Domestic Gas Reservation Scheme exposure drafts: Key changes from the Design Framework

The Federal Government has released its exposure draft legislation package for the Domestic Gas Reservation Scheme (DGR Scheme), comprising the Domestic Gas Reservation Bill 2026 (Bill), the Domestic Gas Reservation (Consequential Amendments) Bill 2026 and the Domestic Gas Reservation Levy Bill 2026.

The exposure drafts follow consultation on the Government's draft Design Framework (Design Framework) released in May 2026. For a summary of the Design Framework, see our earlier article here.

While the core architecture of the DGR Scheme remains largely unchanged, the exposure drafts introduce several notable refinements that appear intended to address concerns raised by LNG exporters and other industry participants during consultation.

What hasn’t changed?

The key features of the Design Framework remain intact.

The DGR Scheme continues to be centred on Domestic Supply Obligations (DSOs) imposed on LNG exporters. Importantly, exporters will still be required to supply gas to the domestic market, rather than merely offer gas for sale.

Compliance with a DSO also remains a fundamental condition of holding an export licence, with the Australian Energy Regulator (AER) responsible for administering and enforcing the regime.

The Government has therefore retained its policy position that the DGR Scheme should deliver actual domestic gas supply outcomes notwithstanding calls for a less interventionist "must offer" model.

Key changes following consultation

From a fixed 20% reservation to demand-calibrated supply

One of the more significant changes from the Design Framework is the shift away from what was broadly understood to be a fixed 20% reservation requirement.

While the headline reservation figure remains "up to" 20%, the Bill introduces a demand-calibrated framework under which the AER will determine an annual demand-calibrated quantity (DCQ) for each export licence holder. In practical terms, the DSO percentage now operates as a ceiling rather than a fixed obligation, with exporters generally required to supply the lower of their DSO quantity and DCQ for the relevant period.

Government statements accompanying the Bill indicate that total DSOs will be shaped to approximately 110% of forecast domestic demand. While a demand-calibrated model may reduce the risk of over-reservation in some years, concerns remain that maintaining supply above forecast demand could still result in significant volumes being directed to the domestic market irrespective of underlying commercial demand.

The Bill also introduces greater compliance flexibility than was apparent from the Design Framework, with exporters able to satisfy their obligations where they supply at least 90% of the applicable minimum quantity and make genuine attempts to supply the balance, including through limited deferrals of up to 10% into future years.

Greater clarity on treatment of existing contracts

Protection of existing LNG export contracts was one of the key issues raised following release of the Design Framework.

Although the Design Framework recognised existing contracts, there was limited guidance as to when relief would be available. The Bill now introduces a more prescriptive framework. Under section 25(4), the Minister must be reasonably satisfied that:

1. compliance with the DSO would likely result in a breach of an existing contract;
2. the exporter cannot reasonably produce or acquire additional gas for domestic supply; and
3. the exporter is taking steps to improve its ability to meet future DSOs.

The inclusion of these statutory criteria provides greater certainty than the Design Framework. However, existing contracts are not automatically protected, with exporters still required to seek Ministerial relief on a case-by-case basis.

DSOs deferred by 6 months

Another notable change was the decision to defer the commencement of mandatory DSO compliance by six months.

While the Design Framework contemplated DSO obligations commencing on 1 July 2027, the exposure drafts defer compliance until 1 January 2028.

The additional transition period should allow exporters more time to prepare for the new regime, including obtaining licences and implementing compliance processes. The change is likely to be welcomed by industry, although it does not affect the substantive operation of the DGR Scheme.

Ministerial discretion narrowed, but remains significant

A recurring criticism of the Design Framework was the breadth of Ministerial discretion.

The exposure drafts place additional legislative limits around key decisions. In particular, DSO adjustments are now tied to specified considerations including existing contracts, infrastructure constraints and existing reservation arrangements. Variations must be implemented through legislative instruments and informed by market conditions and regulatory advice.

The Bill also introduces merits review rights in the Administrative Review Tribunal for certain decisions.

While these changes provide greater structure and transparency, Ministerial discretion remains a central feature of the regime and is likely to remain a source of regulatory uncertainty for exporters.

Long-term export licences

The exposure drafts introduce a long-term export licensing framework, with licences granted for periods of between 20 and 50 years.

This provides greater certainty than many stakeholders anticipated following release of the Design Framework. However, that certainty is tempered by the Minister's ability to suspend or cancel licences for serious non-compliance or prolonged periods of non-export.

Access to export markets therefore remains closely linked to ongoing compliance with DSO obligations.

Greater recognition of Western Australia’s existing reservation regime

One of the more practical changes is the recognition that Western Australia, the east coast and the Northern Territory operate as separate physical domestic gas markets.

Under the Bill, DSOs will be determined by reference to those individual markets rather than a single national market. Exporters may also seek DSO adjustments to account for existing State-based reservation arrangements that were in force before 22 December 2025.

For Western Australian projects, this goes some way towards addressing concerns that the Commonwealth regime could duplicate obligations already imposed under the State's Domestic Gas Policy.

However, the federal regime will still operate alongside existing State arrangements, and uncertainty remains regarding how future changes to State-based reservation frameworks may interact with Commonwealth obligations.

The recognition of separate physical markets may also assist Northern Territory exporters, although practical questions remain given the Territory's relatively small domestic market and infrastructure constraints.

Key implications of the exposure drafts

The exposure drafts largely preserve the Government's proposed domestic gas reservation framework. However, the consultation process has resulted in several positive refinements, including greater recognition of existing contracts, market-specific DSO settings, a delayed commencement date and additional constraints on Ministerial decision making.

Whether those changes are sufficient to address industry concerns remains to be seen. Nevertheless, the exposure drafts provide a clearer indication of how the DGR Scheme is intended to operate and where the Government has been prepared to modify its original Design Framework in response to stakeholder feedback.

The consultation period closes on 24 September 2026. HopgoodGanim will continue to monitor developments and assist clients in assessing the implications of the proposed regime and preparing for its implementation.