The Australian Energy Market Commission (AEMC) has released 15 recommended reforms to address problems with gas trading efficiency and pipeline transportation access along Australia’s east coast.
AEMC Chairman John Pierce said if implemented in full, the recommended reforms have the potential to increase Australia’s GDP by $8.7 billion in net present value terms by 2040 through improved viability of gas-using industries and flow-on benefits to employment and tax revenues.
The final report of the East Coast Wholesale Gas Market and Pipelines Frameworks Review (Stage 2) to the Council of Australian Governments (COAG) Energy Council delivers the Council’s vision for Australia’s gas markets.
The report comes at a critical time for Australia’s energy markets with gas prices impacting an electricity sector increasingly reliant on gas-fired generation, particularly where gas fired generation is needed to support intermittent renewable generation.
Key recommendations include:
- Concentrating wholesale gas trading at two hubs – a Northern Hub at Wallumbilla in Queensland and a Southern Hub in Victoria, with improved trading arrangements and price discovery in Victoria. This will reduce market complexity and concentrate trading at key points of demand and supply on the east coast, allowing for increased liquidity and more risk management options for gas users
- Facilitating short-term pipeline capacity trading markets, including a short-term auction for unused capacity and improved capacity trading platforms. Access to pipeline capacity is a key enabler of wholesale market trading
- Improving information provided through the Gas Bulletin Board to enable market participants to make better-informed decisions about trading, investing in, or using gas.
The AEMC’s report also addressed issues raised by both the AEMC and the Australian Competition and Consumer Commission (ACCC) about gas access and pricing.
“East coast gas markets are undergoing a period of growth and change. Largely isolated point-to-point pipelines have developed into an interconnected network and gas demand has increased to supply LNG exports,” Mr Pierce said.
“We are now seeing the impact of change on both the level and variability of gas flows and wholesale prices both in gas markets and electricity markets.
“Making it easier to buy and sell gas in redesigned gas markets will increase competition, lower costs and help support gas-reliant industries, with significant flow-on benefits to both consumers and the general economy.”
The COAG Energy Council will consider the AEMC’s recommendations and aim to establish a new approach to trading gas, supported by improved access to pipeline capacity and additional information provision.
While bi-lateral contracts will remain a fixture of the markets, the proposed changes would introduce more flexibility to support the efficient exchange of gas between buyers and sellers, with greater incentives to trade contracted but unutilised pipeline capacity.
Mr Pierce said reform was needed to keep pace with the changing east coast gas market and to ensure sufficient flexibility so consumers don’t pay more than necessary for their gas.
The Australian Petroleum Production and Exploration Association (APPEA) Chief Executive Dr Malcolm Roberts said he welcomed the report and supports moves to improve transparency, efficiency and liquidity in the market.
“But changes to the wholesale gas market can only achieve so much. Urgent policy and regulatory reform is also required to increase supply, enhance competition and put downward pressure on prices,” Dr Roberts said.
“Market reform is important but removing the existing restrictions on exploration and development is vital.”
Dr Roberts said the AEMC report was timely given the crucial role of gas in alleviating recent energy supply problems in South Australia.
“APPEA supports moves to enhance gas and pipeline market transparency and to simplify and better align existing and proposed trading mechanisms and looks forward to working with governments, gas customers and other stakeholders to progress the AEMC’s recommendations,” Dr Roberts said.
Initial reforms could be introduced immediately following COAG Energy Council agreement, with implementation of the complete package to occur over several phases involving changes to the National Gas Law and regulations, and new rules.
The AEMC also recommended the establishment of a dedicated implementation body to ensure industry and market participant involvement in the implementation of the recommendations.