Australia is one of the world’s major exporters of liquefied natural gas (LNG). Yet, there are mounting concerns about whether gas from the east coast gas market will remain available and affordable for ordinary Australians.

The federal government’s proposed Domestic Gas Reservation Scheme aims to address these concerns. It will require LNG exporters to supply gas to domestic customers, helping ensure households, manufacturers and businesses can access enough energy. The laws were introduced to federal parliament on October 14, and are yet to be finalised.

But the scope of this scheme has sparked vigorous debate. A key question is whether the scheme addresses a market-wide problem or places a disproportionate burden on single companies, notably energy giant Santos. Will the scheme unfairly target Santos – or give it unfair benefits?

The government has drafted the laws with exemptions designed to accommodate existing gas contracts. But does this benefit Santos, specifically through its Gladstone LNG project, over other companies?

The challenge for policymakers is to ensure the scheme recognises genuine differences between gas producers, without threatening domestic supply or inflating gas prices.

Santos in the spotlight

Santos is an Australian oil and gas company with several major projects across the country, including the Barossa LNG and Beetaloo Basin gas fields.

Most recently, its LNG plant near Gladstone, Queensland has been thrust into the spotlight. This plant is also home to two other major LNG export facilities: Queensland Curtis LNG operated by Shell and Australia Pacific LNG, a joint venture of Origin Energy and ConocoPhillips.

While these projects have supplied gas to the domestic market, Santos’ Gladstone LNG project has relied on gas purchased from the east coast market. This domestic gas is vital to meeting its export commitments, including long-term LNG contracts with South Korea and Malaysia.

The proposed reservation laws could place a greater commercial burden on Santos, given how much its Gladstone project relies on domestic gas. However, Santos could also avoid the most taxing obligations through potential exemptions for existing LNG contracts and contract extensions.

In a National Press Club address in September, Santos Managing Director and CEO Kevin Gallagher said the government’s efforts to honour existing contracts and support gas investment are “very welcome”. However, he emphasised the need for “clear, transparent rules” rather than “sweeping ministerial discretion”.

Overall, this suite of issues creates a challenge for regulators and raises important questions about how existing contracts should be treated, how exemptions should be applied and how the scheme will ensure all exporters contribute fairly to domestic supply.

Why existing contracts matter

Companies enter long-term agreements on the assumption they can obtain the gas needed to fulfil their commitments. Abruptly changing the rules could expose exporters to substantial costs and damage Australia’s reputation as a reliable trading partner.

The government has previously indicated contracts entered into on or before December 22 2025 would be protected under the reservation framework.

But should contract extensions, which prolong an existing supply agreement beyond its original expiry date, also be protected?

This question is particularly relevant to Santos’ agreement with major South Korean LNG customer KOGAS, which covers roughly 3.5 million tonnes of LNG annually and includes a potential five-year extension from 2030. Critics argue exempting this extension could allow Santos to keep exporting gas without being subjected to any domestic supply obligations well beyond the original contract terms – and potentially with no benefit for Australian consumers.

The scheme’s laws must therefore make clear whether extensions qualify for protection, under what conditions and for how long.

Paper compliance

The scheme will succeed if it compels gas companies to meaningfully contribute to domestic supply – not just appear compliant on paper.

One concern is some contractual arrangements could allow companies to meet their obligations without actually increasing the total volume of gas available to Australian customers.

For example, an exporter might buy gas from another producer under an existing supply agreement. It can then count that transaction towards its reservation obligations, even though the gas was already available to domestic customers.

The government recognises companies should be free to use standard commercial arrangements, including buying gas from other producers, to meet their obligations.

However, the scheme must distinguish between two types of commercial arrangements. Some arrangements deliver additional gas to the domestic market. Others, however, merely change which company is credited with supplying a certain amount of gas but don’t contribute any physical gas to the Australian market.

Attracting investment

LNG exporters operate within a high-cost industry shaped by long-term contracts, expensive infrastructure and international competition. Poorly designed obligations could increase costs and make contracts more complicated, discouraging companies from investing in new gas projects.

Energy heavyweight Shell has warned the proposed reservation scheme could be a “sledgehammer” to future investment, arguing it is too restrictive or could make gas production unprofitable. These concerns are worth considering, particularly given Australia remains dependent on gas peaking plants.

However, the scheme can’t only focus on securing future investment. This would likely lead to broad exemptions that defeat its original purpose.

Measuring true success

The success of the scheme should ultimately be judged on four key factors:

  • how much extra gas actually reaches Australian customers

  • which exporters receive fewer obligations, and on what grounds

  • whether exemptions simply allow companies to export vast volumes of gas without consequence

  • whether the scheme improves domestic supply without discouraging investment.

When considering exemptions and reductions, regulators should apply consistent criteria and explain their decisions. They should also monitor whether reported compliance actually translates into more gas for Australian buyers. This information should be made public.

It’s unknown if Santos will face a greater burden because its Gladstone LNG project operates differently. But while economic differences should inform the design of the rules, they should not provide an escape route.

Samantha Hepburn does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.