you’re prepared to do if – even with the transparency measures if there is unmet demand in the domestic market? What will be your response and will it be an immediate response from you or will you give, you know, several strikes before you’re out?
MADELEINE KING: Yeah, sure. Well, if there’s unmet demand, you know, we have to have tools available, and that’s what we’re working toward with the review of the ADGSM and to be able to make that – which was, as I said, we’re still working on – to be able to make it actionable in a more timely manner and not annually. So that’s an important part of this. And, you know, I’ll be very honest, if we had not got the assurances from the LNG exporters in the heads of agreement and commitments in writing and signatures on the dotted line, I was very much prepared to start the notice period around the existing ADGSM trigger, and I made that very clear to them as well. And that’s why agreement was really important, because export controls is not something that a trading nation should turn to immediately. We should work to make sure we can get domestic supply. And they’ve worked and reshaped their plans, and I appreciate that. And I think we’ve got a good agreement here.
JOURNALIST: So you’re actively considering potentially bringing the trigger for export controls into closer contact than just annual updates?
MADELEINE KING: Absolutely, and we’re very clear on this when we first announced the review that the activation timing would be something that’s very much considered.
JOURNALIST: Is the key to bringing a more material downward pressure on prices opening up new gas fields? And obviously Origin has announced its intention to pull out of Beetaloo. Do you hope that Beetaloo still goes ahead?
MADELEINE KING: Well, more supply is important, but the world is changing and this is an economy that is moving to decarbonise. What Origin do or any commercial entity do in regard to their investments is clearly up to them. I would note, though, that Origin are still involved in the Beetaloo through offtake agreements and so forth. But they’ve changed tack, and that’s fine. And they’ve sold that interest to Tamboran, who are very much active in that space. The Beetaloo gas basin has been the subject of an extensive scientific review by the Northern Territory government, and I am in touch with the Northern Territory government, the Chief Minister and the Minister for Resources very regularly. They are continuing to work through all those recommendations. And I think that work is close to completion and they accepted all the recommendations of that Pepper review. We will take this one step at a time in concert with the NT government. But we do support their ambitions to diversify their economy.
JOURNALIST: Okay, and does this government support new gas fields opening up?
MADELEINE KING: Well, we support gas fields that, you know, meet environmental standards. And if they stack up environmentally and commercially then, yes, we will support them.
JOURNALIST: Can I jump in. I just wanted to – there was a report earlier this week that state and federal energy ministers are looking at an idea to give AEMO extra powers when it comes to gas. How does interact with what you’re doing and have set up here today?
MADELEINE KING: So I don’t know the exact details of that, but I know of those reports, of course, through the ministers meetings that they have. So that’s in regard to the NEM and AEMO’s work in regulating the energy market. So the interaction is we try and make sure there’s enough supply – and this is what the LNG exporters are committed to – and then where it goes from there is a matter for those commercial contracts that go on as and between the exporters or providers of gas domestically and the customers.
JOURNALIST: Just back on the supply issue, given that prices are high, it’s always contentious for new fossil fuel developments, you know, is the reality that we’re moving towards, you know, the time for opening up new gas fields is probably past us and we’re moving towards renewables and battery storage and other forms of energy for Australia?
MADELEINE KING: Yes, and this government is, you know, seeking investment and encouraging investment in renewables. You know we’ve had the legislation in regards to offshore wind which, you know, should have been introduced many years ago but was not. So these are important energy sources. They’re renewable energy sources that will help us as a nation reach our net zero ambitions but also the rest of the world. So – but gas will continue to play a part in the energy mix for some time. I just think we need to be, you know, careful in how we plan this transition. And we are being careful in how we plan this transition. But the really important thing is that we continue to get that investment in renewables because they are a secure form of energy that, as we see with gas shocks around the world, are not necessarily subject to the same kind of contentions that we see.
JOURNALIST: But it’s more likely we’ll be utilising gas out of existing projects rather than opening more ones?
MADELEINE KING: Well, if you think about the recent acreage releases, they are in fields that are brownfield sites. So they’re extending existing facilities, as you say. So it does seem unlikely that there’ll be more LNG facilities built like on the scale at Gladstone. But, you know, if it comes along and it stacks up environmentally and socially and those industries can offset their emissions and make sure we meet our net zero emissions targets, then clearly they have to be considered.
JOURNALIST: As we phase out coal and gas both here and as an export market, how do we replace those lost revenues? When we see in the budget there’s been that incredible windfall from commodity prices, I mean can exports of critical minerals and lithium ever hope to replace those huge billion-dollar earnings from coal and gas?
MADELEINE KING: That’s a very good question. They clearly are much lower volume prospects and export, a much higher value. What we hope to do and we have great ambition to do is to make sure we process more of those minerals onshore, and that’s where the value‑adding comes into it. And beyond just the processing into the further stages of battery technology – anodes, cathodes and perhaps even battery manufacturing. So whilst it is difficult to see anything replacing the value that iron ore brings to the nation, certainly if we can add value into the processing of critical minerals and rare earths, that will add value to our exports and diversify our economy, diversify and improve the complexity of our economy and what we export as well.
JOURNALIST: Do you expect that to be like a decade-long challenge that we face rather than – or decades-long challenge?
MADELEINE KING: I would say it’s a long-term challenge. It takes a bit of work to get lithium and other rare earths out of the ground. And quite rightly, because we have a very thorough environmental approvals process, as do the states and territories, it takes a bit of time, a reasonable amount of time, to get these mines up and running. But it really is all shoulders to the wheel on that exploration and development. It’s exciting times for critical minerals, challenging times. A lot of countries, a lot of companies from overseas that meet with me and my department that really want to invest strongly in Australia and Australia’s critical minerals because they see the danger of, you know, restrained supply chains that they are facing right now.
JOURNALIST: Which countries are those that you’re meeting with?
MADELEINE KING: Germany, Japan, South Korea – many. Everyone’s very interested. There are US companies. It’s very wide ranging.
Okay, thank you, everyone. See you next time.