The report into the petroleum resource rent tax by the McKell Institute will be launched on Sunday as Senate crossbenchers warned Treasurer Scott Morrison against backing away from an expected budget measure to make the liquefied natural gas industry contribute more to public coffers.

The report, written by Richard Holden, a professor of economics at UNSW Business School, found the Petroleum Resources Rent Tax (PRRT) system was "increasingly inadequate" and should be replaced with a 10 per cent royalty that would guarantee annual revenue of between $1.3 billion and $2.8 billion.

"While the PRRT aims to protect gas and oil producers from occasional volatility in resource prices, in reality, the PRRT is extremely generous towards major oil and gas companies, who poorly compensate the Australian public for the publicly owned resources they are extracting from the ground, and selling for profit," he found.

"Fossil fuel resources in Australia are not renewable: their extraction can only occur once, and it is vital that companies making a profit off this extraction fairly compensate the Australian public for the resource they are depleting."

In a radio interview last week, Mr Morrison - who said "we think it is a problem" when he appointed former treasury official Mike Callaghan to head a review into the PRRT in November - appeared to backtrack, insisting Australia was not "missing out" on revenue from the LNG sector.

He channelled the industry's argument that changes to the $200 billion sector could discourage future investment and hamper solutions to the domestic gas supply crisis.

But crossbenchers are lining up to insist there must be a PRRT fix in the May budget.

Nick Xenophon, whose Senate numbers will be critical to the government passing budget measures, told Fairfax Media on Saturday that the profits-based PRRT system is "beyond broken".

"It must be addressed in the budget and there must also be a focus on ensuring gas supply into the domestic market. In their heart of hearts the gas producers must know they have been living on easy street for too long," he said.

A differential tax rate on the $30 billion export LNG sector to domestic gas could be part of a solution, he said.

Tasmanian Senator Jacqui Lambie said it would be "difficult to consider any budget proposal" unless the government presents measures to "end the obscene situation of Australia giving away our gas for free in the face of a domestic energy crisis", while Victorian Senator Derryn Hinch said he believed Australia was "not getting a fair and equitable return" from the LNG boom.

A spokeswoman for One Nation leader Pauline Hanson said the party was seeking information from the government around whether it expects to generate any PRRT revenue from the big LNG export projects.

Fairfax Media first revealed in November 2015 that PRRT receipts were declining sharply despite the LNG industry's transformation from a $5 billion concern a decade ago to a $60 billion export powerhouse.

When Australia eclipses Qatar as the world's biggest gas exporter in 2020, the federal government is forecast to receive just $800 million from the PRRT while the Qatari government will take $26.6 billion via its flat royalty on the same volume of gas output, official government forecasts show.

Despite the Australian beer industry being about a tenth the size of LNG, the government gets about three times more in beer excise - $2.5 billion a year - than PRRT.

The LNG industry argues that the profits-based PRRT, which allows investors to recoup capital costs before paying the tax, is working the way it was designed to when it was brought in by the Hawke Labor government in 1984.

At the time, then treasurer Paul Keating said applying a flat royalty on production would "discourage marginal projects from getting underway and bring about the early termination of projects".

But Ken Henry in his 2010 tax system review found that the system "over-compensated" the industry and Craig Emerson, who designed the PRRT with economist Ross Garnaut, has raised concerns that available deductions are too generous.

Industry peak body Australian Petroleum Production & Exploration Association said it "does not consider a case exists for any changes to be made to the existing PRRT"

"Critics of PRRT express concerns about its failure to collect revenue at all stages of the investment cycle. These views do not recognise the intense global competition for investment, the economy-wide benefits of the industry, the risks undertaken by investors, the actual rent generated by projects, the timing of the investment cycle and more fundamentally, disregard the intentional design features of the PRRT," APPEA said.

The McKell report found "no PRRT is likely to be paid for 15-20 years, if at all" from offshore LNG projects.

Professor Holden noted in his report that: "Several market participants suggested in private conversations that the offshore LNG owners do not expect to pay any PRRT - and no longer even factor in such calculation to their financial analysis."

Tax Justice Network spokesman Jason Ward said: "This does not pass the pub test. No one thinks that oil and gas companies should get our offshore gas for free."