The government's move, after a recommendation from the Australian Competition and Consumer Commission (ACCC), comes even as the country vies with Qatar and the United States as the world's top LNG exporter.

The ACCC warned extra gas is needed to offset declining output at offshore fields that have long supplied the populous east coast, home to nearly 90% of Australia's population.

Resources Minister Madeleine King said she would consult with LNG exporters and Australia's trading partners before making a decision in October.

The ruling could affect fuel supplies and prices in 2023 for global consumers already roiled by gas disruptions due to the war in Ukraine. The shortage is small in global terms, but a call to divert precious cargoes away from the export market will add to concerns about a growing tightness in energy supplies.

Export curbs would most likely impact the Gladstone LNG joint venture led by Santos Ltd, whose partners are TotalEnergies SA, Korea Gas Corp (KOGAS) and Malaysia's Petronas.

The call for action came in an ACCC recommendation that the government pull the trigger on the Australian Domestic Gas Supply Mechanism. The measure set up in 2017 can be used to force the east coast's LNG exporters to divert gas to the domestic market to avert shortfalls.

"Our latest gas report finds that the outlook for the east coast gas market has significantly worsened," ACCC Chair Gina Cass-Gottlieb said in a statement.

The commission found that LNG exporters are likely to withdraw more gas from the domestic market than they plan to supply. A shortage of 56 petajoules is now expected, equivalent to around 10% of demand, or 14 LNG cargoes in total. Australia has been exporting an average of 100 cargoes a month so far this year, Refinitiv Eikon data shows.

Not only did the commission warn of a shortfall in 2023 but also said it was "strongly encouraging LNG exporters to immediately increase their supply into the (Australian) market".

GOVERNMENT UNDER PRESSURE

A global gas supply crunch has worsened in the wake of the Russia-Ukraine conflict. LNG buyers in Europe and Asia are competing for shipments to replace Russian gas, boosting prices and spurring Australia's producers to export uncontracted gas.

The ACCC report comes after gas demand surged for power generation due to coal-fired plant outages and for heating. Rocketing demand sparked a steep rise in prices for both gas and power and nearly led to blackouts in eastern Australia in June.

The findings add pressure on the newly elected Labor government to beef up local gas supply. Soaring prices have led gas-dependent manufacturers to threaten to shut plants and cut jobs.

"It's critical that our domestic gas supply is secure and competitively priced, particularly when households and businesses are under extreme pressure," Treasurer Jim Chalmers said.

The gas industry's lobby group responded to the ACCC's call by highlighting that LNG exporters have 167 PJ of uncontracted gas available for the domestic market.

"This is more than enough gas to ensure that no shortfall occurs," the Australian Petroleum Production and Exploration Association's acting chief executive Damian Dwyer said in a statement.

TOUGHER MEASURES

Resources Minister King on Monday extended the Australian Domestic Gas Security Mechanism until 2030. She said she was also looking to strengthen the measure, potentially including a price trigger.

The ACCC's report raises questions about exporters' "social licence", she said, as the LNG producers' commitment to supplying the domestic market had steadily declined since 2017.

"The gas producers know this is damning for them," King told reporters at a televised media conference in Canberra.

But she also said there was no point in seeking to break long-term contracts that had underpinned the development of the massive LNG export industry.

"We want to be known and remain, as we are known, as a reliable trading partner," King said.

Analysts said King will face pressure from others in her party to protect jobs for gas-dependent manufacturers.

"We expect the government may declare a gas shortfall in 2023 and toughen up the regulatory framework, but ultimately pursue a 'voluntary' outcome whereby Queensland LNG producers agree to keep the market supplied for any shortfalls next year," Credit Suisse analyst Saul Kavonic said.

(Reporting by Sonali Paul and Renju Jose; Editing by Kenneth Maxwell)

By Sonali Paul and Renju Jose