Final Report on the East Coast Gas Review

by Energy Action | Sep 09, 2016
The Australian Energy Market Commission recently released 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.

The Final Report says the structural change occurring in the gas industry on the east coast of Australia has been accelerated by the Queensland-based liquefied natural gas (LNG) export industry driving an increase in demand from 694 petajoules (PJ) in 2014 to an expected 1,961 PJ in 2020. This will have a consequential impact on the level and variability of gas flows and wholesale prices. At the same time, the pipeline transportation infrastructure has evolved into an interconnected network, supporting a series of increasingly interlinked wholesale gas markets.

The Report from the Australian Energy Market Commission (AEMC) comes at a critical time for Australia’s energy markets. Gas prices are impacting an electricity sector increasingly reliant on gas-fired generation, particularly where gas fired generation is needed to support intermittent renewable generation.

AEMC Chairman John Pierce said the reforms are intended to “make 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 Final Report include:

  ●  Concentrating wholesale gas trading at two hubs – a Northern Hub at Wallumbilla in Queensland and a Southern Hub in Victoria, the key points of demand and supply on the East Coast. 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.

  ●  Reducing costs and complexity by simplifying Adelaide, Sydney and Brisbane short-term trading hubs to become balancing hubs.

 ●  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.

  ●  Increased amount and frequency of data reported on the Gas Bulletin Board to enable market participants to make more informed production, consumption, trading and investment decisions.

  ●  Greater data accuracy requirements and stronger compliance framework.

In addition, the AEMC recommends the Victorian Declared Wholesale Gas Market (DWGM) transition to continuous exchange-based trading, underpinned by a market-based balancing mechanism. A key feature would be the introduction of an exchange similar to that at Wallumbilla, providing a low cost, anonymous and transparent way for participants to trade.

To support this new form of trading, the AEMC also recommends that the market carriage model is replaced with a system of firm rights for capacity allocation. This would allow network users to book firm transportation capacity rights independently at each entry and exit point to the Victorian Declared Transmission System.

Initial reforms could be introduced immediately following Council of Australian Governments (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.

According to the AEMC, the reforms are estimated to result in an annual net benefit to the Australian economy of $500 million to $3.3 billion by 2040. 

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