AUSTRALIA: An Introduction to Energy & Natural Resources: Oil & Gas

Australia’s oil and gas sector is undergoing significant change as the nation pursues net zero emissions by 2050 and accelerates the uptake of renewables. Yet natural gas remains integral to Australia’s energy mix and energy security, providing reliable and flexible supply for electricity generation, supporting hard-to-abate industries, and underpinning export revenues. Australian LNG exports play a vital role in the energy security of key regional economies.

The federal government’s Future Gas Strategy, released in 2024, recognises gas as a vital transition fuel for energy security and competitiveness, even as the sector faces regulatory scrutiny, geopolitical challenges and rising environmental expectations. This overview highlights key trends in Australia’s oil and gas industry, including the transition to renewables, major mergers and acquisitions, LNG exports, domestic gas reforms and regulatory developments.

Recent M&A and Upstream Activity

Mergers and acquisitions

The sector continues to attract substantial international interest. The most high-profile development is the Abu Dhabi National Oil Company’s AUD36.4 billion takeover bid for Santos, announced in June 2025. If successful, this would be one of the largest foreign investments in the Australian energy sector, reflecting the strategic value of Australia’s gas resources and LNG infrastructure. The deal will need the approval of the Foreign Investment Review Board and other regulators.

Other notable transactions include:

• MidOcean Energy’s 2024 acquisition of Tokyo Gas’s Australian LNG interests, valued at USD2.15 billion, giving it stakes in Gorgon, Pluto and Queensland Curtis LNG.
• Woodside Energy’s 2022 merger with BHP Petroleum, creating one of the largest independent energy companies globally, followed by subsequent portfolio realignment by majors such as Shell and Chevron.

Upstream activity

Upstream activity remains constrained by falling exploration, uncertain regulatory settings and growing community resistance. Offshore exploration has declined markedly, with the number of new wells drilled falling from over 50 in 2010 to just three in 2023. Without near-term reinvestment, there are concerns over sustaining long-term supply, backfilling LNG plants, and meeting domestic needs.

The Beetaloo Sub-basin in the Northern Territory remains the focal point for new onshore supply. Despite significant shale gas resource potential, progress has been slower than expected. A number of operators, including Tamboran Resources and Empire Energy, are actively developing projects. The Northern Territory government has signed long-term offtake agreements with Beetaloo ventures, but first commercial gas is now expected from 2026. Pilot drilling and appraisal continue, with Tamboran’s Shenandoah South and Empire’s Carpentaria Pilot advancing towards production. Beetaloo development relies on hydraulic fracturing and significant new infrastructure, adding costs and drawing opposition from environmental groups and some indigenous communities.

LNG Export Trends

Australia exported approximately 82 million tonnes of LNG in 2024, setting a new record. The bulk of these exports were shipped under long-term contracts, with key destinations being China (33%), Japan (32%), South Korea (15%) and Taiwan (10%). LNG remains a cornerstone of Australia’s resource economy, but the sector faces several headwinds:

• growing competition from North American and Middle Eastern suppliers and a more liquid global spot market;
• emissions intensity, prompting investment in carbon capture and storage (CCS), methane abatement and low-carbon LNG certification; and
• balancing export and domestic demand, particularly on the east coast where uncontracted gas could be critical to avoiding supply shortfalls.

While exports are projected to remain steady through the 2030s, expiring contracts and tighter domestic supply will test the balance between Australia’s role as a reliable LNG exporter and its domestic energy security needs.

Future Gas Strategy

The Strategy provides a national framework confirming that gas will remain critical beyond 2050, particularly for “firming” renewables and for industrial uses such as fertiliser, chemicals and aluminium production. It sets out priorities around:

• gas as a transition fuel for dispatchable power;
• gas for hard-to-abate industrial applications;
• maintaining domestic affordability and transparency; and
• balancing long-term LNG contracts with national supply security.

The accompanying Action Plan outlines steps to prevent shortfalls, cut emissions through CCS and hydrogen blending, and empower First Nations engagement. Industry welcomed the recognition of gas’s transitional role, while environmental groups criticised the continued emphasis on new gas development.

Gas Market Review and Domestic Gas Policy

Policy context

Securing adequate and affordable domestic gas supply has become a critical policy priority, particularly on the east coast. The Australian Competition and Consumer Commission’s (ACCC) Gas Inquiry, established in 2017, has been central to monitoring supply, demand and pricing. Its findings underpinned interventions including the Australian Domestic Gas Security Mechanism (ADGSM), the Heads of Agreement (HoA) with LNG exporters and the Gas Market Code of Conduct (the “Code”), aimed at correcting structural imbalances and ensuring domestic supply on reasonable terms.

In its June 2025 interim report, the ACCC warned that the east coast faces a deteriorating outlook, with potential shortfalls as early as late 2025 if Queensland LNG producers export all uncontracted gas. Southern states such as New South Wales, Victoria and South Australia are especially exposed, given declining local reserves and reliance on Queensland supply. The ACCC projects only a narrow margin in late 2025, with risks of structural shortfalls rising from 2026 unless new supply and infrastructure proceed. The Australian Energy Market Operator has reinforced these concerns, stressing that timely development is essential to avoid sustained supply risks and volatility, and noting in its 2025 Electricity Statement of Opportunities that gas-fired generation remains important for reliability.

In this context, the federal government launched the 2025 Gas Market Review (the “Review”) in June to test whether current interventions remain effective. Submissions closed in August 2025, with outcomes expected later in the year.

Reform options under consideration include:

• integrating the HoA into the binding Code or adopting a single national reservation framework;
• reviewing the AUD12/GJ price cap and considering standardised contract templates;
• assessing the effectiveness of the ADGSM, which has never been triggered but operates as a backstop encouraging Queensland LNG producers to supply domestically; and
• shifting reporting functions to market bodies for real-time transparency.

State-level domestic gas policies

Domestic gas security is also addressed at state level, notably in Western Australia and Queensland, which have their own regimes.

• Western Australia requires LNG projects to reserve 15% of offshore output for domestic use, while new onshore projects must reserve 80% until 2030 and 100% from 2031. This policy has ensured lower A gas prices compared with the east coast.
• Queensland releases certain new petroleum tenements with domestic-only supply conditions, bringing new reserves to the east coast market.

Policy outlook

The Review underscores that east coast supply is effectively concentrated in three LNG exporters, giving them decisive influence over market outcomes. Future regulatory settings are expected to balance domestic affordability with Australia’s reputation as a reliable LNG supplier. While options such as a national reservation framework, revised price controls and greater transparency are under review, reforms are likely to remain incremental, favouring voluntary domestic supply commitments over prescriptive interventions that risk undermining investment or international confidence.

Regulatory Update

Safeguard mechanism

The Safeguard Mechanism, reformed in July 2023, sets declining emissions baselines for large facilities. For oil and gas, new projects and expansions face stringent baselines aligned with international best practice, with zero baseline settings for new shale gas fields and reservoir CO₂ unless CCS is deployed. Facilities can use offsets, but the trajectory to 2030 requires significant abatement investment. The next major review is scheduled for 2026–27.

Offshore safety regime

In June 2025, the updated Offshore Petroleum and Greenhouse Gas Storage Act 2006 (Cth) and the Offshore Petroleum and Greenhouse Gas Storage (Safety) Regulations 2024 commenced. The reforms strengthen offshore safety by imposing new duties on titleholders, including non-operating JV participants, to take reasonably practicable steps to ensure that operators can comply with their obligations. They also enhance the role of health and safety representatives, expand the powers of the National Offshore Petroleum Safety and Environmental Management Authority, and introduce stronger workforce protections. In parallel, draft offshore guidelines are under consultation to modernise the environmental management regime, with a focus on decommissioning, methane management and consultation with First Nations stakeholders. The guidelines are designed to align with Australia’s climate commitments and the federal government’s Nature Positive Plan, requiring offshore projects to demonstrate environmental contributions and to incorporate climate considerations into assessments. Together these measures represent a significant modernisation of the offshore regulatory framework and place greater emphasis on governance, environmental outcomes and the accountability of all JV participants.

Looking Ahead

Australia’s oil and gas sector stands at a crossroads, navigating the imperatives of energy transition, domestic energy security and critical trading relationships. While renewables, hydrogen and CCS are reshaping the energy landscape, natural gas will remain a vital part of the mix for decades to come. The sector is responding through M&A, new technologies and engagement with evolving regulation, yet continues to face regulatory uncertainty, social licence pressures (particularly around fracking and new developments), global competitiveness challenges and falling exploration rates. Securing new supply and embedding innovative business models are essential. With its resources, workforce and institutions, Australia is well placed to adapt.