Australia, explained.
A liquefied natural gas tanker is moored at an LNG berth in Kawasaki, Kanagawa prefecture, Japan, 8 April 2026 (Yuichi Yamazaki/AFP via Getty Images)
Japan’s diplomatic pushback on a gas export tax is predictable and should be read in context – existing supply contracts already neutralise the main risk.
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Amending Australia’s export gas regime does not undermine gas for fuel negotiationsAmending Australia’s export gas regime does not undermine gas for fuel negotiations
A vexed question facing the Australian government is whether imposing a tax on export gas will undermine its negotiating position to secure shipments of petrol, diesel and aviation fuel from key Asian refiners. The answer is no – these measures strengthen energy security rather than weaken it.
Consider the numbers. Australia’s Petroleum Resource Rent Tax (PRRT) collected just $1.48 billion in 2023–24, a year when LNG export revenues still exceeded $70 billion. This represents barely two cents collected for every export dollar, and this despite a new deductions cap that brought five additional companies into the tax net for the first time.
Opposition has been quick to assemble against talk of reforms that would return more tax income from resource exports. There has certainly been no holding back from Japan, which has long benefited from long-term supply agreements that have underpinned its energy security at prices linked to oil benchmarks rather than spot market rates.
As news began to circulate on the potential for an export gas tax in the May budget, Japan’s ambassador was quick to call for it to be removed from the agenda. But Australia’s share of Japan’s LNG imports has been falling since 2018, driven by Japan’s nuclear restarts and efficiency gains – a trend entirely unrelated to any levy debate. The diplomatic pressure, though predictable, should therefore be read in context.
Japan has a strong track record of opposing measures to secure affordable gas for east coast Australian consumers or increased Queensland coal royalties that have funded popular programs such as 50 cent bus fares.
A tanker truck at Tokyo Gas Negishi LNG Base in Yokohama, Japan (Stanislav Kogiku via Getty Images)
An export tax would not undermine Australia’s reputation as a stable, reliable supplier. Existing long-term Sale and Purchase Agreements (SPAs) with Japanese and Korean buyers contain fixed, oil-linked pricing formulas that are not directly tied to Australian tax settings, meaning contracted buyers are unlikely to face higher prices in the near term. It is true that some SPAs contain change-in-law clauses that could allow producers to seek price renegotiation if a new tax is introduced – but well-designed legislation can explicitly exclude the levy as a qualifying trigger, neutralising that risk. And prospective-only designs sidestep the issue almost entirely, since the 75% of exports covered by existing SPAs remain completely untouched.
An export tax will provide long-term certainty that Australia will continue to be a reliable supplier because the export gas industry will be less likely to lose its social licence to operate.
The relationship risks can be readily overstated. Australia has long-term bipartisan support for foreign investment into the resources industry and the Australia–Japan ties runs deep. Similarly, Canberra’s stable relations with Seoul and Singapore have ensured ongoing supply of gas and support for investment in export industries with South Korea becoming Australia’s second-largest supplier of electric vehicles and Singapore inking the world’s first Green Economy Agreement with Australia. In particular, with Singapore rapidly electrifying its vehicle fleet, its refineries really need export markets.
The introduction of an export tax in Australia will also provide long term certainty that the country will continue to be a reliable supplier because the export gas industry will be less likely to lose its social licence to operate if it is funding popular programs. At the moment Australians pay more in beer tax or higher education contribution scheme repayments than the export gas industry contributes to government coffers.
The temptation will be to reach for the simplest tool: a flat percentage levy on all export revenue. Modelling suggests that while a flat levy may raise headline revenue in the short term, dynamic effects – deferred investment decisions, erosion of the PRRT base, and second-round GDP impacts – can substantially reduce the net fiscal benefit over a decade.
So while the concerns of regional trade and investment partners must be heard, the interest of the Australian people should be the government’s principal focus. It should pursue a careful reform package: targeted closure of PRRT loopholes that have allowed systematic under-collection of tax receipts across years, a domestic gas reservation mechanism modelled on Western Australia’s 40-year policy, which has kept WA prices $3–8 per gigajoule below east coast equivalents, and a time-limited contribution from mature, fully cost-recovered projects that have already delivered promised returns to investors.
Before any public commitment, the government should engage Japan and Korea diplomatically to frame these reforms as supply security strengthening, not supply restriction, a crucial distinction that existing contracted volumes already support.
Australia has a narrow window to get this right. The choice is not between taxing gas and protecting trade relationships – it is between a blunt instrument that achieves neither goal well, and a reform package that achieves both.
About the authors
Charlie Caruso
Charlie Caruso is a Senior Advisor on Industrial Decarbonisation with the Smart Energy Council and Arthur D. Little, where she works with industry and government on the strategic and policy dimensions of transitioning heavy industry away from fossil fuels.
Richard Neumann
Richard Neumann is Chair of the Smart Energy Council’s Smart Global and Smart Pacific Working Groups Pacific Working Group, and a member of the Advisory Council of the Franco-Australian Centre for Energy Transition at Swinburne University.
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