Australia’s first national Domestic Gas Reservation Scheme went to Parliament yesterday (14 October), with the Federal Government saying it is a fix for the supply shortfalls and price spikes that have hit gas-dependent manufacturers since 2022.
The scheme ties the right to export LNG to a domestic supply obligation of 20 per cent of export volumes. The Australian Energy Regulator (AER) will be able to vary that obligation each year based on forecast demand, with a target of supplying 110 per cent of projected domestic needs.
Licence applications are due to open on 1 January 2027, with supply obligations starting on 1 January 2028, if the bill passes.
The legislation also abolishes the Australian Domestic Gas Security Mechanism (ADGSM), with the Heads of Agreement between the government and east coast LNG exporters falling away as a result. The ministers said the reservation would replace “multiple Commonwealth interventions” with a single rules-based framework designed to encourage long-term contracts between producers and large users. Existing export contracts will not be affected.
Changes since the exposure draft released in September include limits on ministerial discretion, measures to stop the scheme being gamed, and a requirement to consult the states and territories on decisions that affect them, including market-wide changes to the supply obligation.
Minister for Industry and Innovation, Tim Ayres, said the legislation was about “securing Australian gas for Australian industry, driving down prices to build a more resilient manufacturing sector”.
“For too long Australians have watched our gas leave our shores while local households and businesses faced uncertainty and rising costs and despite being one of the world’s largest gas producers we still suffered shortages and price shocks at home,” Minister for Climate Change and Energy, Chris Bowen, said.
In a National Press Club address after introducing the bill, Minister for Resources, Madeleine King, said wholesale gas was offered into the domestic market at “well over $60 a gigajoule” during the 2022 energy crisis, before the government capped prices at $12. She said the reservation would also underpin onshore processing of critical minerals, while keeping Australia a reliable exporter to Japan, South Korea, Malaysia and Singapore.
What it means for food manufacturers
Gas accounts for around 40 per cent of food and grocery manufacturers’ energy needs, running heating, cooking, drying and pasteurisation, according to the Australian Food and Grocery Council (AFGC), which welcomed the bill.
“Australian manufacturers should be able to access Australian gas at internationally competitive prices,” AFGC CEO, Colm Maguire, said. “A domestic gas reservation scheme has the potential to improve supply, put downward pressure on prices and give manufacturers greater confidence to invest in their Australian operations.
“The test for this legislation will ultimately be whether it delivers more gas into the domestic market and translates any additional supply into lower and more predictable prices for manufacturers. Getting the implementation right will therefore be critical. The scheme needs to provide certainty for gas users and ensure manufacturers can secure competitive long-term contracts.”
Gas producers back parts of the design but oppose the oversupply target.
“The Federal Government has made a number of sensible changes to the proposed design of a domestic gas reservation, including calibrating the reservation requirement more closely to domestic market needs,” Australian Energy Producers CEO, Samantha McCulloch, said.
McCulloch said the design gave greater certainty to Western Australia and the Northern Territory by recognising their existing state schemes and linking the supply obligation to physically connected markets, but that targeting 110 per cent of east coast demand went too far.
“The proposed 110 per cent oversupply of the east coast gas market will destroy investment signals and crowd out smaller, domestic-focused producers. Forcing around 50 PJs of additional gas into the domestic market is not a ‘moderate oversupply’: it is equivalent to almost all industrial gas use in Victoria,” she said.
She also objected to the scheme’s “must sell” requirement. “Producers should not be forced to sell gas below cost or on non-commercial terms. A domestic reservation policy that results in less competition and less investment is not in the national interest. Ultimately, it will mean higher prices and greater risk of future shortfalls.”
Australian Energy Producers said it supported a “well-designed, prospective reservation policy” and welcomed the Coalition’s commitment to work with the Government on the final design. The Greens have argued for a 25 per cent tax on gas exports instead.
The ministers did not say how much the scheme is expected to lower prices, noting that future gas prices will still be influenced by international and domestic factors.
