Plans for a domestic gas reservation scheme will have to go back the drawing board if the proposal is to get off the ground.
The federal government has proposed a scheme that would force domestic gas companies to set aside up to 20 per cent of their exports for Australian consumers.
But the gas plan faces significant hurdles to becoming law, with the coalition and Greens set to oppose the proposal as it stands.
While a Senate inquiry report handed down on Wednesday recommended the upper house pass the reservation plan, the coalition said it would not support it unless changes were made.
"The coalition stands ready to support a well-designed gas reservation proposal in the national interest. This, however, is not a blank cheque to pass Labor's current proposal," coalition senators Kerrynne Liddle and Susan McDonald said in the report.
"Without substantial changes, the scheme risks redistributing existing gas while weakening the investment needed to produce more gas."
Labor needs the support of either the coalition or the Greens to pass laws through the Senate.
The opposition said the scheme as it stood would be at the detriment of domestic gas producers and would risk future supply.
"It risks operating to solely redistribute gas rather than growing supply. This puts both energy security and affordability at risk.," the coalition's report summary said.
"While well-designed domestic gas reservation can help secure supply for Australian users, it will only do so if it strikes the right balance."
The gas reservation scheme has already been watered down following opposition from the gas industry.
Operators in Australia were originally set to provide a minimum of 20 per cent for domestic use, but it was changed to a cap of 20 per cent.
Producers can now undershoot the target with the government's say-so, and companies' existing deals with overseas buyers won't be affected.
In a dissenting report, the Greens reiterated calls for a tax on gas exports to be implemented.
"Since the cartel of multinational joint ventures began exporting gas from the east coast, gas prices in the national energy market have tripled," Greens deputy leader Steph Hodgins-May said in the report.
"Meanwhile, offshore gas, unlike every other single resource in the country, requires no payment of royalties when extracted."
Debate on the reservation plan will return to parliament later in November, with just two sitting weeks before the end of the year.
