On 10 September 2026 the Hon Madeleine King MP (Minister for Resources and Minister for Northern Australia) released the exposure drafts and consultation materials for the Domestic Gas Reservation Scheme (DGRS). This follows the first announcement of the DGRS on 22 December 2025 and the subsequent announcement on 7 May 2026.
The DGRS exposure draft and consultation materials are open for submissions until Thursday, 24 September 2026.
The Government has positioned the DGRS as a key pillar of its energy policy. Minister Chris Bowen has stated that Australia has been “in the perverse situation where despite being one of the world’s largest gas producers we had shortages and prices shocks at home”, while Minister King has described the scheme as ensuring that “Australian households and businesses, quite rightly, expect to have access to affordable Australian gas.” However, significant parts of the gas industry have challenged the premise that a mandatory reservation is necessary, arguing that market-based mechanisms and new supply investment would be more effective in addressing domestic supply concerns.
The new legislation proposed comprises:
- Domestic Gas Reservation Bill 2026: exposure draft (Cth);
- Domestic Gas Reservation (Consequential Amendments) Bill 2026: exposure draft (Cth); and
- Domestic Gas Reservation Levy Bill 2026: exposure draft (Cth).
The government intends to facilitate a reliable domestic supply of natural gas and “ensure that prices are lower than would otherwise be the case” (Domestic Gas Reservation: Legislative Package Explainer). Natural gas exporters (Exporters) are expected to deliver up to an additional 200 petajoules of natural gas to the Australian domestic market per year in the medium term.
This will be achieved by requiring Exporters to hold a licence (Licence), issued by the Minister for Resources (Minister), to export natural gas from 1 January 2028. The Licence will impose an obligation on the Exporter to supply a quantity of natural gas to the relevant Australian domestic market (DSO).
Exporters can apply for a licence from 1 January 2027.
The Australian Energy Regulator (AER) will be responsible for administering and enforcing the DGRS.
This article examines the key features of the DGRS exposure drafts, the new compliance obligations facing Exporters, and the new compliance burden on Australia’s gas industry.
Application process
- From 1 January 2028, Exporters must have applied and received a Licence from the Minister. The Minister will consider the following factors in determining whether to grant a Licence:
- any reason to believe that the applicant will contravene its obligations;
- if the applicant intends to be an exporter for most of the Licence term;
- if the applicant is capable of being an exporter of natural gas;
- whether the applicant’s export facility has a physical connection to an Australian gas supply network;
- whether the Industry Minister, Energy Minister and AER agree to grant the Licence; and
- if the applicant is a fit and proper person.
The Minister may add additional considerations by legislative instrument.
A Licence, if granted, will be in force for 20 to 50 years. This duration is intended to provide “greater regulatory certainty and support long term investment decisions” (Domestic Gas Reservation: Legislative Package Explainer). An Exporter must apply to renew their Licence at least 12 months before its expiry.
The materials do not clarify how the Minister will determine the Licence’s duration. A mismatch between project life and licence term, for example, a 40-year project receiving only a 25-year export licence, represents a key uncertainty for investors and a risk that will need to be carefully managed in project financing and investment decisions.
Domestic Supply Obligations
Exporters must meet their DSO or alternatively satisfy the ‘flexibility’ conditions each year.
There are several interconnected concepts to unpack to understand these obligations.
What is the Australian domestic market and what does it mean to export?
The proposed law recognises that there is more than one Australian domestic market. Domestic market means the part of Australia in which natural gas is acquired and supplied by a physical network of interconnected pipelines. Therefore, an Exporter “will not be required to supply natural gas to a domestic gas market from which it does not also export [natural gas]” (Domestic Gas Reservation Bill 2026: Explanatory Memorandum).
Natural gas will be “exported” once the vessel carrying it departs to a destination outside Australian territory. Where a vessel calls at multiple Australian ports, the export journey is taken to commence from the last Australian port of departure.
How will the quantity of natural gas be determined?
The default minimum DSO figure proposed by the legislation is that Exporters must supply 20% of the energy content of their total covered exports.
However, the Minister and the AER can vary the DSO percentage for a domestic gas market (e.g the Western Australian market or Northern Territory market) and vary the DSO obligation each year for each Licence holder to an amount between 0% and 20%. The AER and Minister will consider:
- forecasted supply and demand;
- gas reservation arrangements;
- likely impacts on the Australian market if the determination is made; and
- any other relevant matters.
The AER and Minister will determine a surplus supply percentage of 0% to 10% to be achieved each year in the DSO.
An Exporter’s DSO can be reduced by any applicable adjustment quantities arising from:
- gas supply contracts existing pre-22 December 2025;
- reservation requirements; and
- infrastructure constraints.
The AER will use a “transparent five-year rolling mechanism” to determine an Exporter’s DSO.
However, given the inherent uncertainty in predicting energy demand it is likely that reasonable minds may reach different conclusions about the expected production figures.
Industry has raised serious concerns about the potential impact of these obligations on investment and future supply. Santos CEO Kevin Gallagher warned at the Australian Energy Producers conference in May 2026 that the scheme, if not designed carefully, would “kill investment in new supply”, cautioning that “[t]he minute that catches up, you will see shortages”. Australian Energy Producers Chief Executive Samantha McCulloch echoed this sentiment in their 10 September 2026 media statement warning that “the proposed 110% oversupply of the east coast gas market will destroy investment signals and crowd out smaller, domestic-focussed producers”. These are reasonable concerns which, if realised, would undermine the energy security objectives the DGRS is designed to achieve.
It would therefore be prudent for Exporters to conduct their own modelling to assist in persuading the Minister of an appropriate DSO level.
What does it mean to flexibly meet the requirement?
There are circumstances in which it will be acceptable for an Exporter to fall short of its DSO.
Where an Exporter supplies at least 90% of their DSO the remainder can be deferred for up to three years. Natural gas supplied in excess of the minimum amount required can be credited towards meeting the DSO in future periods.
The following amounts will be taken to have contributed towards the DSO even if no supply is made:
- take-or-pay contracts: if an Exporter has a take-or-pay contract with a domestic buyer and the buyer decides to not take the natural gas, that amount will be deemed a supply for the purposes of a DSO. This adds an interesting dynamic to gas sale negotiations as Exporters will be incentivised to seek higher take-or-pay percentages;
- best endeavours: in circumstances where the Exporter has taken the appropriate steps set out in the Gas Market Code to sell natural gas to the domestic market, but the amount was ultimately not contracted, it will be counted towards the DSO;
- call option not exercised: if a domestic buyer does not exercise a call option to purchase natural gas, then the Exporter will be taken to have made the supply; and
- exceptional circumstances: where the Exporter is prevented from supplying natural gas under a contract to a domestic buyer due to circumstances that are not reasonably foreseeable and outside of the Exporter’s control.
What supply of gas counts towards meeting the DSO?
Exporters must supply the relevant Australian domestic market with their “own gas” or “additional gas”.
“Own gas” means any gas which at the time it is produced by the Exporter, the Exporter had a legal or equitable interest in it. This may result in increased Mergers and Acquisitions (M&A) activity as Exporters look to increase the volume of their “own gas”
“Additional gas” means natural gas that is additional to the gas in the domestic market in accordance with the Gas Market Code. The materials have not clarified all circumstances in which natural gas will be classified as “additional gas”.
The intention behind the concept of “additional gas” is that Exporters cannot merely purchase and on-supply natural gas produced from a domestic source to meet their DSO. Acquiring gas that is considered “non-additional gas” will increase the minimum amount of gas to be supplied by the Exporter.
Further compliance obligations
Exporters will be subject to the following new obligations in order to meet the requirements of a Licence:
Maintain financial assurance
Exporters must at all times maintain financial assurance sufficient to meet the costs arising in connection with the DGRS.
Compliance Plan and Annual Reports
Exporters must have a compliance plan for the DGRS. The compliance plan must be submitted to the AER for approval. The AER will have 60 days to approve the compliance plan or request changes be made.
The compliance plan must set out the following information for an Exporter:
- forecasted gas to be produced in the domestic market;
- total quantity of natural gas to be acquired;
- total gas to be exported; and
- total quantity of natural gas to be sold to the relevant domestic market.
Exporters must also provide the AER with an annual report showing the actual quantities of natural gas produced, exported, acquired and sold to the domestic market for that year.
Transferability of Licences
Licences cannot be transferred. A person who wishes to export natural gas must apply for a Licence and be assessed by the Minister.
This is very important in the M&A context.
The Minister must consent to a change in control of a licensee. “Control” for the purposes of the DGRS is defined as 20% or more of the voting rights or issued securities in a licence holder. The provisions here mirror those introduced into the Offshore Petroleum and Greenhouse Gas Storage Act 2006 in March 2022.
A licensee may apply for ministerial consent before the change of control or within a 90-day grace period after the change of control occurs. The option to apply for ministerial approval after the change of control occurs recognises that it may not always be practicable to obtain the consent before the change takes effect.
The Minister will consider the following factors in reviewing the change of control:
- whether the new controller is likely to contravene its obligations;
- if the Industry Minister, Energy Minister and AER support the change of control;
- whether the new controller is a fit and proper person; and
- any other requirement subsequently prescribed by the rules.
If the Exporter fails to obtain approval for the change of control, then:
- the Licence will be immediately suspended after the 90 day grace period;
- the Licence will then be cancelled after a period, to be determined, following the suspension of the Licence; and
- the Exporter will also be liable for civil penalties.
Are there any new taxes or charges?
Exporters will be required to pay a new levy to fund the AER’s expanded functions. The method for determining the amount payable for the levy is to be determined.
There will also be fees payable for government services provided in accordance with the DGRS.
Conclusions
The DGRS remains in exposure draft form and is subject to change through the consultation process. However, given the strength of political support for domestic gas reservation in principle, it is likely that the overarching structure of the scheme will pass through parliament. This would represent a significant shift in Australia’s energy regulatory landscape, and Exporters should not underestimate the compliance and commercial implications.
The DGRS will not impose obligations on natural gas producers who solely supply the domestic market. However, the productive capacity of these domestic-only producers directly shapes the obligations imposed on Exporters; a dynamic that will require close monitoring as the scheme matures.
We recommend the following steps for Exporters:
- actively engage with the government’s consultation process, including by making detailed submissions before the 24 September 2026 deadline, to shape the final form of the legislation and subordinate rules;
- begin preparing internal compliance frameworks, including developing compliance plans and establishing processes for annual reporting, in anticipation of the Licence application process opening on 1 January 2027;
- conduct detailed modelling of projected DSO obligations to understand the financial impact on existing and planned projects, and identify strategies for meeting the obligation through own gas production, additional gas supply or the flexibility mechanisms;
- review existing gas supply agreements and marketing arrangements to assess the scope of the pre-22 December 2025 contract adjustment and ensure new contractual arrangements are structured with the DSO in mind; and
- engage proactively with the AER, which will be the scheme’s primary administrator and enforcer, to build constructive regulatory relationships ahead of the scheme’s commencement on 1 January 2028.
The DGRS has drawn strong support from domestic manufacturers and heavy industry, with Manufacturing Australia CEO Ben Eade stating: “Now it needs to deliver. Five previous federal governments rejected gas reservation, to the detriment of manufacturing jobs, investment and competitiveness.” At the same time, Exporters and their investors have legitimate concerns about the impact on investment signals and Australia’s reputation as a reliable LNG trading partner.
The challenge for the Government will be striking a balance that secures domestic supply without discouraging the upstream investment needed to deliver it. For Exporters, the priority must be proactive engagement, both with the consultation process and with their own internal preparations, to ensure the transition to the new regulatory framework is as smooth as possible.
Implications for Exporters
The DGRS introduces a new variable into the economics of Australian gas development. The DSO creates a domestic supply obligation that Exporters must factor into feasibility studies, financial models and investment decisions. While existing contract grandfathering limits the immediate impact, any new contracts entered into from 22 December 2025 onward are caught by the scheme. For producers evaluating new development opportunities, this introduces a cost that was not previously part of the regulatory equation and may affect the relative attractiveness of Australian projects compared to competing international jurisdictions.
The 20 to 50-year licence term provides a long regulatory horizon, but the lack of clarity on how the Minister will determine the duration introduces planning uncertainty that may complicate project financing. The non-transferability of licences also carries significant M&A implications: any change of control (defined as 20% or more of voting rights or issued securities) requires ministerial consent, introducing deal conditionality and execution risk for transactions involving licence holders.
Contractual Considerations
Developers will need to restructure their gas marketing strategies to accommodate the DSO. The flexibility mechanisms, including take-or-pay arrangements, call options and best endeavours obligations under the Gas Market Code, offer practical avenues for meeting the obligation. However, the distinction between ‘own gas’ and ‘additional gas’ means developers cannot simply purchase domestic gas to on-supply; they must demonstrate genuine new supply to the domestic market.
Contracts entered into before 22 December 2025 receive an adjustment to the DSO calculation, providing a degree of protection for existing commercial arrangements. However, the precise scope of this protection remains subject to consultation and the detail of the final legislation. There is still considerable uncertainty as to whether it applies to optional extensions agreed under those grandfathered contracts.
Regulatory Considerations
The AER’s expanded role as administrator and enforcer of the DGRS introduces a new and significant regulatory relationship for gas developers. Compliance plans, annual reporting and financial assurance requirements will create a substantial new regulatory burden. The cumulative cost of this compliance should not be underestimated, and there is a risk that an overly prescriptive approach could discourage the very investment the scheme ultimately depends upon.
The ‘transparent five-year rolling mechanism’ for DSO determinations provides a degree of predictability, but also means obligations may shift over time in response to changing market conditions.
Position of Western Australian and Northern Territory LNG Exporters
- The DGRS applies nationally, including to the Northern Territory and Western Australian LNG export projects. However, the practical impact on those exporters is likely to be limited in the near term. WA has a long-established domestic gas reservation policy implemented by the state government and the NT has limited pipeline connectivity to the east coast gas market. The ACCC has recognised that the east coast gas market (connecting Queensland, New South Wales, Victoria, South Australia, Tasmania and the ACT) operates as a separate market from the NT and WA.
- Importantly, the draft design framework recognises infrastructure constraints as a basis for varying the DSO, meaning NT exporters could receive a reduced or nil DSO initially. This is not, however, a blanket exemption. To qualify for an infrastructure constraint variation, NT exporters must demonstrate they are ‘pursuing arrangements to overcome those constraints’, which may require investment in new pipeline infrastructure. How this will be interpreted remains a key uncertainty.