Shell Australia has criticized Canberra’s plan to require LNG exporters to supply gas to the domestic market, calling the intervention excessively heavy-handed and arguing that the market is functioning effectively.
The federal government announced the reservation framework in May after repeated warnings about future shortages on Australia’s east coast. Under the original design, Queensland’s three LNG ventures would have been required to reserve 20% of their export volumes for Australian users. The government later revised the measure to “up to” 20%, with the obligation calibrated against forecast demand and intended to create a modest domestic surplus.
The policy is being developed because Australia’s east coast gas system is vulnerable to seasonal pressure, particularly in the southern states. The competition regulator now expects the market to be well supplied in late 2026 and early 2027, but it warns that conditions could tighten during winter 2027. Its forecast shows a possible 13-petajoule surplus in the final quarter of 2026 if LNG producers export all their uncontracted gas, while shortfalls remain possible in the second and third quarters of 2027 under the same export assumption.
The government says the scheme will put downward pressure on prices, reduce exposure to international volatility and help prevent supply gaps. Exporters will be required to demonstrate that they have supplied the domestic market before receiving export approvals. Contracts signed before the government’s 22 December 2025 announcement are to be protected, allowing exporters to meet existing commitments.
Implementation has also been adjusted. The scheme is scheduled to begin in 2027, while the domestic supply obligation is set to start in 2028 to align with industry contracting cycles. The obligation will be linked to physical market regions, meaning exporters in eastern Australia will have to meet requirements in that market rather than offset them with sales in Western Australia. The government has said the final mechanism will account for existing contracts, infrastructure constraints and forecast domestic demand.
The dispute reflects a broader tension between Australia’s role as a major LNG exporter and the difficulties faced by domestic users. The regulator says Queensland LNG producers and associated companies control 84% of commercially viable east coast gas resources, making their production and investment decisions central to future supply. It also says storage, especially Victoria’s Iona facility, will become increasingly important as southern production declines and gas-fired generation becomes more variable.
Shell has argued that a reservation rule should be transparent, prospective and tied to actual demand, while warning that uncertainty over export rights could weaken incentives to invest in new supply. The government maintains that the reform is designed to replace temporary interventions with a long-term framework. Consultation and legislative work remain before the revised obligations take full effect.