Australian Labor shifts gas reservation to demand-based calibration; Greens denounce it as 'pathetic surrender to the gas industry'

The Australian federal government's draft gas reservation scheme, released on Thursday, changes the previous fixed requirement for LNG exporters to reserve 20% of exports, to instead have the Australian energy regulator set individual exporter obligations based on 110% of forecast domestic demand, with 20% remaining the cap. According to ABC News reporting, this adjustment drew sharp criticism from Greens resources spokesperson Steph Hodgins-May, who called it Labor's "pathetic surrender to the gas industry"; Energy and Climate Change Minister Chris Bowen, however, denied the draft "weakened" the original policy, insisting it was a "sensible calibration."

Bowen said when releasing the scheme: "We absolutely don't see it that way. We see this as sensible calibration. The 20% figure remains the absolute core of the policy, but it makes no sense to hold onto gas that Australians don't need." He also acknowledged that major LNG buyers, including those in Malaysia and South Korea, want "to be assured" that existing contracts will be honoured, and that the new scheme aims to safeguard an "appropriate surplus supply" of gas for Australia without threatening those contracts.

Under the new scheme, the energy regulator will set each exporter's obligation annually, requiring them to provide enough gas to meet 110% of forecast domestic demand, capped at 20% of exports. The government estimates exporters could provide up to an additional 200 petajoules of gas per year, "enough" to address the projected domestic supply shortfall of up to 140 petajoules. Gas companies will be required to apply for export permits and will only be granted approval once they have met their domestic supply obligations. The permit process will begin in January 2027, and domestic supply obligations will take effect in mid-2028. Bowen stressed that exporters must not only "offer" their domestic share but actually deliver it.

Bowen said the scheme aims to secure supply for Australian industry and households rather than setting a price "target," but he acknowledged that an "appropriate surplus supply... clearly is designed to put downward pressure on prices." Industry Minister Tim Ayres called the reservation "durable structural reform," saying it would bring "more secure jobs" to Australia's industrial regions and attract future investment.

The Greens' criticism went straight to Labor's close relationship with the industry. Hodgins-May noted that Labor was designing the scheme while "in close consultation with the gas industry, which has for years opposed any requirement to take its fair share," and said: "The reservation scheme won't add a single cent for Australian households." She called on Labor to drop the concession and instead push for a gas export tax: "Labor should drop this pathetic surrender to the gas industry and work with us to ensure Australians get a fair return from our gas." When asked whether he would rule out any additional gas tax, Bowen responded that the reservation scheme had "a bigger impact" and "we won't be doing that; what we're doing is this."

Industry reaction was divided. Australian Energy Producers Association chief executive Samantha McCulloch acknowledged the government had made some "sensible" adjustments to the scheme's design, including bringing it closer to domestic market demand, but she warned that a 110% surplus on the east coast market would "undermine investment signals" and "crowd out" smaller producers focused on the domestic market. She noted: "The 'must offer' requirement exacerbates these risks. Producers should not be forced to sell gas below cost or on uncommercial terms." Santos chief executive Kevin Gallagher denied there was a gas shortage in Australia, saying "there just needs to be more gas pulled out of the ground," and revealed that Santos-led Gladstone LNG would no longer purchase gas from third parties to fulfil its export contracts.

The federal scheme treats Western Australia and the east coast as separate markets, as there is no pipeline connection between them. Western Australia already has a state-level reservation scheme at 15%, but is projected to face a severe gas shortage in the 2030s. Resources Minister Madeleine King said the federal scheme allows the minister to cut obligations where a market is already adequately supplied, for example noting it is "possible the discretion could be exercised to drop the obligation to zero if the WA market is found to be adequately supplied." She stressed, however, that no decisions have yet been made on a WA exemption.

The Coalition issued a statement saying it would "review" the government's proposal and stand ready to "constructively work" to pass the relevant legislation. The party emphasised its "key criteria," including providing more gas for Australians, more investment, honouring existing contracts, and lowering prices through supply rather than price regulation.