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Manufacturers and other major energy users say the Albanese government’s plan to set aside up to 20 per cent of export gas for domestic use may not result in cheaper gas and could be worse than the status quo.

The government announced it would create an east coast gas reservation in December last year, but watered down the 20 per cent requirement earlier this month after industry said it would flood the market and put domestic producers out of business.

The reservation plan will instead aim to oversupply the east coast gas market by 10 per cent each year, with the regulator dictating how much gas exporters must set aside, likely much less than 20 per cent of their supply.

But the Energy Users Association of Australia (EUAA), whose members include Wesfarmers, BlueScope Steel, Brickworks and the Tomago aluminium smelter, said the concessions granted to gas producers could leave gas consumers worse off than under existing rules.

“The legislative instruments released to date contain structural weaknesses, definitional ambiguities, and governance gaps that risk undermining the scheme’s effectiveness and failing to deliver the outcomes intended by government,” the EUAA said.

“The gas industry has already secured concessions, and that’s where it must end. We’ve seen this dynamic before: incremental pressure that gradually erodes the intent of the legislation. That can’t be allowed to happen again.

“A scheme that fails to deliver affordable, additional gas, backed by transparency, predictability and effective enforcement, risks locking in higher costs for electricity, essential goods and services for all Australians while negatively impacting jobs in manufacturing.”

The EUAA said the exposure draft legislation released by the government earlier this month did not adequately address long-running problems including market power, opaque conduct, insufficient supply and “prices that have become adrift from domestic production costs”.

The Albanese government has been attempting to balance the demands of Australia’s manufacturing sector, which is struggling with high-energy prices, and the gas industry, which supplies energy to many of the country’s key trading partners.

Gas producers on Wednesday continued to criticise aspects of the policy, despite the concessions made in early September, including the discretion it gives to government ministers, which they say creates investment uncertainty.

Seven Group director Ryan Stokes, whose company owns domestic gas producer Beach Energy, said the plan to cut gas costs for consumers risked providing a “sugar hit” that would ultimately dry up investment in new gas supply.

“If you don’t have that investment, the gas prices aren’t going to be sustained at that low price, and then why are others going to invest risk capital without uncertainty,” he told The Australian’s Energy Nation summit on Wednesday.

Santos chief executive Kevin Gallagher told the summit that uncertainty over the effects of the gas reservation plan could scupper the company’s long-awaited $3.6 billion Narrabri project, which has already been held up by approvals and green litigation for several years.

“We’ve committed 100 per cent of that gas to the domestic market, so the impacts of the domestic gas policy changes could have an impact on our ability to do that project, if it drove the price of gas down below the price required to justify the investment,” he said.

“You would need a price setting for any investment to justify the investment, so you can get a return on that investment.

“Depending on how it all shakes out, if that was to make the project not economic, then I wouldn’t ask my investors to invest in it. We’d have to wait and see now, with this uncertainty, how it all shakes out.”