Opinion article in the Australian Financial Review by Samantha McCulloch, Chief Executive of Australian Energy Producers, 9 July 2026.
Large manufacturers are calling for a domestic gas reservation scheme that creates a significant structural oversupply and forces east coast gas producers to sell gas below the cost of supplying it.
It is an extraordinary proposition from a sector that has baulked at the cost and risk of investing in new gas production and is fiercely protective of its own international competitiveness.
That Australia needs a strong manufacturing industry that can access reliable and affordable gas supply is not in question. Nor is there any objection to a well-designed reservation policy.
Australian gas producers support a prospective reservation scheme that encourages investment in new supply, secures long-term domestic gas availability and preserves Australia’s role as a reliable LNG trading partner.
However, the Federal Government’s current proposal to force a structural oversupply of the domestic market in a bid to push down gas prices falls well short of this, and risks leaving the market much worse off.
Manufacturers should be careful what they wish for. While artificially flooding the market with cheap gas might deliver a temporary sugar hit, independent analysis by Wood Mackenzie found it would ultimately reduce investment new gas supply, drive domestic-focused producers out of the market and leave Australian manufacturers paying higher gas prices.
Industrial gas users argue the scheme should guarantee gas below $10 a gigajoule, despite the ACCC confirming the break-even cost for new east coast gas production is around $12-13/GJ. That would effectively require one industry to subsidise another by selling below the cost of developing new supply.
It is neither sustainable nor a recipe for long-term energy security.
The reality is that cheaper gas is not the panacea for the competitiveness challenges facing Australian manufacturing.
Wood Mackenzie analysed the gas costs of 13 of the largest industrial gas users on the east coast, which together generated almost $24 billion in revenue and $3.8 billion in profit last year. It found that gas costs represent, on average, less than 5 per cent of total costs and that reducing the gas price for those facilities from $12 to $10/GJ would lower their combined gas costs by less than $100 million – lifting profit margins by less than half a percentage point.
The consequences for the gas market, however, would be far more significant.
Smaller domestic gas producers that currently supply around two-thirds of the east coast gas market would be driven out, reducing competition, tightening supply and potentially requiring expensive LNG imports in southern states to avoid shortfalls.
This outcome would be at odds with the Government's objective of providing a stable and predictable regulatory framework that supports investment and protects Australia's reputation as a reliable trading partner.
It also fails to heed the lessons of past government interventions in the east coast gas market. Both the ACCC and the Australian Energy Market Operator have repeatedly warned that past interventions have discouraged investment, reduced supply and increased the risk of future shortfalls.
What is often overlooked in the current debate is that over the past three months east coast gas prices have remained at their lowest levels in years. Remarkably, this has occurred during the most significant disruption to global gas markets in decades.
The historically low gas prices in Australia highlight two important points. First, that a well-supplied domestic market delivers lower prices. Second, it refutes the notion that domestic gas prices are linked to LNG export prices. If they were, domestic spot prices would today be more than three times higher.
Meanwhile, Prime Minister Anthony Albanese has leveraged our LNG exports to the region to secure Australia’s petrol, diesel and aviation fuel needs from Japan, Korea, Singapore and Malaysia.
Australia has abundant undeveloped gas resources. With the right policy settings, those resources can supply Australian households and businesses for decades while capturing the enormous economic and strategic opportunity of growing LNG demand in our region.
Reducing the debate to a false choice between the interests of manufacturers and gas producers overlooks the fundamental challenge facing the east coast gas market: new supply has failed to keep pace with declining production after years of project approval delays, policy uncertainty and restrictions on new gas development.
The reservation must be calibrated to actual market demand, protect existing export contracts, allow gas not needed domestically to be exported and recognise the unique circumstances of Western Australia and the Northern Territory which are not connected to the east coast market.
These changes would align the national scheme more closely with Western Australia's reservation model, which has supported investment and domestic supply for almost two decades. As currently drafted, however, the proposal departs significantly from that model and risks overriding WA's long-standing arrangements.
A framework that encourages investment, strengthens competition and brings more gas to market will deliver lower prices and greater energy security over the long-term than one that simply redistributes an ever-diminishing pie.
