East Coast Wholesale Gas Market and Pipeline Frameworks Review

by Energy Action | Dec 15, 2015
On 4 December 2015 the Australian Energy Market Commission released its Stage 2 Draft Report in relation to the East Coast Wholesale Gas Market and Pipeline Frameworks Review.

As described in previous editions of our Energy Market Update, the COAG Energy Council requested that the Australian Energy Market Commission (“AEMC”) review the design, function and roles of facilitated gas markets and gas transportation arrangements on the east coast of Australia. The AEMC published the Stage 1 Final Report on 23 July 2015 and subsequently followed that up with a discussion paper on 6 August 2015 discussing the role of gas hubs, setting out why physical and financial trading of gas takes place and outlined how physical imbalances can be managed.

This Stage 2 of the review more fully develops the roadmap for future gas market development.

Concurrently, the COAG Energy Council, at the request of the Victorian Government, has also asked the AEMC to undertake a detailed review of the pipeline capacity, investment, planning and risk management mechanisms in the Victorian Declared Wholesale Gas Market (DWGM). The recommendations in that review form part of an integrated package of reforms consistent with the wider East Coast Review.

The AEMC is recommending a pathway for the future development of the market that seeks to concentrate trading at two points on the east coast – in the north by continuing to evolve the existing Wallumbilla Gas Supply Hub and in the south by enhancing the Victorian DWGM.

Two primary pricing points have been recommended as the AEMC is concerned that multiple trading locations unnecessarily split liquidity and reduce the benefits to participants of a liquid wholesale market. Prices at the two hubs would seek to reflect the differing market conditions in the two regions which have both significant sources of supply and demand:

In Queensland, demand is primarily driven by LNG production and large users (including gas-fired generation) and there is significant conventional and unconventional gas production.

In Victoria, gas is primarily consumed by residential customers, and so is driven by day-to-day weather and the seasons. There is also significant offshore production, which is increasingly important for domestic demand across the east coast.

Price discovery at both markets would be via exchange-based trading, with common gas day start times, back-end systems, registration, prudentials, settlement and training where possible. This should lower transaction costs and complexity for traders operating across multiple markets, encouraging greater participation.

Price Discovery, Balancing, Back End

Source: AEMC Stage 2 Draft Report - East Coast Wholesale Gas Market and Pipeline Frameworks Review

The table below sets out the summary of key recommendations put forward by the AEMC in its Stage 2 Draft Report:

 Market development area

Recommendations

 Wholesale gas trading  
  markets


 Two primary trading hubs on the east coast, one in the
 north and one in the south, with common trading
 mechanisms applying to each.

 The Northern Hub to be defined as a physical hub at
 Wallumbilla, with the potential for a virtual hub at a later
 date.

 The Southern Hub to consist of a virtual hub covering the
 Victorian transmission system, with an entry-exit regime
 for allocating capacity.

 Simplification of the Short Term Trading Market (STTM)
 hubs to a balancing role once liquidity has developed at
 the Northern and Southern hubs and in pipeline capacity
 trading.

Pipeline access


 Introduction of an auction for contracted but un-
 nominated capacity with a regulated reserve price on all
 pipelines.

 Mandatory creation of capacity trading platforms, through
 which information regarding all capacity trades, including
 prices, must be published. Capacity product
 standardisation would facilitate trading through the
 platform.

 Publication of the actual price of all primary capacity
 sales, and terms and conditions of those sales, which
 might impact the price.

Information provision


 Broaden the purpose of the Bulletin Board in the National
 Gas Rules to reflect the wider role that information plays
 in the sector.

 Expand the coverage of the Bulletin Board and improve
 and strengthen the reporting framework.

 Make the Bulletin Board more responsive to changes in
 market conditions by removing funding methodology from
 National Gas Rules and creating a framework to support
 ongoing improvement.

Source: AEMC Stage 2 Draft Report - East Coast Wholesale Gas Market and Pipeline Frameworks Review

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