Government weighed LNG levy before settling on reservation as market braces for shake-up

The Albanese government briefly considered imposing a levy on east coast gas exporters, sparking industry fears about broader intervention in the domestic market.

The Albanese government briefly considered imposing a levy on east coast LNG exporters as part of its sweeping review of the domestic gas market, stoking fears about its appetite for intervention.

According to senior industry figures familiar with confidential discussions, departmental officials floated the idea earlier this year during private consultations with gas executives, with the concept initially pushed by the Australian Council of Trade Unions.

While the levy option was short-lived and now appears to have been shelved, its appearance in the policy mix has deepened industry fears that the government’s appetite for intervention is broader than it has signalled publicly.

“Everything we have been told suggests a reservation policy is the one that will be announced, but you can never rule out a surprise,” one industry figure said.

“There are plenty of examples of policy rushed out. But I think the government understands a levy would have the opposite impact of what they say they want, which is more supply.”

The uncertainty comes as Labor finalises the most consequential overhaul of the east coast gas system in decades. Investment in new fields has slowed, production in ageing basins continues to fall, and demand from manufacturers and households remains stubborn. The Australian Energy Market Operator has warned that without new supply, the region could face structural shortages by 2029, with seasonal shortfalls emerging earlier.

Any tightening of supply would force up prices, risk industrial curtailments, and threaten ­already stretched manufacturers.

Tomago Aluminium, the nation’s largest electricity consumer, has said that rising energy costs could jeopardise its future operations. Combined with faltering investment signals, the warnings have set the stage for a reform package that will reshape the relationship between exporters, domestic consumers and the federal government.

Nowhere are the stakes higher than in Victoria, the nation’s most gas-dependent state. Manufacturers rely on gas as a feedstock, and hundreds of thousands of households still use it for heating. But the state’s own production continues to decline, leaving it increasingly reliant on Queensland gas transported through pipelines.

To address the looming crunch, the government appears to have settled on a reservation-style scheme that would link the ability of Queensland’s three LNG exporters to ship gas offshore to their contributions to the domestic market.

Such a model would have significant implications for Santos-backed Gladstone LNG, which relies on purchasing significant volumes of gas from the domestic market to meet its export ­obligations.

Yet suspicion remains that the government could still surprise the industry with a broader mechanism.

One option discussed among stakeholders would apply across all forms of gas production, enabling producers to earn credits for domestic contributions. Although the levy appears to have been discarded, industry executives remain wary of a late pivot.

“The government did very little consultation on its three free hours of electricity plan so who can really say for certain,” a senior industry executive said, referring to Labor’s recent household energy policy, which was unveiled with minimal warning, prompting accusations of policy on the run.

Beach Energy chief executive Brett Woods said more complex mechanisms – whether credit-based schemes or levies – would introduce unnecessary uncertainty. “I’m not sure how the credit system or any levy model may work,” Mr Woods said. “I would much prefer them not move in that territory and just set a reservation policy. I think that would be the simplest and more predictable way for us to operate.”

While reservation is widely expected, industry lobbying remains intense and fragmented. Senior executives met in Perth last week, where sources said Santos appeared confident that the government would not restrict Gladstone LNG’s ability to source gas locally – a practice the company argues is essential for regional energy security.

Santos chief executive Kevin Gallagher has previously warned that limiting such purchases could force the project to breach export contracts. Competitors counter that Santos could lift exploration efforts instead of relying so heavily on the domestic market.

Originally published as Government weighed LNG levy before settling on reservation as market braces for shake-up