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Foreign oil and gas giants that have invested in Queensland’s $80 billion LNG export sector could be saddled with individual obligations to supply local customers under the domestic gas reservation scheme proposed by the Albanese government.

The prospect of the likes of Korea Gas Corporation, China’s Sinopec and France’s TotalEnergies being forced to supply domestic gas has appalled the companies and has become a major point of contention as consultation ramps up about the gas reserve plan, according to industry sources.

Gas producers and buyers were told by government department officials in round table conference calls on Thursday that who exactly the 20 per cent domestic supply obligation would be imposed on is yet to be determined.

“Regulated entities: LNG exporters. Legal definition TBC after consultation with LNG producers,” according to a slide shown on the roundtables seen by The Australian Financial Review.

That leaves the door open for the individual partners in Queensland’s three LNG ventures to be required to supply the equivalent of 20 per cent of their LNG exports to the domestic market – even if they have no local domestic gas business.

Among the impacted companies could be the overseas partners in ventures such as Santos’ GLNG and Origin Energy’s Australia Pacific LNG, including Malaysia’s Petronas and US major ConocoPhillips. None individually supplies gas in Australia, focusing instead on securing LNG for either their home markets or for export elsewhere.

Under the draft of the reserve scheme, all ventures intending to export LNG will need an approval permit starting on July 1, 2027. That approval will hinge on meeting an annual obligation to supply the domestic market, which can be met by purchasing gas from third parties if an entity cannot meet it from its own production.

“The prospect of having to purchase gas in order to export is anathema to them,” one source said of the reaction of overseas LNG project partners.

The second key worry for producers is that they may be forced to sell gas at a loss because of the obligation in the scheme not just to offer gas to domestic customers but to sell it in a market that will be oversupplied.

Grattan Institute calculates that the 20 per cent requirement equates to more than 250 petajoules a year of gas that would be supplied into an east coast market of about 500 PJ a year, where estimated annual shortfalls are only up to 30 PJ.

Even with mechanisms to avert a local glut, domestic-only gas producers such as Beach Energy warn that swamping the market to force artificially low prices will kill the local gas sector.

Quizzed on the calls about a hypothetical situation where a producer must sell at $10/GJ to cover its costs but only gets interest from domestic buyers at $5/GJ, industry officials reiterated the obligation to supply, sources said.

But Andrew Richards, a spokesman for large energy users said they had pushed for a “must sell” provision in the scheme to prevent producers offering gas at prices they knew were not affordable.

“We saw some ridiculous behaviour previously where people were offering gas at $50 or $60 a gigajoule, which they knew no one was going to pick up – it was like a tick and flick compliance – so there had to be some mechanism to stop that behaviour from occurring,” Richards said.

“Where we want to land is that Goldilocks position that balances affordability for customers with investability for new gas.”

Gas industry spokeswoman Samantha McCulloch, the chief executive of peak body Australian Energy Producers, said the proposed design of the scheme “falls well short of what industry can support”.

She said it “overlays complex and opaque compliance obligations with high levels of ministerial discretion and excessive penalties for non-compliance” and would destroy market signals to invest in gas just when more supply is needed.

Consultation on the scheme kicked off last week and submissions are due to government by June 30, with both buyers and sellers highlighting that many major issues must be sorted over the next few months.

The heated debate on reservation comes as Grattan Institute urged governments to take control and better manage the decline of gas in Australia to help meet emissions reduction targets.

The think tank recommends targeted policies to reduce demand for the fuel across the economy, reforms in regulation to encourage the decommissioning of the distribution network, and the introduction of a windfall profits tax to capture more value from the LNG export industry.

“To ensure domestic gas users will have access to gas for as long as they need it, the government should ensure the new national reservation actually delivers gas and cannot be gamed,” Grattan said.