Industry backs AEMC report

Australia’s gas and pipeline industries have backed the findings of an Australian Energy Market Commission (AEMC) report released yesterday.

The AEMC’s East Coast Wholesale Gas Market and Pipeline Frameworks Review (Stage 2) highlighted a package of 15 key recommended reforms to remove roadblocks to faster and more efficient gas trading and access to pipeline transportation along the east coast of Australia.

AEMC Chairman John Pierce said, if implemented in full, the reforms have the potential to increase Australia’s gross domestic product (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 revenue.

“East coast gas markets are undergoing a period of growth and change,” said Mr Pierce.

“Largely isolated point-to-point pipelines have developed into an interconnected network and gas demand has increased to supply LNG exports.

“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.”

Key recommendations of the report 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.
  • Improved information provided through the Gas Bulletin Board to enable market participants to make better-informed decisions about trading, investing in, or using gas.

Industry response

The Australian gas and pipeline industry’s representative bodies have welcomed the findings of the report, saying they are far more sensible than the suggestions made by the Australian Competition and Consumer Commission (ACCC).

“Recommendations in the report generally outline a sensible approach to improving the market, which contrasts with the ACCC’s recommendations to increase regulation,” said Australian Pipelines and Gas Association (APGA) Chief Executive Cheryl Cartwright.

“In fact, gas transportation companies have been very receptive to the AEMC’s recommendations for mechanisms to improve capacity markets and will work closely with stakeholders to develop workable auction and trading programs.

“Introducing pipeline capacity trading platforms and capacity auctions will encourage retailers and others who have unused pipeline capacity to offer it for sale, helping to increase competition in the gas market.

“While APGA has concerns about some of the detail, we are keen to discuss these issues further as, overall, the proposal is for generally sensible market-based reforms, which are in stark contrast to the heavy-handed regulatory approach advocated by the ACCC in the final report of its East Coast Gas Inquiry.

However, APGA says while these changes will improve the operation of the market, they will do little to either reduce the end-use price for gas or to increase the supply of gas to the domestic market.

“Increasing the availability of pipeline capacity will improve market efficiency, but the only way to significantly address gas prices is to increase gas supply and gas suppliers,” said Ms Cartwright.

“It’s time to genuinely address concerns about coal seam gas development and allow, where practical, the development of all our gas reserves.”

The upstream industry representative, the Australian Petroleum Production and Exploration Association (APPEA), said the report provided many useful recommendations to increase the trade and transportation of gas on the east coast.

“APPEA welcomes the release of the AEMC’s report and supports moves to improve transparency, efficiency and liquidity in the market,” said APPEA Chief Executive Dr Malcolm Roberts.

“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.

“Market reform is important but removing the restrictions on exploration and development is vital.”

The AEMC’s recommendations will be considered by the Council of Australian Governments (COAG) Energy Council, which meets in Canberra in August.

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.

 

You can read the AEMC’s recommendations here.

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