Originally published by Gladstone Today
05.06.2026
Di Stanley
The Federal Government’s gas reservation policy framework has put the Santos GLNG operation “in the crosshairs”, according to a leading industry analyst.
MST Marquee’s energy research head Saul Kavonic described the draft policy, released last week, as rushed and detrimental to GLNG which has zero net domestic gas supply after meeting its export contracts.
The framework is predicated on LNP exporters fulfilling a Domestic Supply Obligation of 20 per cent of exports.
The scheme is expected to commence on 1 July, 2027.
Non-compliance could incur penalties up to $100 million.
Mr Kavonic said the draft policy was a recipe for backroom dealing rather than a transparent framework for a market to function or investment stability.
It also pitted GLNG directly against Gladstone’s two other gas exporters in APLNG and QCLNG.
“The relief valve mechanism means every molecule GLNG has to supply domestically is one less than QPLNG and QCLNG have to supply,” Mr Kavonic said.
“APLNG and QCLNG already supply around 15-20 per cent of exports, so incremental DSO for them is less than five per cent near-term.
“If GLNG is made to deliver 20 per cent, then APLNG and QCLNG could actually reduce their domestic supply a few per cent near-term, freeing up more gas for export.
“GLNG has argued that because all of its supply is needed to meet its export contracts, which the government has agreed to protect, then its DSO should be varied to zero.
“Even if GLNG gets a lower DSO to protect its contracts, the difference may accrue to a higher obligation in future years.
“GLNG could end up with the lion’s share of DSO from 2030 when its KOGAS contract rolls off.”
Mr Kavonic said it was also possible APLNG and QCLNG would “very loudly” make offers to supply gas on GLNG’s behalf.
Flynn MP Colin Boyce said he agreed with Mr Kavonic that a gas reservation police was a market manipulation strategy to force companies to supply gas at a lower cost domestically., but he argued the dye was cast 15 years ago when big energy companies like Shell and Santos sold a significant portion of their gas production cheaply to Japan, South Korea and Indonesia on long-term contracts.
“Gas operations supply royalties to the Queensland Government to the tune of approximately $1.7 billion and they also pay corporate tax to the Australian Government of well over $2 billion,” Mr Boyce said.
“There is a problem with the whole domestic supply in Australia and that is complicated by the fact that both the Victorian and New South Wales governments have not allowed the development of onshore gas fields and they are relying on Queensland for their gas.
“Now, as time has gone by, and the price of gas has risen, these contracts that were written up back then were basically giving gas away.
“These contracts don’t mature until the early to middle 2030s and there’s nothing we can do about it.
“Shell and Santos have basically got a lot of gas on the spot price gas market and it goes as high as $30.
“The stuff they supply to the domestic market is around $10 or lower.
“They’re got offers of intent out there at $12 and nobody will take them up.”
Mr Boyce, who formerly worked in the gas industry as a pipeline welder, said the Federal Government policy would manipulate the market to create an artificially forced over-supply of gas with downward pressure on prices to a low point where domestic business and industry could afford to use it.
“Now, if you start mucking about with the big companies’ profit margin on as, particularly the stuff on the spot price market, and then ask them to invest more money, and I’m talking about hundreds of millions and billions in building more pipelines and more infrastructure and developing more gas wells and more tenements, and they can’t see a profit in it, they’re not going to commit to do it,” he said.
“The government has also left a lot of back doors open for the minister of the day to change things at their whim. because no-one is really sure how this might work out.
“I would argue that the big customers overseas, the Chinese, the South Koreans and the Japanese, Indonesians and so forth, everybody who buys gas out of Queensland, well somebody needs to get them in a room.
“A lot of time has gone by now and we find ourselves in a situation in Australia where we are supplying an enormous amount of gas to people for extremely low prices, yet we buy a lot of refined petroleum products from all of them and we pay full market value, so how can that possibly be a fair trading agreement?”