• Government proposes gas reservation of 15% to 25% of output
• Three east coast LNG export plants affected
• Scheme takes effect in 2027, impacting only new contracts
• Analysts say scheme could hurt LNG supply and push buyers away

SYDNEY/SINGAPORE, Dec 22 (Reuters) - Australia will make exporters of liquefied natural gas from the country's east coast keep up to a quarter of their output for domestic use from 2027, under a scheme unveiled on Monday to curb price spikes and help fill a long-forecast supply gap.

The centre-left government of Prime Minister Anthony Albanese said it would work with exporters to design a system that puts a lower limit on the amount of gas held domestically, with a minimum local allocation of between 15% and 25%.

Sign up here.

The announcement puts a number on a policy that the government has flagged through 2025 amid persistent warnings about a shortage of gas supply on Australia's east coast, where most of its 27 million population lives.

"More affordable Australian gas for Australian users will support our economy and our transition, while remaining a reliable energy partner to our region," said Climate Change and Energy Minister Chris Bowen.

The proposal will only affect new contracts agreed by the LNG exporters, not their existing contracts, Bowen said.

Australia is the world's third-largest LNG exporter, shipping out far more gas than it consumes. The competition regulator warned on Monday that the expected local shortfall had widened, with output dropping from legacy fields off the south coast.

The scheme was recommended by a gas market review ordered by the government in mid-2025, which was also published on Monday.

The review said a gas reservation scheme would put downward pressure on prices and urged the government to consider ending a A$12 ($7.94) per gigajoule price cap in place since 2022.

Bowen, in his statement, said the gas reservation scheme would be based on the review recommendation but he did not say whether the government would phase out the price cap.

The scheme would impact three LNG export plants in Queensland, particularly Gladstone LNG (GLNG), which is operated by Santos and backed by Korea Gas Corp (KOGAS) (036460.KS) , opens new tab, TotalEnergies and Malaysia's Petronas. It has typically relied on third-party domestic gas to meet export commitments.

A GLNG representative was not immediately available for comment.

Rival export consortia Australia Pacific LNG (APLNG), led by Origin Energy (ORG.AX) , opens new tab with ConocoPhillips (COP.N) , opens new tab and Sinopec (600028.SS) , opens new tab, was also unavailable for comment.

Shell, (SHEL.L) , opens new tab which leads a third exporter Queensland Curtis LNG (QCLNG) with CNOOC (600938.SS) , opens new tab and MidOcean Energy, called the scheme "an important first step" and it looked forward to work on the details.

MIXED REVIEWS

Producers and big energy users welcomed the certainty they said the scheme would bring, but noted its success would depend on the details still to be determined.

"This recommendation simply puts in place a sensible regime that should have always been there," said Energy Users Association of Australia CEO Andrew Richards.

Industry body Australian Energy Producers, whose members include the LNG exporters, called for more action to spur domestic production.

"Bringing new supply online sooner, including in the southern states that are facing shortfalls, is the only sustainable way to put downward pressure on prices," said AEP CEO Samantha McCulloch.

Saul Kavonic, head of energy research at MST Marquee, said the scheme was "on its face ... bad for the industry and LNG supply as (it) may disincentivise QCLNG and APLNG from producing any spot LNG cargoes above their committed contracts".

JY Chew, Head of APAC Upstream Research at consultancy Welligence Energy, said the measure could hurt export returns because "LNG buyers negotiating new long-term contracts from 2027 may diversify more actively, knowing a portion of future Australian output will be reserved for domestic buyers".

($1 = 1.5106 Australian dollars)

https://www.reuters.com/business/energy/australian-regulator-sees-balanced-east-coast-gas-market-q2-south-rely-2025-12-22/