The Australian government's draft plan to reserve up to 20% of gas production for the domestic market faces criticism for alleged loopholes that could allow Santos' Gladstone LNG (GLNG) project to avoid significant obligations. Analysts warn that the draft policy, released last month, has been watered down in ways that favor GLNG, potentially undermining its purpose of lowering domestic gas prices.
Critics, including Paul Farrow of the Australian Workers Union, argue that the draft allows GLNG to count contract extensions as 'existing contracts' exempt from consideration. This could enable GLNG to extend a supply agreement with South Korea's KOGAS from 2030, effectively exporting an amount equivalent to 40% of annual east coast gas demand. Other provisions, such as 'take-or-pay' deals, may allow Santos to generate paper sales without supplying actual gas.
Industry tensions have escalated, with Origin's Dan Clark criticizing exporters that remove gas from the local market without contributing fairly. Santos CEO Kevin Gallagher defended his company, while China's embassy expressed concerns about fair treatment of its interests, given its major ownership stakes in other LNG projects. Analyst Saul Kavonic noted that China's warnings are unprecedented and that the policy's success hinges on equitable treatment of all exporters.
The draft policy's 'additional gas' test is also criticized for potentially being gamed, allowing exporters to buy local suppliers and count their production as 'additional,' even if volumes would have stayed in Australia. Without carrying forward reductions to future years, deficits may be extinguished, further weakening the policy's effectiveness.