Market Insight | Week 08
After a six-month delay from the original schedule due to technical issues, the first gas cargo from the offshore Barossa natural gas field at Bonaparte Basin in the Timor Sea arrived in late January at the Darwin LNG export terminal before departing for delivery to Japan, marking its return to operation after roughly two years of inactivity. The facility had been offline following the depletion of its primary upstream supply, the Bayu-Undan gas field. Barossa, with an estimated capacity of 3.7 Mtpa, was developed to replace Bayu-Undan and feed the Darwin LNG plant. Once fully ramped up, the export-oriented LNG Darwin is expected to contribute approximately 45 LNG cargoes per year, predominantly short haul, since Australia primarily supplies East Asian markets such as China, Japan, and South Korea, implying thus limited ton-miles contribution to global seaborne LNG trade.
Despite this restart, Australia’s LNG sector, while among the world’s leading exporters has experienced stagnation in volumes in recent years, with exports projected to decline slightly, by around 1.7%, in 2026. The underlying causes are structural: intensifying global competition and the gradual maturation of Australia’s gas infrastructure and resource base. The United States has emerged as the world’s largest LNG exporter, more than doubling volumes since 2020, with Europe absorbing the bulk of incremental supply. Qatar also expanded exports in 2025, overtaking Australia to secure second place globally. The forward outlook points to further export growth from both the U.S. and Qatar, supported by major projects coming online, including the Qatar North Field expansion, Corpus Christi, and Golden Pass.
In addition to heightened competition, Australia faces declining upstream production as legacy fields mature. In Western Australia, the Northwest Shelf has entered a structural decline phase after four decades of operation, resulting in the retirement of Train 2 in 2025. According to the Australian Government Gas Market Review released last December, multiple fields are approaching the end of their productive life. Western Australia’s gas supply is projected to contract at an average annual rate of 4.1% after 2030, while southern fields could see output fall by 30% over the next five years. Absent a meaningful increase in new supply, and given the current export volumes, domestic gas shortfalls could begin to emerge around 2029–2030, potentially resulting in market deficits.
To mitigate these risks, the Australian Government has proposed reforms to natural gas market regulation, including the introduction of a gas reservation scheme, which remains under consultation. The scheme, currently proposed to apply from 2027 to new contracts, would require producers to allocate a portion of gas for domestic use, likely in the range of 15%-25%, although the final percentage has yet to be determined. While such a mechanism could enhance domestic supply security and moderate domestic consumers’ exposure to international price volatility it may also affect incentives for new projects and expansions of existing facilities, potentially limiting export volumes and investment in the sector. Export approvals would be conditional upon compliance with domestic supply obligations, further constraining operational flexibility.
In conclusion, Australia’s LNG export outlook for 2026 is defined by structural headwinds rather than cyclicality. The restoration of feedgas to Darwin LNG via the start up of Barossa field, will support LNG export volumes. However, declining output from mature basins and intensifying competition from the U.S. and Qatar leave little scope for expansion. A modest year-on-year contraction in exports therefore remains the base case, sustaining pressure on Australia’s global market share. Beyond 2026, policy direction will be pivotal: the potential adoption of the gas reservation scheme by the Australian Government could impact export volumes and future investment decisions, adding a layer of strategic complexity to the sector.