What we know and what's still to come 8 min read
The Federal Government has announced the key features of Australia's highly anticipated new domestic gas reservation scheme. From 1 July 2027, Australian LNG exporters will need to supply 20% of their exported gas volumes to domestic customers.
The policy aims to ease the forecast East Coast gas market shortfall and place downward pressure on domestic gas prices by increasing domestic supply from exporters. However, its initial impact will be muted by excluding export contracts entered into before 22 December 2025 (such that the long-term foundation contracts that underwrote the existing LNG projects' development will remain unaffected).
Critically, there is still a lot of uncertainty around the features of the regime beyond the headline reservation percentage, commencement and grandfathering, with a further round of consultation due to commence imminently before legislation implementing the regime is introduced.
In this Insight, we outline and discuss the scheme's key components and highlight the major questions and issues. industry participants will need to consider during the upcoming consultations. For background, see our previous Insight, 'Gas market reforms taking shape', which discussed the proposed domestic gas reservation scheme and the release of the Gas Market Review Report.
Key takeaways
- Australian LNG exporters will be required to supply domestically 20% of the amount of their gas exports from 1 July 2027.
- Existing export contracts entered into before 22 December 2025 will be grandfathered (ie exempt) from the new domestic gas reservation scheme.
- LNG exporters will (at least for non-exempt supplies) be required to obtain an 'export approval' from the Minister for Resources, which will require an LNG exporter to show it has met the domestic supply requirements.
- There are significant areas of ongoing uncertainty surrounding the details of the scheme, including:
- how it will apply to LNG exporters at a national level (including the interaction with the existing West Australian domestic gas reservation policy);
- whether the 20% domestic supply requirement will solely be measured by reference to supply by the LNG project or could be met by domestic supply by related parties of LNG project participants from other fields; and
- whether the exclusion for pre-22 December 2025 export contracts would apply to renewals and extensions of such contracts.
- Detailed industry consultation is expected to commence imminently before legislation is passed to formally implement the scheme.
Key elements of the new domestic gas reservation scheme
On 7 May 2026, the Government announced that from 1 July 2027, Australian LNG exporters will be required to supply for domestic use 20% of their gas exports, in respect of export contracts entered into since 22 December 2025.
While the detailed framework of the scheme is subject to ongoing industry consultation and is yet to be finalised, the Government has confirmed a number of key components. Under the scheme, an LNG exporter (at least where not exempt) will be required to apply to the Minister for Resources for an 'export approval' in order to access the international LNG spot market. To obtain an export approval, an LNG exporter will need to demonstrate to the Minister for Resources that it has 'actually and properly' supplied the domestic market.
The Minister for Resources has indicated that the threshold for obtaining an export approval goes further than the current Gas Market Code requirement to 'offer' gas to domestic buyers and will require an LNG exporter to actually be supplying gas to a domestic buyer.
The grandfathering (ie excluding) of export contracts from before 22 December 2025 will protect all of the long-term foundation contracts that underwrote the original developments of Australia's LNG projects, and result in only a modest volume being captured by the scheme initially (largely being spot market contracts). That will provide greater comfort to Australia's gas trading customers that they have not been forgotten and Australia remains a reliable supplier of gas.
However, as those existing contracts 'roll off', the domestic reservation volumes will grow significantly.
The new domestic supply obligation powers will be jointly administered by the Minister for Resources and the Minister for Energy and Climate Change, in coordination with the Minister for Industry and Innovation.
Key issues for consultation
The announcement offered little detail beyond the headline domestic reservation percentage, commencement date and grandfathering arrangements.
We anticipate that each of the following will be areas for further consideration during the detailed industry consultation.
National application: WA and NT arrangements
- While the principal focus of gas market shortfall has been on the East Coast (Victoria, New South Wales, South Australia and Queensland), it appears from the announcements that the Government is proposing a national scheme. That is consistent with the recommendation in the 2025 Gas Market Review report (the Review Report) and the statements in the press conference by the relevant Ministers.
- The Federal Government indicated it intends to work closely with the Western Australian Government to manage interaction and alignment with Western Australia's existing domestic gas reservation policy (without providing specifics as to how this would occur). It seems likely that, at a minimum, to the extent a Western Australian producer has satisfied the 15% reservation requirement under the Western Australian policy, they would be credited for that 15% under the new national reservation scheme. It is also worth noting that Western Australia's limited capacity to receive deliveries of gas and limited pipeline infrastructure connecting it with the Northern Territory and East Coast may pose a practical issue.
- Based off the Minister for Resources' comments in the Press Conference, it also appears that the new scheme will apply to the Northern Territory. The Minister for Resources indicated that the Federal Government also proposes to consult with the Northern Territory Government (again without specifics).
- However, in both cases, it may become important that the Minister for Resources has also foreshadowed that there are likely to be exceptions where producers are genuinely unable to obtain relevant gas transportation services (due to capacity constraints or limits on pipeline connectivity)
Practical application to LNG exporters
- One of the most important structural areas of uncertainty is how the Government will define the companies that must meet the domestic supply obligation.
- In particular, a key issue is whether the relevant company/group is limited to the LNG company or LNG participants, rather than being able to refer to domestic supply by related parties of LNG project participants from other fields.
Treatment of renewals
- While it is clear that export contracts entered into prior to 22 December 2025 are excluded from the domestic gas reservation, we are conscious that many of these foundation contracts have renewal or extension rights included in them.
- Clarity on this point will be important to determine how (and for how long) the grandfathering arrangements affect the volumes covered by the domestic gas reservation.
Streamlining reforms
- As anticipated, the Government also announced its intention to remove some of the previous government intervention in the gas market, including:
- the removal of the export control regime imposed by the Australian Domestic Gas Security Mechanism (ADGSM);
- the removal of domestic supply obligations in the Heads of Agreement with the three current Gladstone LNG producers; and
- amendments to the Gas Market Code, which we expect that—at a minimum—will include the removal of the gas price cap and the prescriptive requirements in relation to offers of gas.
- We expect that the specific details of those streamlining reforms will also be the subject of the detailed consultation process.
Risk of impact on future domestic producer investments
The gas industry has raised concerns that significant export volumes being diverted into the domestic market will:
- crowd out smaller, domestic-only gas suppliers; and
- place sufficient downwards pressure on domestic pricing (or be expected to do so), to the point of domestic-only producers having fewer incentives to invest in new gas supply.
We anticipate that this will continue to be a key concern voiced by industry during the consultation period. However, the Government appears to have settled its position, noting that the reservation would produce only a 'modest' oversupply in the domestic market and that the implementation of Western Australia's domestic gas policy did not have this effect.
Other gas market announcements
The gas sector is also attracting lots of political attention in other contexts. The Government was keen to draw attention to other supply side measures it was implementing to enhance gas supply, including:
- approving a new Petroleum Production Licence for Amplitude Energy's Annie Gas Field Project in the Otway Basin, which is expected to provide gas exclusively for domestic use; and
- seeking nominations for new areas for offshore exploration areas for production in Tasmania and Victoria's Gippsland and Bass basins.
The opening up of nominations for new offshore exploration areas, combined with the recent decision not to proceed with imposing any new gas export tax, perhaps signals an understanding that to achieve the policy aims behind the domestic gas reservation scheme it needs to be coupled with other arrangements that will increase supply.
Next steps
The Minister for Resources has confirmed that further detailed industry consultation is expected to commence immediately following the announcement of the new domestic gas reservation scheme. Stakeholders across the gas value chain should begin preparing to engage in this process.
In particular, we recommend that:
- LNG exporters review their existing and proposed export contracts to identify which arrangements may be grandfathered and which will be subject to the new domestic supply obligations. They should also start modelling the operational and commercial impacts of diverting 20% of export volumes to the domestic market.
- Domestic gas buyers (including manufacturers and gas‑fired generators) assess opportunities to secure new supply under the reservation scheme and consider how the timing of new domestic supply may affect procurement strategies.
- Producers and joint venture participants map their corporate structures and related‑party arrangements to determine how domestic supply from associated entities may be credited under the scheme.
- Industry associations and affected participants prepare submissions for the consultation process, focusing on key design issues such as the national application of the scheme, treatment of renewals, and interaction with Western Australia’s existing policy.
- Investors and financiers monitor the consultation outcomes and draft legislation closely to understand how the new framework may affect project economics, financing arrangements and future investment decisions.
We will continue to monitor developments and provide updates as the consultation process progresses and the legislative framework takes shape.