Australia requires LNG exporters to reserve 20% of gas for east coast market

The Australian government said on Thursday energy producers must reserve 20% of their natural gas for the domestic market on the country's east coastto avert supply shortfalls and help lower energy bills.

The scheme will apply from July next year and replace a range of current gas market interventions, the government said.

Three liquefied natural gas export projects on the east coast operated by Origin Energy ORG.AX, Shell SHEL.L and Santos STO.AX, respectively, will be affected by the reservation scheme.

"This is a carefully calibrated model which ensures that Australia's national best interests are put first," Energy Minister Chris Bowen told reporters.

"This is a policy which will obviously not please everyone - often good policy doesn't - but it's good policy."

Bowen said the scheme would apply to prospective contracts and the spot market, adding it would not affect existing contracts.

"It's going to put downward pressure on prices. And what it will also do is to a certain degree, disconnect Australian gas from spikes in international prices," he said.

Australia is one of the world's largest LNG exporters and ships more gas overseas than it consumes domestically.

But most of the country's large gas reserves are located in the northwest, far from the more populous southeast where demand is concentrated.

The state of Western Australia already has its own reservation scheme that requires exporters to divert 15% of their gas to its local market.

-Renju Jose and Christine Chen/Reuters