Santos-backed Gladstone LNG (GLNG) faces renewed industry tensions over the interpretation of Labor’s gas reservation scheme, following the company’s option to extend its long-term liquefied natural gas (LNG) supply contract with Korea Gas Corporation (Kogas). The contract, originally spanning 15 years, includes provisions for extension, raising questions about whether these optioned volumes would fall under Australia’s new domestic gas reservation requirements.

The federal government’s policy, introduced in 2023, mandates that LNG exporters supply up to 20 percent of their export volumes to the Australian domestic market, aiming to ease expected east coast supply shortfalls. However, there remains uncertainty around the treatment of contract extensions or variations negotiated prior to the policy’s effective date of December 22, 2025. Earlier government drafts suggested clearer protections for such extensions, but the current stance has invited debate over whether exercising an option constitutes entering a new contract subject to the gas reservation regime.

This regulatory ambiguity has significant implications for GLNG, which currently exports all of its production and relies on purchasing domestic gas to fulfil international contracts. If the Kogas option is considered part of the original agreement, GLNG could continue exporting large volumes internationally well into the 2030s without triggering reservation requirements. Conversely, if deemed a new contractual commitment, GLNG may be compelled to divert more gas to the domestic market in compliance with the new rules.

GLNG is presently exempt from the reservation scheme until 2030, a timeline aligned with forecasts of tightening gas supplies on the east coast and increasing reliance on its Curtis Island operations. The government estimates the policy could release up to 200 petajoules annually into the domestic market, surpassing Australian Energy Market Operator’s projected shortfall of around 140 petajoules.

Santos chief executive Kevin Gallagher criticized industry detractors, suggesting some opponents have fixated unsuccessfully on his company. Gallagher and other LNG executives have argued that the east coast is not facing an immediate supply crisis and advocated for a framework akin to Western Australia’s system, which requires exporters to “must offer” rather than “must sell” gas domestically. Industry group Australian Energy Producers has expressed concerns that forcing supply beyond 110 percent of forecast domestic demand risks undermining investment incentives and could disadvantage smaller local producers.

In response to ongoing consultation and feedback, the Labor government has moderated its original approach, requiring exporters to supply “up to 20 percent” of export volumes rather than a fixed 20 percent. A spokesperson for the government emphasized that contracts entered into before December 22, 2025, will be respected and reiterated its commitment to securing Australian gas for domestic users.

Meanwhile, Santos has indicated plans to cease contracting new third-party domestic gas from next year as GLNG shifts toward relying more on its own gas equity and has committed to allocating previously contracted volumes for the domestic market. The treatment of contract options like Kogas’s extension is now viewed as a test case for how the government will apply its reservation policy to complex, long-term LNG arrangements, which often include various options and extensions spanning multiple decades.