Australia's New Gas Reservation Scheme: Lower Prices or Less Investment?

Australia is one of the world's largest exporters of liquefied natural gas (LNG). Yet Australian manufacturers and households have faced high gas prices and warnings of future shortages.

The Albanese Government believes it has a solution.

On 14 October, the Government introduced legislation establishing a national Domestic Gas Reservation Scheme, designed to increase domestic supply and reduce prices. The central economic question is whether lower prices today might come at the expense of investment and supply tomorrow.

How will the scheme work?

From January 2028, LNG exporters would be required to supply up to 20% of their export volumes to the domestic market.

This is a must-supply obligation, not simply a requirement to offer gas for sale.

The Australian Energy Regulator would calibrate these obligations to target domestic gas supply equivalent to 110% of forecast demand — a 10% supply buffer designed to put downward pressure on prices.

Existing export contracts would be respected, and obligations would reflect the differences between eastern and western gas markets.

The Government estimates the scheme could make up to 200 petajoules (PJ) of additional gas available annually.

What do the latest gas market figures show?

The ACCC's latest Gas Inquiry report, released on 9 October, presents an interesting picture.

Average prices under long-term contracts for 2027 and 2028 delivery remained relatively stable at $12–13 per gigajoule (GJ) during the first half of 2026, despite elevated international energy prices.

Buyers contracted 51 PJ for 2027 delivery during the first half of 2026, more than double the comparable volume a year earlier. Another 43 PJ was contracted for 2028 delivery.

However, supply security remains a concern.

The ACCC forecasts an east coast surplus of 5 PJ in the first quarter of 2027, even if LNG producers export all uncontracted gas. Yet southern Australia's own production is expected to fall 64 PJ short of demand during April–September 2027.

This latter figure is a regional production gap, not a forecast national shortage. It highlights the importance of pipelines and storage.

Will reservation lower prices?

The economics work in two directions.

Increasing domestic supply should reduce prices, particularly when buyers face limited alternatives. Lower energy costs would benefit manufacturers and industries competing internationally.

However, producers argue that forcing gas onto the domestic market could depress prices below the level needed to justify new projects.

That matters because today's gas supply reflects investment decisions made years earlier. Lower prices could improve affordability in the short term while reducing future production.

There is also a geographical problem: reserving additional gas does not necessarily deliver it to the southern states where seasonal shortages are most acute.

The key policy question

The Government has not published a quantified estimate of the price reduction consumers should expect, with Resources Minister Madeleine King citing commercially sensitive modelling.

That makes the economic trade-off difficult to assess.

The test of this policy should not simply be whether gas prices fall in 2028. It should be whether Australia achieves sustainably lower prices while maintaining sufficient investment in production, pipelines and storage.

More gas for Australian consumers is a reasonable objective. Whether compulsory reservation is the most efficient way to achieve it remains an open question.