Briefing

A comprehensive overhaul of the Australian East Coast gas market is on the way

Between late 2014 and early 2016, LNG producers began exporting LNG from projects on the East Coast of Australia to global markets. That created a valuable and beneficial new industry but contributed to shortfalls and high prices for domestic gas users on the East Coast. After years of reactive interventions, the Australian Government has conducted a review and released a report (the Gas Market Review Report)¹, heralding an overhaul of the East Coast gas market regulatory framework.

The report’s findings are that fundamental reform is required, with the most significant recommendation being the introduction of a domestic gas reservation policy to apply, at a minimum on the East Coast which reserves between 15% and 25% of gas production for the domestic market. The report expects this policy will strike the delicate balance between alleviating shortfalls and high prices and respecting the significant investment made in
establishing the LNG industry on the East Coast as well as Australia’s trading partners and their energy security. Such policy would not apply retrospectively and would be implemented in a phased manner from 2027 after further industry consultation.

Introduction: The Gas Market Review Report

The Gas Market Review Report was released on 22 December 2025 and is available here. It was undertaken jointly by the Department of Climate Change, Energy, the Environment and Water and the Department of Industry, Science and Resources. It involved meetings with over 80 different stakeholders and a total of 122 formal submissions were received.

The report has made 18 recommendations in total, whilst noting that further industry consultation is necessary. The most significant recommendations are as follows:

the introduction of a domestic gas reservation scheme.²
the unwinding of previous interventions,³including the Gas Market Code’s A$12 “reasonable price mechanism” (i.e. price cap)⁴ and the conditional Ministerial exemption framework.⁵

Other recommendations included increased price transparency measures (including an East Coast gas market forward price index) and mandatory reporting on material changes to proven and probable (2P) reserves.⁶

The Government is not bound by the report’s recommendations; however, disregarding them would mean ignoring two Government departments and would likely invite criticism from the opposition. The Ministerial response to the report endorsed a domestic gas reservation policy but did not commit to the other recommendations, such as removal of the A$12 price cap.

The main challenge: supply shortfalls in the East Coast gas market

Australia has two physically separated gas markets: the West Coast market (comprising Western Australia) and the East Coast market (comprising Queensland, New South Wales, Victoria, the ACT and South Australia). In this briefing, we focus on developments in the East Coast gas market.

Between late 2014 and early 2016, LNG producers commenced the export of gas sourced from East Coast coal seam gas seams as LNG to global markets. The Gas Market Review Report found that several outcomes followed:

Positively, the LNG producers contributed significantly to the Australian economy with taxes and jobs and increased the domestic supply of gas by developing gas reserves which were otherwise uneconomic to develop purely for the domestic market; and
Negatively, the advent of LNG exports has contributed to supply shortfalls as available supply is diverted for LNG export and the domestic supply is linked to international markets, exposing domestic gas users to generally higher international LNG prices.

The Australian Energy Market Operator has forecast medium to long term shortfalls in the East Coast market for some time and most recently, has forecast peak day gas shortfalls in Victoria, New South Wales, South Australia, and the ACT (collectively, the “Southern States”) from 2028.

The problems came to a head in early 2022 when Russia’s invasion of Ukraine, and unpredicted demand on gas powered electricity generators, resulted in domestic gas prices rising from A$6/GJ to A$40/GJ.⁷ This, being in addition to the headwinds faced by gas producers in Australia generally, to have new gas developments approved and into operation. The Government acted swiftly to implement a A$12/GJ temporary gas cap from December 2022 to December 2023. The temporary gas cap was followed by the implementation of the mandatory Gas Code of Conduct, which introduced a “reasonable price mechanism” of A$12/GJ for wholesale gas sales. The successful implementation of these interventions is questionable, given, among other things, the various exemptions which apply.

Notwithstanding, these interventions had the effect, in part, of moderating wholesale gas prices and avoiding near-term supply shortfalls.⁸ However, they did not increase gas supply in the medium to long term and undermined investment certainty in the East Coast gas market.⁹ This led the Government to announce the comprehensive review into the East Coast gas market on 30 June 2025.

The main findings: implementation of a domestic gas reservation policy and the discontinuation of prior interventions

The main recommendation of the Gas Market Review Report is a mandatory domestic gas reservation policy to apply in the East Coast gas market and to replace the Government’s prior market interventions, which it recommended be removed.

The prior market interventions included the Gas Market Code’s A$12 “reasonable price mechanism” discussed above, the conditional Ministerial exemption framework which provide:

exemptions to the price cap if producers guaranteed domestic supply; and
the “expression of interest” contracting mechanism, introduced in the Gas Market Code to address bargaining power imbalances between producers and buyers.

The Government will determine the specifics of the operation of such domestic gas reservation policy. The Ministerial statement accompanying the Gas Market Review Report noted that the scheme will require exporters to reserve between 15% and 25% of gas production for supply into the domestic market. There is also some guidance in the report:

Existing contracts would be respected and untouched by the policy.
The policy should commence in 2027 to avert supply shortfalls and capture LNG supply contracts which are rolling off.
LNG producers will need to meet domestic supply obligations before LNG exports are approved.
Domestic contracting on a longer-term basis should be encouraged.

Interestingly, the Ministerial statement notes that the reservation scheme should have capacity to have national application “working in tandem with federal, state and territory gas market mechanisms”. How the policy will sit with the West Coast gas reservation policy, which we have written about extensively,¹⁰ remains to be seen.

HFW comment

It is not in dispute that change is required to avoid the risk (perhaps more perceived than real) of the lights going out on the East Coast. Whether this should include capping or reserving produced gas in a challenging regulatory environment, is a moot point. Given the current status, the Government feels that it needs to step in.

Stakeholder feedback and the Gas Market Review Report itself suggests that previous Government interventions, including the A$12 price cap, were rushed, did not adequately address the supply issue, and tarnished Australia’s reputation as a reliable investment and trading partner while providing no real relief for domestic gas users. If the East Coast domestic gas reservation policy is implemented as recommended (i.e. in a phased manner after genuine consultation with industry), then this should generally be viewed as a positive development for the industry and consumers alike.

Work to formalise and implement the recommendations made in the Gas Market Review Report will begin in 2026. Further consultation regarding the design of the policy will take place prior to their implementation. Until that time, existing regulations will remain effective, with investment decisions in new gas development projects remaining challenging.

Footnotes:

The review was first announced on 30 June 2025. See: https://www.dcceew.gov.au/energy/markets/gas-markets/gas-market-review.
Gas Market Review Report, Recommendations 1-5.
Gas Market Review Report, Recommendation 6.
On 22 December 2022, the government imposed a $12/GJ temporary price cap on new wholesale gas sales from December 2022 to December 2023 via the Competition and Consumer (Gas Market Emergency Price) Order 2022, made under section 53M of the Competition and Consumer Act 2010 (Cth). When the Gas Market Code commenced on 11 July 2023 (being, the Competition and Consumer (Gas Market Code) Regulations 2023 (Cth)), the price cap was replaced with the “reasonable price mechanism” of $12/GJ for wholesale gas sales.
The Gas Market Code provided a framework by which LNG producers could provide enforceable commitments to supply domestic gas in return for an exemption from the $12/GJ reasonable price mechanism.
Gas Market Review Report, Recommendations 12.
Reserve Bank of Australia, Statement on Monetary Policy – August 2022, “Recent Developments in Energy Prices”, page 53.
Gas Market Review Report, page 49.
Gas Market Review Report, Finding E; pages 35-36 (impact on supply) and pages 49-52 (impact on prices).
See here, here, here and here.