The Australian government has released the Domestic Gas Reservation Bill 2026 for consultation, establishing Australia's first national domestic gas reservation scheme requiring gas exporters to supply a portion of their production to the domestic market.
The bill proposes reserving up to 20% of gas exports for domestic use, with exporters able to provide up to 200 additional petajoules of gas per year, which Australian Minister for Climate Change and Energy Chris Bowen said is "more than enough" to avoid the Australian Energy Market Operator's forecast possible shortfalls of up to 140 petajoules.
The licence application process will start from Jan. 1, 2027, with the domestic supply obligation starting from Jan. 1, 2028, to align with industry contracting cycles, while the exposure draft establishes a framework for how the reservation scheme will operate, including cost recovery and compliance and enforcement mechanisms.
The Department of Industry, Science and Resources said the legislation supports the government's Future Made in Australia agenda, with the bill developed in response to the 2025 Gas Market Review and informed by more than 140 submissions received during earlier consultations.
Santos (ASX:STO) Chief Executive Kevin Gallagher said in a Wednesday speech that while the oil and gas firm welcomes the policy, it should not force supply into an oversupplied market, and instead should allow the gas market to invest in bringing new supply online via price signals, recommending that the "must sell" provision be replaced with a "must offer on commercial terms" requirement.
Gallagher argued that East Coast gas supply issues were caused by moratoriums and bans in New South Wales and Victoria over 15 years, which led to insufficient investment in new gas supply sources, adding that regulations should improve supply by incentivizing investment in new sources given that new investment is essential from 2030 to offset declining production at the Bass Strait.
RBC Capital Markets said in a note that it views the legislation as a welcome relief to smaller cap Australian domestic gas-focused stocks, including Amplitude Energy (ASX:AEL), Beach Energy (ASX:BPT), Comet Ridge (ASX:COI), Strike Energy (ASX:STX), and Tamboran Resources (ASX:TBN).
However, RBC said it does not agree with the government's estimate that the scheme would avoid the forecasted shortfalls, as the estimate assumes any spare volumes of gas in east coast liquefied natural gas projects are exported as spot LNG rather than sold domestically.