Gas exports, domestic supply and tax reform: Leaders weigh in

As Canberra weighs gas export limits and renewed scrutiny of LNG taxation, the debate is narrowing to a difficult balancing act: how to secure affordable domestic gas without damaging confidence in one of Australia’s largest export industries.

With the Senate Select Committee on the Taxation of Gas Resources examining whether LNG producers are paying a fair return, and consultation continuing around stronger domestic reservation policies, industry leaders remain sharply divided on how far government should intervene.

At the centre of the issue is a simple tension: Australia is one of the world’s largest LNG exporters, yet domestic users continue to face high prices and concerns over supply reliability.

Proposed tax reform design - and potential investment risk

Analysis from the Australia Institute finds a 25% tax on gas exports could raise $17 billion annually while improving local supply by making domestic sales more attractive for producers. 

The institute notes that it expects exporters would seek to avoid the tax by redirecting more gas into the domestic market.

Chief economist Greg Jericho told Energy Insights the current structure is already distorting outcomes against Australian households and manufacturers:

“An export tax would improve domestic gas supply and lower prices as companies would seek to avoid paying the tax by supplying the domestic markets and would be able to bid up to 25% lower than the price they would get from exports to domestic suppliers.”

For Grattan Institute Energy and Climate Change Senior Fellow Tony Wood, the issue is less about whether reform is needed and more about how it is designed.

"The deficiencies with the Petroleum Resource Rent Tax (PRRT) have been known for more than a decade and have not been adequately addressed,” he told Energy Insights. “It is probably the time to consider an alternative." 

He suggests replacing the PRRT with a royalty on offshore developments, similar to state-based royalties on onshore projects, set at 10–20% of the wellhead value of gas.

“There is a strong argument for it to apply to all, although it could be phased in over several years and apply to all new or extension contracts.” Wood says while such a move would affect investment attractiveness, it would not be high by international standards.

In its own submission to the Senate Committee, the public policy think tank proposed a windfall profit tax of 100% during periods of extreme international price spikes, particularly to shield domestic users from global shocks linked to conflicts such as the war in Ukraine and tensions in the Middle East. “The intent is to protect Australian gas consumers from extreme international prices,” he said.

“The government should also apply a windfall profit tax on exports, although it could consider sharing the windfall gains in an agreed proportion with the exporters. Again, this approach would not create an investment disincentive.”

Industry argues current settings remain competitive

Woodside Energy maintains the current tax regime does not need changing. 

In a submission to the Senate Select Committee on the Taxation of Gas Resources, Executive Vice President & CFO Graham Tiver wrote that the company said Australia’s tax policy must remain “stable, globally competitive and support gas companies’ ongoing multi-billion dollar investments”. The PRRT, according to Woodside, is functioning as intended and points to more than $400 billion in capital investment in Australia’s LNG industry since 2010, alongside significant contributions through corporate tax, royalties and PRRT payments. 

Do export limits actually lower prices?

The question of export limits raises similar fault lines.

“The rationale for LNG export limits is that they would, if designed carefully, add supply to the domestic market that would otherwise have been exported, thereby ensuring that Australians have access to the gas we need,” Wood explained.

For Jericho, an export limit or domestic reservation would potentially lower prices for domestic users “but not to the same extent nor would it provide the tax revenue that a gas exports tax would”.

Wood notes that the current framework — including the Australian Domestic Gas Security Mechanism, Heads of Agreement and the Code of Conduct — has managed this “reasonably well,” but says the proposed reservation policy would significantly reshape the market.

“The key design question is setting the limits in a market that is far from static.”
Rick Wilkinson, chief executive of EnergyQuest, warns stronger intervention risks creating bigger long-term problems.

“It increases the cost of doing business in Australia compared to other countries,” he told Energy Insights. Australia would have “less leverage to secure other fuels… from trading partners during tight markets”.

“In the short term diverting LNG feedstock into the domestic market will lower prices realised by the project proponents, which means lower royalties and taxes paid to government.  Longer term, investment will fall as capital moves to more attractive markets overseas.”

Domestic supply versus market confidence

For Wilkinson, the bigger risk is policy instability itself.

“Once the government intervenes in the gas market, as it did in 2022, then it overrides market driven solutions to supply/demand, and raises uncertainty for investors.”

Jericho argues the greater risk lies in maintaining current settings, thereby “giving away 56% of LNG exports for free”.

He argues that large export volumes and low royalty returns show current tax settings are failing to capture an adequate public return.

“The consequences [of] the status quo is what policymakers need to be aware of and to justify.”

The policy decision ahead

For policymakers, the challenge is deciding whether stronger intervention would improve affordability and energy security — or create new risks for investment and supply.

The argument in favour is threefold: that Australians should benefit from our natural resources, low-emissions industries should be supported, and that, in the words of Wood:

“The outlook for geopolitical insecurity is for extreme volatility and domestic consumers should be protected, at least partially, from the worst of such volatility.” Opponents argue reforms could ultimately create longer-term energy security risks; undermining investor confidence, reducing future gas supply and making Australia less competitive globally. 

As Woods puts it, with any intervention, the biggest unintended consequences may be the ones we don’t anticipate.