Originally published by Perry Williams of The Australian.
12.06.2026
Origin Energy expects the Albanese government’s domestic gas reservation scheme will initially lead to a glut of gas in the market, raising concern that volumes may not be able to be absorbed by domestic users.
The scheme would mandate 20 per cent of all LNG exports to be supplied to domestic users, but the industry argues Chris Bowen’s plan to “slightly oversupply” the market was likely to freeze spending as investors baulk at government oversight of the sector.
“That amount of volume coming from the other LNG exports probably can’t be absorbed in the domestic market initially, and there’s probably not the level of transport to meet that demand in the country,” Origin’s gas boss, Andrew Thornton, told the Morgan Stanley Australia summit.
Origin is a part-owner of Australia Pacific LNG, which already supplies more than 20 per cent of east coast gas demand, but the company has argued the proposal still had significant unresolved issues.
The requirement by the government for gas producers to deliver rather than just offer volumes into the domestic market also appeared a challenging hurdle.
“How do you actually procure the volume in an effective way which allows you to have confidence in how the market will operate?” Mr Thornton said.
“When you’re trying to make 10 or 20-year investments then getting a one-year exemption or discretion is not really going to scratch the itch for investment confidence, and that’s a message we are trying to get through.”
Consultancy EnergyQuest said the reservation plan was unlikely to fix much.
Modelling indicates that a 15 per cent reservation rate on new LNG contracts would be more than enough to avoid annual shortfalls past 2035, according to the research house.
“Yet there is little gas available to reserve until Queensland LNG foundation contracts expire in 2034-35, and a reservation does nothing to address the more pressing risk of shortfalls during peak demand,” EnergyQuest said in a report.
“If foundation contracts are exempt, the scheme would apply only to production surplus to foundation volumes. However, Queensland LNG producers have little surplus production beyond foundation LNG offtake agreements and existing gas supply commitments, and the reservation scheme would likely disincentivise additional supply.”
Manufacturers in May threatened to rip up contracts with gas producers after claiming the government’s proposed reservation scheme amounted to an exit clause, pushing for a return to the negotiating table.
The prospect of buyers revisiting long-term supply agreements that were instrumental in getting new gas developments off the ground has industry executives fearful Labor’s intervention may spark a legally explosive spat between producers and customers.
Smaller producers had already warned that the reservation scheme threatened to crowd out future domestic investment by depressing prices. The prospect of existing customers seeking to reopen or renegotiate contracts has now emerged as a potentially far more damaging consequence.
EnergyQuest said that for non-LNG producers, the reservation scheme posed a commercial risk.
“The scheme may result in additional volumes being supplied in a market that is not currently in shortfall and may not be in shortfall in the next decade. In the absence of an increase in demand, higher supply from LNG producers in this context may substitute for supply from non-LNG producers.”
East coast gas prices have fallen sharply in recent months as weaker industrial demand, mild weather and the rapid deployment of batteries reduce gas-fired power generation.