10. Domestic market obligations
A domestic market obligation (DMO) is a policy commonly defined in the host state regulation or the PSA. A DMO requires producers to sell a specified portion of their oil or gas production at a rate equivalent to their export prices or at discounted rates to the domestic market.
For instance, Indonesia’s gas law requires producers to offer 25% of their gas production to the domestic market for a minimum price reflecting cost recovery and a margin. Mozambique’s petroleum law also establishes a 25% domestic market supply obligation. In Tanzania, the supply obligation must satisfy the domestic market from their proportional share of production and the volume of crude oil or natural gas to be sold will not exceed the share of producers profit from oil or gas.
To ensure this obligation is compiled by the producers, a working domestic market needs to be established with clearly defined tariffs. This practice can bring benefits as well as disadvantages to the host state, in particular if the domestic price is lower than export prices. For the state, there would be reduced royalties and taxes from production, and low domestic prices carry the risk to discourage upstream gas project development.