Domestic Gas Reservation Scheme: exposure draft legislation released

On 10 September 2026, the Commonwealth Government released exposure draft legislation for the Domestic Gas Reservation Scheme (Reservation Scheme) as a package of three Bills for public consultation (Exposure Bills). The release of the Exposure Bills follows the closing of the consultation period on the Reservation Scheme's Draft Design Framework (Framework) in June 2026.

The Exposure Bills contain a number of changes to the Reservation Scheme from how it was proposed in the Framework, and brings the Reservation Scheme a step closer to becoming law.

We set out below an overview of the draft legislative package and key features from the Exposure Bills, along with departures from the Framework. This will be supplemented by a more detailed analysis over the coming days.

What is the legislative package?

The exposure draft legislation comprises three Bills:

• Domestic Gas Reservation Bill 2026, which establishes the export licensing regime, the Domestic Supply Obligation (DSO) framework, the compliance and enforcement architecture, and the Australian Energy Regulator's (AER) regulatory functions. If passed, the Bill is planned to commence on 1 January 2027, but with the export licence requirement taking effect from 1 January 2028.

• Domestic Gas Reservation Levy Bill 2026, which imposes a levy on export licences, stated to be a cost recovery levy to fund the AER's administration of the scheme. If passed, the levy will commence on 1 January 2028, however, the amount is to be prescribed by regulation.

• Domestic Gas Reservation (Consequential Amendments) Bill 2026, which makes consequential amendments to the Competition and Consumer Act 2010 (Cth) and the Gas Market Code, including provisions for determining gas production baselines, the additionality framework, demand calibration, and the repeal of the Australian Domestic Gas Security Mechanism (ADGSM) under the Customs (Prohibited Exports) Regulations 1958 (Cth).

What are the key features of the Exposure Drafts (and changes from the Framework)?

Who does the Reservation Scheme apply to?

Under the Exposure Bills, all persons exporting LNG from Australian territory on or after 1 January 2028 must hold an export licence granted by the Minister. The "exporter" is defined as the person who holds legal title to LNG immediately before it is loaded onto a vessel for export.

The Reservation Scheme applies across Australia, including external territories, the exclusive economic zone and continental shelf waters. The Greater Sunrise special regime area is excluded. LNG carried as vessel fuel is also excluded from the scheme.

How is the DSO calculated?

The DSO requires each licence holder to supply a minimum total quantity of gas to the domestic market, calculated as:

DSO = 20% (or varied percentage) of energy content of total covered LNG exports, less adjustment quantities

Key features of the calculation include:

• the DSO percentage can only be varied downward (less than 20%) by Ministerial determination, based on market demand and supply conditions and with advice from the AER;

• a demand calibration mechanism may further reduce the DSO. The demand calibration determination is made annually for each regulated period. The method for determining the calibration will be determined by the AER by regulatory instrument. The AER must provide estimates for the next 4 regulated periods following the first year, providing a 5-year look-ahead window. This mechanism uses this forecast, aligned to a target aggregate supply of 110% of forecast domestic demand (subject to Ministerial variation). Importantly, the demand calibration can reduce the DSO but is not to increase it beyond 20%;

• DSO adjustment quantities may reduce the obligation further for existing contracts, existing reservation arrangements, or infrastructure constraints. Applications for adjustment quantities must be applied for when applying for an export licence and determined before 31 December 2027, however, an exception to this applies if the DSO% changes from 0% to more than 0% at a later date;

• Debt quantities from previous years (i.e. from failing to meet the DSO in a previous period) will increase a licence holder's DSO; and

• where a licence holder acquires non-additional gas, this has the effect of increasing the licence holder's DSO, reinforcing the requirement that licence holders be net contributors to the domestic market.

How is the DSO met?

Physical supply is required to meet the DSO, and offers alone will not be sufficient.

DSO supply can be made by the licence holder directly, by another body corporate on its behalf, or through deemed DSO supply mechanisms. Deemed DSO supply includes take-or-pay arrangements (where the buyer has declined to take gas) and net contributions to facilitated markets (such as AEMO-operated gas markets).

Gas supplied towards the DSO must be the licence holder's "own gas" or "additional gas". The Exposure Bills have introduced an "additionality framework", which seeks to ensure that gas counted towards the DSO represents genuinely new supply to the domestic market, not a reallocation of existing domestic volumes. Gas production baselines, determined by the AER, will be used to assess whether supply is additional.

The Exposure Bills have also introduced a "flexibility mechanism" to allow licence holders to defer up to 10% of their DSO in any regulated period, provided "flexibility requirements" are met. Deferred quantities must be offset within three subsequent regulated periods. Credit quantities arising from oversupply in a period are used to offset deferred quantities chronologically.

How are existing contracts treated?

Existing contracts (those entered into on or before 22 December 2025) are recognised through the DSO adjustment determination, which the licence holder must apply for. This is not an automatic exemption.

The Minister must be satisfied of three things before granting a DSO adjustment for existing contracts:

• without the adjustment, the licence holder would likely breach the existing contract;

• the licence holder cannot reasonably produce or acquire additional gas to meet the DSO; and

• the licence holder is actively taking steps to improve its ability to make DSO supplies.

If the Exposure Bills pass, applications for DSO adjustments in respect of existing contracts must be included in export licence applications lodged before 31 December 2027. DSO adjustment determinations must be published, with reasons, within one business day of the decision.

What about infrastructure constraints and state-based reservation schemes?

Infrastructure constraints (for example, pipeline connectivity limitations) and existing domestic gas reservation arrangements (such as WA's domestic reservation policy and Queensland's Australian Market Supply Condition) are recognised as grounds for DSO adjustment determinations.

Are extended periods available for DSO compliance?

Yes, it is possible to seek extended period determinations to allow a licence holder to meet its DSO over multiple regulated periods rather than annually.

The general DSO requirement will not apply during the period of a determination. Instead, the DSO in the extended period will be 20% (or a lowered determined percentage) of the total covered exports less any DSO adjustment quantities.

An application for an extended period determination must be made before 1 December 2027, however, there is an exception where the DSO% changes from 0% to more than 10% at a later date.

What are the key compliance and reporting requirements?

The scheme imposes a range of compliance and reporting obligations on licence holders:

• Compliance plans must be prepared by licence holders and submitted for acceptance by the AER for each regulated period. These plans must set out how the licence holder intends to meet its DSO.

• Annual reports must be submitted within 60 days of the end of each regulated period.

• Financial assurance obligations must be maintained at all times during the life of the export licence.

The AER has broad regulatory powers, including monitoring, investigation, auditing, the power to issue directions and require special reports, and the ability to accept court enforceable undertakings and seek financial penalties.

What are the penalties?

The Exposure Bills include a civil penalty regime for non-compliance. The maximum penalty for a body corporate is the greatest of:

• 50,000 penalty units;

• three times the benefit obtained or detriment avoided; or

• 10% of annual turnover, capped at 2.5 million penalty units.

This penalty applies to:

• export without an export licence

• failure to satisfy the DSO requirement

• export of gas from an offshore export facility (unless an exemption applies)

• engaging in an anti-avoidance scheme.

A change in control of a licence holder without Ministerial consent attracts a penalty of 30,000 penalty units for a body corporate and 6,000 penalty units for individuals.

Certain other (lower) civil penalties also apply.

Notably, executive officer liability applies in specified circumstances where officers have been involved in contraventions.

Anti-avoidance provisions are also included under the penalty provisions and are broadly framed, capturing schemes entered into for the purpose of avoiding obligations under the legislation.

What changes to the Gas Market Code?

The Consequential Amendments Bill makes significant changes to the Gas Market Code (Code), reflecting the Government's view that the Reservation Scheme changes the regulatory landscape sufficiently to warrant a reworking of the Code's framework.

Key changes include:

• Repeal of prescriptive negotiation requirements: the existing requirements around initial offers, final offers, price cap and conditional ministerial exemptions are repealed.

• Selling practice requirements: replacement of the repealed provisions with an expression of interest (EOI)-based selling framework, good faith negotiation obligations, and new provisions addressing unreasonable refusal of offers by licence holders. Gas must be offered on domestically competitive terms.

What about the ADGSM?

The Australian Domestic Gas Security Mechanism under the Customs (Prohibited Exports) Regulations 1958 is repealed from 1 January 2028, reflecting the transition from the existing ad hoc export control mechanism to the permanent reservation framework.