Santos has slammed the federal government’s domestic gas reservation scheme, warning it will create energy shortages and drive up prices for electricity generators, manufacturers, and data centres.
Australia’s second-largest oil and gas producer, which stands to be the hardest hit by the proposed scheme, emphasised it had long supported a forward-looking gas reservation system, with chief executive Kevin Gallagher backing such a policy since 2018.
But the scheme as proposed is retrospective rather than prospective, and it would force LNG exporters with rights to export contracted gas to forfeit those rights from July 1, next year, Santos said in a submission on the draft scheme.
LNG exporters, which have committed billions of dollars to develop and purchase Australian gas, would have to reapply for those rights every year, with ministers having discretion to vary the terms with no clear and transparent rules, Santos added.
“The rules are being changed after investors committed hundreds of billions of dollars to unlock the wealth of Australia’s gas resources through royalties, taxes, jobs, business opportunities, regional development and national income,” Santos’ chief strategy officer Tracey Winters said in a letter accompanying the submission.
Related Quotes
STOSantos
$7.655 0.46%
1 year1 dayJul 25Oct 25Jan 26Jul 265.8506.5007.1507.8008.450
Updated: Jul 13, 2026 – 12.19pm. Data is 20 mins delayed.
The draft framework for the scheme, released in May, sets a requirement for LNG ventures to supply the equivalent of 20 per cent of their exports into the domestic market from mid-2027.
The government has stated the intention is to create oversupply in the domestic market that drives down prices – an objective welcomed by manufacturers battling to secure affordable energy.
But the proposal has been attacked by gas producers, who argue it will create a short-term “sugar hit” of low prices for manufacturers but deter investment in new fields and lead to shortages and higher prices in the future.
On Friday, the Australian Competition and Consumer Commission advised that more investment was required to head off gas shortages next decade, with Queensland’s LNG ventures particularly important in that regard.
“In the context of the government’s proposed gas reservation scheme, policy settings should support the most efficient sources of supply and infrastructure investment,” ACCC commissioner Anna Brakey said.
Australia’s biggest LNG customers, including Japan and South Korea, have said the scheme entirely changes the rules for export projects in Queensland, and warned it would damage their investments and endanger their long-term energy security.
Consternation also prevails over how the scheme would apply to Western Australia, which has its own state-based reservation system, and to the Northern Territory, a huge LNG exporter through the Ichthys and Darwin plants, but with minimal domestic demand.
Santos’ $US18.5 billion ($26.6 billion) GLNG venture would be the most affected by the scheme among the three Queensland LNG projects because it produces no extra gas beyond what it needs to meet its export commitments. It could be forced to buy gas from third parties to be able to supply its export contracts and meet its new domestic supply obligation.
GLNG, whose shareholders also include the South Korean government-owned Korea Gas Corporation, Malaysia’s Petronas and French giant TotalEnergies, has outlined its worries to the government in a separate submission that has not yet been made public.
Santos told the government that the scheme, as it stands, is akin to imposing a new tax on all gas producers, not just LNG exporters. It said it would damage the certainty needed to secure investment in new gas supply for domestic and overseas markets. Last year, Santos was the target of a $36 billion Abu Dhabi-led takeover bid, which was later abandoned.
“It is a tax that would be paid to domestic gas users by all gas producers in the form of a gas price subsidy and would lead to Australian gas supply drying up and gas users being left reliant on inherently higher-priced LNG imports,” Winters warned.
Santos argued that Australia does not have a gas supply crisis, but that state and federal policies have prevented the country’s abundant reserves from being developed.
It said subsidised gas prices would not solve the problem of uncompetitive manufacturing and urged the federal government to look to South Australia’s strategic gas reserve for a policy that would facilitate new supply and support the Future Made in Australia agenda without damaging Australia’s international reputation and gas markets.
“Domestic gas reservation can work – but only if it is genuinely prospective and linked to investment in ongoing and new gas production when and where it is needed,” Santos said. “This proposal fails on both counts.”
It called for a more flexible policy that reserves gas over several years, rather than on an annual basis – as in WA’s scheme – and that requires reserved gas to be made available to domestic buyers on commercial terms, rather than on a forced, “must sell” basis.
Source: https://www.afr.com/companies/energy/santos-slams-australian-gas-mandate-warns-of-supply-crunch-20260712-p60emf