Gas reservation plan 'full of Santos-sized loopholes', critics warn

Critics warn that a federal scheme designed to protect local gas buyers may be largely or totally avoided by a giant LNG plant accused of driving up east coast gas prices. The Albanese government's draft plan aims to force gas exporters to set aside up to 20 per cent of their production for the domestic market to lower prices.

However, analysts and industry players claim the draft is full of loopholes that will allow some exporters to reduce or eliminate their exposure. The Gladstone LNG project, operated by Adelaide-based Santos, is cited as the exporter most likely to benefit from these loopholes.

An investigation revealed GLNG had exported the equivalent of 20 per cent of eastern Australia's domestic gas demand over the past 10 years. This was because the venture built an LNG plant with a capacity of 7.8 million tonnes a year despite not having enough gas to fill it.

"Santos-sized loopholes"

Paul Farrow, the national secretary of the Australian Workers Union, said "Santos-sized loopholes" threatened to turn the government's reservation plans into a joke.

"Australian industry and Australian consumers deserve to derive an advantage from Australia's gas because it's our sovereign wealth," Mr Farrow said. "The government is so close to getting it right. But the exposure draft, as it stands, contains a bunch of Santos-sized loopholes. That's a major, major worry."

Policy 'watered down'

Under the draft policy, the Australian Energy Regulator would be able to reduce an exporter's supply obligation below 20 per cent, while the minister could cut it to zero. Critics say other provisions in the bill could enable Santos and its GLNG partners to avoid the net themselves.

They argue the draft allows GLNG to count contract extensions as "existing contracts" that are exempt from consideration. This would allow GLNG to extend a supply agreement with South Korea's KOGAS for five years from 2030.

Concerns about fairness

Santos was contacted for comment, as was federal Resources Minister Madeleine King. The Chinese embassy has also voiced concerns about the changes, calling on Canberra to ensure its interests are treated fairly.

"We hope that the draft legislation will uphold the principle of fairness and apply the relevant requirements consistently to all LNG exporters, while ensuring equitable treatment of Australia's trading partners and foreign investors," the Chinese embassy wrote.

Saul Kavonic, an oil and gas analyst at MST Financial, said China's warnings were extraordinary and that the government seemed to be failing to design a scheme that was equitable and fair.

"Whether Queensland LNG projects share the domestic reservation burden equally, or if one gets special treatment and protections, remains one of the most contested areas of the policy," Mr Kavonic said. "[It] presents wide-ranging ramifications for how and if the policy will work."