The gas produced for domestic consumption is transported (or ‘shipped’) by high pressure transmission pipelines from the production facility to the entry point of the distribution network (known as the city gate) or to large users that are connected to the transmission pipeline.
Pipeline operators sell transport services, limited by their pipeline capacity, to gas ‘shippers’. Many large gas buyers act as their own shipper. Pipeline capacity is managed under two different approaches:
Shippers enter into bilateral transportation agreements with pipeline operators. These specify the maximum daily quantities of gas that may be shipped under prescribed terms and conditions. Contract carriage is used for transmission pipelines in all jurisdictions except for Victoria.
Under this model, the pipeline owner makes its system available to an independent system/market operator who manages pipeline capacity through a pool approach. Users of a market carriage pipeline do not reserve physical capacity; instead, they obtain a financially firm right. The market carriage model is used for the Victorian declared transmission system, which includes four major transmission pipelines. The Australian Energy Market Operator acts as the system/market operator.
Gas storage facilities can inject gas into the transmission system at short notice to manage peak demand or emergencies. They are typically owned by energy retailers.
Regulation of pipeline services
The National Gas Law and Rules provide a framework for the regulation of pipeline services. The Australian Energy Regulator regulates pipeline services in all jurisdictions except Western Australia where the Economic Regulation Authority holds this responsibility.
Based on an assessment of the degree of competition that exists for the service, the National Competition Council recommends whether a transmission pipeline should be regulated. The jurisdictional minister decides whether to regulate and the form of regulation that should apply – light or full.
For a fully regulated service, the pipeline or network operator has to prepare an access arrangement for the regulator to approve. The access arrangement includes price and non-price terms and conditions for third parties to gain access to the pipeline.
For a lightly regulated service, a more limited access arrangement can be lodged where the pipeline operator determines its own tariffs.
Some pipelines are unregulated.
The access arrangement provides a starting point for parties to negotiate access on commercial terms. In the event of a dispute, the National Gas Rules contain a dispute resolution mechanism.
New rules made by the AEMC at the end of 2012 introduced a common approach to setting the rate of return for both gas and electricity networks. For more go to Price and Revenue Regulation of Gas Services rule.
For more on how the AER regulates pipeline services, go to the AER’s State of the Energy Market reports.