Australia’s Exposure Draft softens gas reservation rule for LNG exporters

The Australian government unveiled its Domestic Gas Reservation Exposure Draft Sept. 10, proposing up to 20% of gas exports be reserved for domestic use, with the draft setting a ceiling rather than a fixed mandate.

"The Future Gas Strategy recognises that gas will remain an important part of Australia's energy mix and a critical partner to renewable energy through the transition to net zero," Minister for Resources Madeleine King said.

"By ensuring more Australian gas is available here at home, while maintaining our position as a trusted energy exporter, we are delivering a balanced approach that supports households, industry, and long-term economic growth," she said.

The Domestic Gas Reservation Bill 2026 will establish Australia's first national Domestic Gas Reservation Scheme. The exposure draft builds on the design features proposed by the government earlier this year.

The draft reflects some flexibility or softening of plans even as the government stays committed to ensuring that gas is affordable for domestic households, businesses, and industry.

"It establishes a framework for how the reservation scheme is proposed to operate within a broader set of gas market reforms, including how costs will be recovered, and the compliance and enforcement mechanisms available to the Regulator," the Sept. 10 statement posted on the government website said.

The scheme ensures domestic customers can buy from a larger pool of gas, mitigating the risk of tight market conditions leading to price spikes, promoting long-term contracting, and shielding them from global volatility, according to the government.

With the Reservation scheme in place, exporters could provide up to 200 additional petajoules of gas a year, ensuring more than enough secure gas, along with domestic production to meet new manufacturing demands, it said.

"This is more than enough to avoid AEMO [Australian Energy Market Operator] forecast possible shortfalls of up to 140 petajoules," it added.

Under the draft plan, the license application process will commence from Jan. 1, 2027, with the Domestic Supply Obligation to start from Jan. 1, 2028, to align with industry contracting cycles, it said.

The domestic gas reservation scheme exposure draft and consultation material, available on the Department of Industry, Science and Resources Consultation Hub, is open for consultation with submissions scheduled to close on Sept. 24.

"The government welcomes further feedback to refine the draft legislation package before its proposed introduction to parliament later this year," it said.

On May 25, the Australian government announced the draft design framework for the Domestic Gas Reservation. Under the plan at the time, the scheme was scheduled to start in 2027, with obligations expected to commence from July 1, 2027.

Industry reaction

Australia is one of the world's largest LNG exporters, and its gas production is not only crucial for domestic energy security but also for overseas customers.

Australia ranked as the world's third-largest LNG exporter in 2025, behind the US and Qatar, supplying about 77.2 million metric tons to global markets, according to S&P Global Energy CERA data, with most of its exports directed to Asia.

The federal government has made many "sensible changes" to the proposed design of a domestic gas reservation, including calibrating the reservation requirement more closely to domestic market needs, the Australian Energy Producers said in a separate statement on Sept. 10.

The Australian Energy Producers is an industry body whose member companies account for more than 95% of national oil and gas production, according to its website.

"The exposure draft released today also appears to provide greater certainty for Western Australia and the Northern Territory by recognizing existing state schemes and linking the supply obligation to physically connected domestic gas markets," it said.

"However, the proposed 110% oversupply of the East Coast gas market will destroy investment signals and crowd out smaller, domestic-focused producers," it added.

According to the industry body, the policy could result in less competition and investments due to the "must sell" requirements in the domestic market. This could ultimately lead to higher prices and a greater risk of future shortfalls, it continued.

The Australian Energy Producers said that it supports a well-designed, prospective reservation policy that provides long-term certainty for gas users and producers and supports a final design that is fit for purpose and boosts investment in new supply.