Seen from Tokyo, Australia's gas reservation cap erodes LNG buyers' security

Summary

A note published on 6 October 2026 by the Institute of Energy Economics, Japan (IEEJ) examines the Domestic Gas Reservation Bill, which the Australian government released in draft on 10 September. The bill places a domestic supply obligation on LNG exporters: up to 20% of exports must be sold into the home market, and the government is targeting roughly 200 PJ (petajoules, a unit of energy) of extra domestic supply a year. IEEJ finds the draft more flexible than the initial framework of May 2026. The obligation now starts on 1 January 2028 rather than 1 July 2027. Export licences will run for 20 to 50 years, the minister can set the rate anywhere between 0% and 20%, and the Australian Energy Regulator (AER) will recalculate domestic demand each year.

The institute nonetheless objects on three counts. First, the projected domestic shortfall is 140–200 PJ, yet a 20% cap equals about 816 PJ at current export volumes, and neither the rationale nor the modelling has been published. Second, unsold volumes roll over into later years even when no buyer can be found. That leaves the obligation delivery-based and creates a risk of structural oversupply. Third, the minister's power to suspend and cancel licences could in practice undercut the security that 20–50-year licences promise. In its 24 September submission to Canberra, IEEJ stressed that Asia-Pacific LNG importers rely on Australian supply. It argued that extension and option rights in contracts signed before 22 December 2025 must also be explicitly protected.