Santos chief executive Kevin Gallagher is set to call for timely decisions on the federal government’s planned gas reservation system to clear the way for billions of dollars of potential investment to develop production in the Northern Territory, but with essential tweaks to the current design.
Gallagher is expected to address the National Press Club on Wednesday to call for a forward-looking reservation policy to set the rules for companies mulling big investments in Beetaloo Basin gas that could head off forecast shortages on the east coast.
“I have publicly supported domestic reservation as part of its development since 2018 – the time to put a reservation in place is now, before billions of dollars are invested,” he will say.
But Gallagher is set to push for several critical changes to the policy that clash with the demands of an alliance of union, industry, environmental and social groups that insist the Albanese government not capitulate to lobbying from powerful gas exporters and Asian customers on reservation.
The proposed system would require LNG producers to supply the equivalent of 20 per cent of exports to the domestic market.
They would be forced to not just offer the quarantined gas to Australian buyers but to sell it, which producers warn would cause prices to crash and amount to them subsidising manufacturers.
The debate comes ahead of the expected release this month of an exposure draft of legislation for the policy after months of consultation.
Gallagher is expected to urge government to change the “must sell” clause on reserved gas to one that requires gas to be offered on commercial terms, like it is under Western Australia’s reservation system. He also wants clear and transparent rules for the reserve system set in legislation, rather than being subject to sweeping ministerial discretion.
Santos on Tuesday started drilling the first of three wells in the Beetaloo Basin ahead of a potentially much larger investment depending on the results.
Gas producers and Australia’s LNG customers in Asia have voiced particular concerns about the level of ministerial discretion allowed for in the draft scheme, including setting annual rates of gas supply. They say that is unworkable, given the long-term planning involved in LNG supply.
But the coalition of groups, which include the Australian Workers Union and Australian Industry Group, insists the “must sell” rule remains.
It is also worried about ministerial discretion, as it opens the door for an LNG exporter to be granted an exemption from its domestic supply obligations.
“The scheme must apply equitably and consistently to all exporters,” the group said. “Only a reservation that delivers for all sides in the national interest can succeed and endure.”
Gallagher will urge Australia not to retreat into resource nationalism, but to respond to the global disruption in gas supplies caused by the war in Iran by developing more of its energy resources to supply both the domestic and export markets.