Draft Domestic Gas Reservation Scheme released for consultation

Following recent announcements regarding the introduction of a Domestic Gas Reservation Scheme (DGR Scheme), the Australian Government has now released a draft Design Framework for consultation.

The Framework is intended to provide greater level of detail on the DGR Scheme and other Gas Market Review reforms, on which the Government is seeking feedback.

Under the draft Framework, LNG exporters would be required to supply gas to the Australian market equal to 20% of their export volumes, with export approvals contingent on demonstrating compliance. The DSO could be met through domestic sales, swaps or underwriting new third‑party production (subject to an additionality test), and limited variations may be available where the domestic market is adequately supplied, where exporters cannot meet both their DSO and existing export contracts, or where physical constraints prevent domestic delivery.

Submissions on the draft design close 30 June 2026.

Key features of the Draft Design Framework

Introduction of a national Domestic Supply Obligation (DSO)

The centrepiece of the DGR Scheme is a requirement for LNG exporters to supply gas to the domestic market equivalent to 20% of LNG export volumes. The DSO will apply annually and will be calculated as a simple multiple of volumes of LNG exported. Allowance will not be made for feed gas volumes lost during liquefaction. The obligation is tied directly to export volumes, rather than production or reserves.

Export approval regime linked to compliance

Exporting LNG will require an export approval issued by Ministers, with compliance with the DSO a condition of that approval. Applicants must demonstrate how they will meet their DSO, including through domestic contracting strategies. Failure to comply may result in civil penalties or suspension/cancellation of export approvals.

Administration by the AER with Ministerial oversight

The Australian Energy Regulator will administer the scheme, including monitoring compliance and approving reporting frameworks. Ministers will retain key decision-making powers (including setting the DSO percentage and granting export approvals). Regulated entities will be required to submit annual compliance plans and ongoing performance reporting.

Broad flexibility mechanisms

A key feature of the framework is the suite of flexibility mechanisms designed to allow LNG exporters to manage portfolio and market risks.

Exporters may meet the DSO through direct domestic gas sales and swaps. Where an exporter is unable to meet its DSO from its own supply, it may do so by underwiring new third party production through investment or offtake agreements. Third-party supply is subject to an “additionality test”, requiring demonstration that the gas would not otherwise be supplied domestically.

There are a number of circumstances where variations to DSO’s are contemplated:

• Foundation export contracts: DSO variations may be granted to preserve pre-existing export contracts (contracts entered before 22 December 2025), but only where exporters are able to demonstrate that they cannot meet both contractual commitments and DSO after exhausting portfolio options.
• Infrastructure constraints: DSO variations may be granted where exporters cannot physically supply gas due to infrastructure constraints, but this is expected to be temporary and require evidence of steps to resolve constraints.
• Annual DSO flexibility: Forward-looking DSO adjustments may be approved based on expected domestic demand, but reductions are likely to accrue and must be met in the future.
• Release valve: The “release valve” allows the export of surplus volumes (up to 30% of total DSO) where the domestic market is well supplied (subject to a “minimum liquidity requirement” to support the spot market). However, released volumes will be accrued and may need to be made up later if the market is in short supply, creating a carry-forward liability.

Market conduct and transparency reforms

The DGR Scheme will be accompanied by changes to the Gas Market Code, including principles-based obligations governing negotiation and offering behaviour, requirements to act in good faith and to make gas genuinely available, and enhanced transparency via the AEMO Gas Bulletin Board.

Uncontracted DSO volumes must be made available to domestic markets, supporting liquidity and price discovery.

Timing and implementation

The changes are intended to commence in 2027 and export approvals would be required from 1 July 2027. A transitional period (from 1 January 2027) will require entities to apply for approvals and submit compliance plans.

Consultation process

The Government is seeking stakeholder feedback on the draft design framework, submissions to close 30 June 2026. Further consultation is anticipated on detailed legislative and rule changes following this initial phase.

Next steps

The draft framework reflects a clear policy intent to prioritise domestic supply outcomes through a mandatory reservation regime, supported by a suite of flexibility mechanisms. However, early industry response has been critical. Australian Energy Producers have cautioned that the proposed design may undermine investment in new gas supply, introduce complex and uncertain compliance obligations, and risk unintended consequences for both domestic-focused producers and LNG export arrangements. In particular, concerns have been raised that the framework could dampen investment signals, crowd out smaller producers and create ongoing regulatory uncertainty, at a time when increased supply is required to support the east coast market.

Against that backdrop, the consultation process will be critical in refining how the flexibility mechanisms operate in practice and whether the scheme can strike a workable balance between domestic supply objectives and maintaining investment and export competitiveness. Market participants should engage early to ensure that portfolio, contracting and development considerations are appropriately reflected in the final design.

HopgoodGanim’s Resources & Energy team is closely monitoring developments and advising clients on structuring, contracting and regulatory strategy in response to the proposed reforms. We have previously advised on the ADGSM, Gas Market Code and WA domgas policy for major projects, and we are well placed nationally to assist with strategic and contractual considerations as the Commonwealth position unfolds.