Australia would require gas companies to reserve up to a fifth of their exports to supply the domestic market under a new scheme proposed by the federal government.
The amount reserved each year would be calibrated to keep Australia modestly oversupplied with gas, rather than Labor's original plan to automatically require exporters to provide the full 20 per cent.
Energy and Climate Change Minister Chris Bowen said the scheme would put "downward pressure" on domestic gas prices, denying the draft proposal unveiled on Thursday had been watered down.
Mr Bowen said the scheme was about ensuring supply for Australian industry and households rather than setting a price "target".
"However obviously, engineering a modest oversupply … is very much designed for downward pressure on prices," he said.
Labor initially proposed requiring liquefied natural gas (LNG) exporters reserve 20 per cent of their exports, but the draft makes that a ceiling rather than a fixed requirement.
Asked if this amounted to a "backdown", Mr Bowen said the government did not "see it that way at all".
"We see it as sensible calibration," he said.
Mr Bowen said it was "no secret" the major buyers of Australian LNG, including Malaysia and South Korea, wanted "reassurance" their existing contracts would be honoured.
He said the reserve was calibrated to guarantee Australia a "modest oversupply" of gas without threatening those contracts.
Labor promises cheaper gas, more jobs
The Australian Energy Regulator would set exporters' obligations each year to provide enough gas to meet 110 per cent of forecast domestic demand, capped at 20 per cent of exports.
The government has estimated exporters could provide up to 200 additional petajoules of gas a year, "more than enough" avoid forecast shortfalls of up to 140 petajoules.
Under the scheme, gas companies would be required to apply for a license to export gas, which would only be approved if they met their obligations to supply the domestic market.
The licensing process would start in January next year, while the domestic supply obligation would take effect in mid-2028.
Exporters would be required to actually supply their domestic allocation, rather than merely offer it for sale.
Industry Minister Tim Ayres said the reservation was an "enduring structural reform" that would deliver more secure jobs in Australia's industrial regions and also allow future investment.
"We are a global energy and resources superpower," he said.
"A gas reservation ensures that Australia is playing to our strengths — cheaper energy means more manufacturing, means more secure jobs in our regions and our suburbs."
Exemption looms for Western Australia
The national gas reservation scheme would treat Western Australia and the east coast as separate markets, because they are not connected by pipeline.
WA currently has a 15 per cent state-based reservation scheme, though is forecast to face serious gas shortfalls in the 2030s unless additional supply is secured.
Resources Minister Madeleine King said the Commonwealth scheme would allow the minister to reduce the domestic supply obligation in a market that was already adequately supplied.
"For example, if the Western market was found to be well supplied, it would be possible for the discretion to be applied to reduce that obligation to zero," she said.
Ms King said Western Australia's reservation scheme was "well established" and ensuring the state was "well provided for" with gas for households and industry.
"As to their shortfalls, they are aware of … what they have to do to make sure there is more gas to meet that," she said.
Ms King said no decision had been made in relation to exempting WA from its obligations.
Labor accused of watering down gas scheme
Greens resources spokeswoman Steph Hodgins-May argued the government had "watered down" the reserve to "appease the gas industry".
"A reservation scheme won't raise a cent for Australian households," she said.
"And Labor is designing it in close consultation with the very gas industry that has spent years fighting any policy that asks them to pay their fair share."
Senator Hodgins-May said the government should instead pursue a tax on gas exports.
Asked if he would rule out any extra tax on gas, Mr Bowen said the reservation was "much more impactful".
"We're not doing [a tax], what we're doing is this," he said.
Gas industry argues oversupply will 'destroy' investment
In a statement, the Coalition said it would "scrutinise" the government's proposal, and was ready to "work constructively" to pass the laws.
The Opposition has argued there are "key criteria" that must be met, including more gas for Australians, more investment, honouring existing contracts and lowering prices through supply rather than price controls.
The east coast LNG exporters have different exposure to the domestic market, with Santos-led Gladstone LNG historically buying Australian gas to help meet its export contracts rather than contributing to local supply.
Santos chief executive Kevin Gallagher said yesterday the project would no longer contract third-party gas, while arguing Australia did not have a gas shortage but "just needs to get more gas out of the ground".
Australian Energy Producers chief executive Samantha McCulloch said Labor had made a number of "sensible" changes to the proposed design of the reservation, including calibrating it more closely to domestic market needs.
But she said the 110 per cent oversupply of the east coast gas market would "destroy investment signals" and "crowd out" smaller domestic-focused producers.
"The 'must sell' requirement exacerbates these risks," she said.
"Producers should not be forced to sell gas below cost or on non-commercial terms."
