PERTH - Energy exploration has picked up sharply in Australia driven by growing Asian gas demand, technological advances and an improved investment climate, with the Iran war underscoring the urgency to develop supply, after years of sluggish spending.

Quarterly oil and gas exploration spending in Australia, the world's second-largest liquefied natural gas (LNG) producer, hit a 10-year high of A$471-million ($329-million) in the March quarter, government data released in June shows.

Energy investment sentiment has improved in part following last year's election of a more supportive second-term Labor government, which faces pressure to fill a looming end-of-decade domestic gas shortfall without harming valuable LNG exports.

Spending is expected to increase about 10% in 2026 to more than $1-billion, according to Rystad Energy, although Canberra's move last month requiring that 20% of gas be set aside for domestic use has sparked industry backlash.

Much of the drilling is focused on three gas-rich regions: the Otway Basin offshore western Victoria, the Beetaloo shale in the Northern Territory, and the Taroom Trough in Queensland. Among them, the Otway is the most established and is close to existing infrastructure.

While the search for more gas and oil in recent years has been concentrated onshore, costlier and riskier offshore investment is on the rise.

"We’re seeing renewed interest in frontier and unconventional plays as modern techniques de-risk development," said Krishan Pal Birda, vice president at Rystad Energy.

SHALE HOPES

In the Beetaloo, the territory government is pushing development of what it hopes can become an LNG-scale shale gas resource. It recently offered new acreage in the area for prospective explorers, along with co-funding.

Australia's second-largest gas producer Santos is set to drill three appraisal wells there this year.

In March, Japan’s Inpex took a stake in a Beetaloo permit. Development of the Beetaloo could eventually provide the company with an onshore gas source for its Ichthys LNG plant in the Northern Territory's capital, Darwin.

Drilling in the Beetaloo has benefitted from the arrival of more powerful rigs, used by companies such as Tamboran Resources, capable of drilling long lateral wells with many fracking stages.

"Shale developers are the answer to the short supply in Australia," said Bryan Sheffield, a co-founder of US private equity firm Formentera Partners, which is working with Tamboran and invested along with Inpex.

Sheffield, who ran Parsley Energy focused on the giant US Permian shale, cited a more welcoming regional government. "They want Americans to come in," he said at the Australian Energy Producers conference in May, adding that officials want the US service companies and flex rigs.

“I think the experience of Texas is very relevant ... They prove that they're able to do massive multi-stage fracks," said Rick Wilkinson, CEO of advisory firm EnergyQuest.

Not all are convinced on the Beetaloo’s development. Bill Hare, the founder of Climate Analytics, raised concern that drilling the vast shale resources could be “very destructive”, due to the impact on the land and emissions when gas is burned.

“Quite apart from the climate issue, the water demands are huge in an extremely arid region,” Hare said.

SUCCESS, DISAPPOINTMENT AND SURPRISES

In the Otway, exploration has jumped, with companies sharing rigs to cut costs, but their campaigns have had mixed results.

"There is a lot more activity in the Otway than we've seen in years," Amplitude Energy CEO Jane Norman told Reuters.

US major ConocoPhillips drilled two wells in late 2025, the country's first offshore wildcat wells in several years, with one well yielding gas, while a second found gas but not at the level predicted and with a much higher carbon dioxide content than expected.

Some industry watchers have suggested that if ConocoPhillips can develop a steady supply of gas to the tight east coast market, that could defray obligations to supply the market from its export project, Australia Pacific LNG.

"Further work is now underway to progress an Offshore Project Proposal for a potential offshore development to bring more supply to the domestic market," a Conoco spokesperson said in an e-mailed statement.

Amplitude drilled a well that was deemed "non-commercial" in March and is reviewing whether to proceed with a follow-up well.

Wilkinson said offshore exploration, such as in the Otway, was promising but remained 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 in exploration, because the increased supply could keep a lid on domestic gas prices. Canberra has yet to spell out how the gas reservation will work.

"Capital wants to find happy, comfortable places to invest, and at the moment the confusion is making it very hard to invest," Brett Woods, CEO of the country's third-largest oil and gas firm Beach Energy, told Reuters.

Nevertheless, 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, while 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 any meaningful output is seen as years away.

"What I'm really excited about, in terms of the portfolio we have today, is the Taroom offers real scale potential in terms of liquids production, which is desperately needed by Australia," Woods said.