The Federal Government's domestic gas reservation legislation passed the House of Representatives last week unchanged, despite ongoing industry concerns that the proposed scheme could undermine investment, competition and Australia's long-term gas security.
With the legislation now facing scrutiny in the Senate, Australian Energy Producers is urging the Government and Coalition to address critical design flaws before the scheme becomes law.
In particular, our submission to the Senate inquiry into the Domestic Gas Reservation legislation calls for the removal of the scheme’s 'must sell’ obligation, which could force producers to sell gas below cost or on non-commercial terms, and the requirement to oversupply the domestic market every year by 10 per cent.
The submission recommends the national scheme should follow WA’s successful approach, and allow gas that is genuinely and competitively offered to domestic users – but not required – to be exported. WA should also be explicitly exempt as it already has a working reservation scheme and is not physically connected to the east coast market.
Without these changes, the scheme risks undermining the investment and competition needed to deliver reliable, affordable gas where and when it is needed.
Government's impact analysis confirms scheme could reduce supply and investment
The Federal Government's own impact analysis, included in the legislation's Explanatory Memorandum, found that the scheme could reduce gas production, investment and LNG exports relative to the status quo, while making some higher-cost gas production uneconomic.
It also identifies a transfer of value from gas producers to domestic users through downward pressure on prices, which industry warns could result in exporters being forced to sell gas at below the cost of production to meet their Domestic Supply Obligations under the scheme.
The impact analysis also estimates the reforms would more than double the regulatory burden – from $59 million to $134 million over 10 years – despite a stated objective in the Gas Market Review of streamlining regulation and reporting requirements.
As our submission highlighted, domestic gas prices remain materially below prices received for Australian LNG exports. The ACCC’s latest report on the east coast gas market found gas buyers contracted more than double the volume of gas for delivery in 2027 compared with the same period last year, while long-term contract prices remained broadly stable at around $12–13 per gigajoule.
The ACCC also found wholesale gas prices on Australia’s east coast remained "largely unaffected by elevated global prices, despite those prices remaining well above pre-Middle East conflict levels."
This is consistent with recent EnergyQuest analysis that found gas prices paid by Australian domestic customers averaged $10.07/GJ over the 12 months to June 2026, while Australian LNG export prices were more than 50 per cent higher at $15.65/GJ over the same period.
With Australian gas markets forecast to remain well supplied until at least the end of the decade, the focus must be on delivering a reservation scheme that encourages investment in new supply to meet future demand.
Senate inquiry reinforces industry's concerns
Australian Energy Producers Chief Executive Samantha McCulloch appeared before the Senate Economics Legislation Committee on 23 October, reinforcing industry's support for a well-designed reservation scheme while warning about the consequences of the current legislation.
“Our central concern remains the proposed ‘must sell’ requirement, which potentially forces producers to sell gas below cost or on non-commercial terms. This is compounded by the requirement to oversupply the domestic market by 10 per cent,” Ms McCulloch told the inquiry.
“The test is whether it delivers reliable, affordable gas for Australians while sustaining the investment needed to supply it over the long term.”
Industry representatives reinforced these concerns across the Committee's hearings, highlighting the risks of artificial oversupply, weaker investment signals and continued barriers to developing new gas resources.
Beach Energy CEO and Managing Director Brett Woods reinforced the importance of developing domestic resources to support Australian industry, while warning that “oversupply is not energy security".
Woodside Energy Vice President, Marketing and Commercial Wojciech Grzech warned that the legislation risks “forcing gas into the domestic market where there is insufficient customer demand”, potentially creating structural oversupply and undermining investment in new supply.
Shell Australia's General Manager, Growth (Eastern Australia) Cam Crowther also raised concerns about the scale of the proposed oversupply requirement. “10% of demand is more than any seasonal variation that occurs in the Australian market. It is more than multiple years of growth in demand in the market. It is a very significant oversupply and a dangerous step,” Mr Crowther said.
Further evidence from regulators and government officials raised questions about the assumptions underpinning the scheme, and provided little clarity about how some key elements of the scheme will work in practice.
Advocacy enters critical parliamentary stage
The Senate Economics Legislation Committee hearings concluded last Friday, and the committee is due to report by 11 November. The legislation is expected to be debated in the Senate from 16 November.
Australian Energy Producers continues to engage with members, the Government, Coalition and officials to secure the necessary changes for a workable and enduring reservation framework.
Our position remains clear: an effective reservation scheme must strengthen domestic gas supply without undermining competition, discouraging investment or jeopardising Australia's reputation as a reliable LNG supplier.
For more information, contact Dr Matt Steen, Principal Advisor – Economic Policy, at msteen@energyproducers.au.