Australia's oil and gas exploration spending surged to a 10-year high of A$471 million in the March quarter, government data released in June showed, driven by Asian demand and an improved investment climate following last year's election of a more supportive Labor government. But the drilling spree—expected to top $1 billion in 2026—has sparked warnings about environmental destruction in arid regions and the climate impact of burning fossil fuels.
The rebound comes as the second-term Labor government faces pressure to address a looming domestic gas shortfall without undermining valuable liquefied natural gas exports. Much of the activity is concentrated in three regions: the Otway Basin offshore western Victoria, the Beetaloo shale in the Northern Territory, and the Taroom Trough in Queensland. The Iran war has underscored the urgency to develop new supply after years of sluggish spending.
Beetaloo Shale: Scale and Risk
The Northern Territory government is pushing development of the Beetaloo, hoping it can become an LNG-scale shale gas resource. It recently offered new acreage and co-funding to prospective explorers. Santos, Australia's No. 2 gas producer, is set to drill three appraisal wells there this year. In March, Japan's Inpex took a stake in a Beetaloo permit, seeking an onshore gas source for its Ichthys LNG plant in Darwin.
Drilling has benefitted from more powerful rigs capable of long lateral wells with many fracking stages, used by companies such as Tamboran Resources. Bryan Sheffield, a co-founder of U.S. private equity firm Formentera Partners working with Tamboran, said at the Australian Energy Producers conference in May that "shale developers are the answer to the short supply in Australia." Sheffield, who ran Parsley Energy in the giant U.S. Permian shale, cited a welcoming regional government. "They want Americans to come in," he said, adding that officials want U.S. service companies and flex rigs.
But Bill Hare, founder of Climate Analytics, raised concern that drilling the vast shale resources could be "very destructive" due to land impact and emissions when gas is burned. "Quite apart from the climate issue, the water demands are huge in an extremely arid region," Hare said.
Offshore Drilling and Market Uncertainty
In the Otway, exploration has jumped, with companies sharing rigs to cut costs. Jane Norman, CEO of Amplitude Energy, told Reuters there's "a lot more activity in the Otway than we've seen in years." U.S. major ConocoPhillips drilled two wells in late 2025, the country's first offshore wildcat wells in several years. One well yielded gas; a second found gas but not at predicted levels and with much higher carbon dioxide content than expected.
Some industry watchers suggest that if ConocoPhillips can develop steady supply to the tight east coast market, that could defray obligations to supply from its export project, Australia Pacific LNG. A Conoco spokesperson said further work is underway "to progress an Offshore Project Proposal for a potential offshore development to bring more supply to the domestic market." Amplitude drilled a well deemed "non-commercial" in March and is reviewing whether to proceed with a follow-up well.
Rick Wilkinson, CEO of advisory firm EnergyQuest, said offshore exploration remains promising but expensive. "We think it's a proven petroleum basin—it's got great rocks. The only issue is that CO2 sometimes shows up," he said.
The government's plan to require LNG exporters to hold 20% of their gas for the Australian market may deter smaller players from investing more, because increased supply could cap domestic gas prices. Canberra has yet to spell out how the gas reservation will work. Brett Woods, CEO of Beach Energy, the country's No. 3 oil and gas firm, told Reuters that "capital wants to find happy, comfortable places to invest, and at the moment the confusion is making it very hard to invest."
Taroom Trough: Oil Discovery
Explorers have been raising capital since late last year to drill for tight gas in the Taroom Trough. One of them, Omega Oil and Gas, found oil instead. UK major Shell recently shipped light oil to a local refinery after entering the region several years ago. Taroom's liquids potential prompted the state government to fast-track development to boost Australia's limited domestic oil supply, though meaningful output is seen as years away. Woods said the Taroom "offers real scale potential in terms of liquids production, which is desperately needed by Australia."
Why This Matters:
Australia's fossil fuel expansion comes at a critical moment for climate action, with scientists warning that new gas and oil development undermines global efforts to limit warming. The water demands of shale fracking in arid regions like the Beetaloo raise questions about environmental justice and resource allocation in a country already facing water scarcity. Meanwhile, regulatory uncertainty around domestic gas reservation threatens to chill investment precisely when the government seeks to balance export revenues with domestic energy security. The tension between short-term supply needs and long-term climate commitments will shape Australia's energy future—and determine whether workers and communities dependent on fossil fuels receive support for a managed transition to cleaner industries.