East coast LNG wars put takeover target Santos in policy crosshairs
A $36bn gas industry mega-deal hangs in the balance as Australia's largest LNG producer demands radical changes to export rules.
Australia Pacific LNG has called on the Albanese government to force all east coast LNG exporters to contribute directly to solving the looming gas shortfall, a recommendation that could disrupt the $36bn takeover of Santos if it is adopted.
APLNG – owned by Origin Energy, ConocoPhillips and Chinese giant Sinopec – said every LNG producer on the east coast should be required to contribute to the local market to ease a projected shortage of gas, in a submission to the government’s sweeping review of market policy.
APLNG and Shell’s Queensland Curtis LNG are known for producing more gas than they export, and selling the excess domestically in line with Australian energy market rules.
Santos’ GLNG venture in Gladstone, however, buys significant volumes from domestic producers to meet export contracts – a strategy critics say adds strain to already tight supplies.
Long a source of industry friction, this frustration has now spilt into public view.
“Requiring all east coast LNG producers to contribute to the domestic market would materially ease short-term pressures and help maintain reasonable pricing until new sources of Australian gas come online,” APLNG said in a thinly veiled reference to Santos.
If the government were to adopt APLNG’s proposal, Santos would either have to drill more on the east coast – a politically fraught option given environmental opposition – or divert gas from other assets to meet its obligations to export customers.
Santos has always acknowledged buying gas from the domestic market, but maintains the Gladstone project has supported jobs, investment and regional energy security.
The company has also flagged plans for a major new gas project in NSW dedicated solely to domestic supply: the Narrabri development, which remains stalled pending government approval.
APLNG’s move also exposes a rift with the industry’s peak body, the Australian Energy Producers, which counts both companies as members.
The AEP has argued for a different fix – a gas reservation policy on new developments – but does not specify when it should begin.
The Australian Energy Market Operator has forecast an east coast supply shortfall from 2029, adding to pressure for a more immediate solution.
The government’s policy choice will have ramifications beyond domestic energy politics.
Abu Dhabi’s state-owned ADNOC and US private equity firm Carlyle are conducting due diligence on their conditional takeover of Santos, with industry insiders suggesting the gas market review could influence the bidders’ valuation and appetite for the deal.
The transaction, agreed by the Santos board, was announced after the launch of the gas market review, meaning ADNOC and Carlyle have a significant policy intervention by Labor factored in.
ADNOC may dangle a commitment to fast-track the development of the Narrabri gas project, long touted as a potential gamechanger for east coast supply, to bolster the national interest case for the takeover.
The review of gas market policy will examine options including expanded domestic reservation requirements, stricter export controls in tight years, and new transparency rules for gas flows. The east coast market, which links LNG exports to domestic supply, remains one of the most politically sensitive parts of the energy system.
The Albanese government is sensitive to the urgency of the supply issue that could damage manufacturing competitiveness, threaten heavy industry that relies on gas as feedstock, and drive up household bills.
And supplies from the Bass Strait, the traditional bedrock of east coast gas, are forecast to deplete, while Origin has reported lower gas production to APLNG in the last year, which would dent APLNG’s capacity to sell into the export market.
But imposing broad changes on export contracts risks an industry backlash, with producers warning it could once again undermine investor confidence and stall future projects. Interrupting export contracts would also strain diplomatic ties with regional allies such as Japan and Korea, both dependent on Australian gas for their energy needs.
The federal government has taken a harder line on the gas sector, introducing temporary price caps and mandatory supply commitments in 2022 in response to soaring prices. While ministers argue the measures protected domestic consumers, producers say they have chilled investment and delayed new developments.
The supply outlook has become so tight that the east coast may be forced to import LNG – a scenario critics say underscores years of policy failure and risks driving prices even higher.
Supporters of LNG imports argue the option could sidestep social licence hurdles facing new onshore projects, and may prove cost competitive with domestic gas, which is getting more expensive.
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Originally published as East coast LNG wars put takeover target Santos in policy crosshairs
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