Natural gas markets

Natural gas is a major fuel source, accounting for almost 23 per cent of total energy consumed in 2011-2012, the third highest after oil and coal. It is used widely across the economy, from power stations for electricity generation to factories for manufacturing and homes for heating and cooking.

Unlike electricity, there is not a national wholesale market for gas. Most gas is traded bilaterally via long term contracts. Gas producers sell to large gas purchasers – energy retailers and large industrial gas users. They are linked together by pipelines that connect gas fields to gas consumers. Pipeline operators sell capacity on gas pipelines, which transmit gas long distances at high pressure. Distribution businesses deliver gas locally on lower pressure systems.

Australia’s domestic gas market consists of three distinct regions, separated on the basis of the gas basins and pipelines that supply them:

The eastern gas region has some wholesale markets for gas, which allow retailers or large customers to purchase gas without entering into long term contracts. They are mainly used for managing short term imbalances that arise on a day when a large buyer’s actual demand differs from its contracted supply. The Australian Energy Market Operator (AEMO) operates these markets:

AEMO is developing a further wholesale gas market at the Wallumbilla gas supply hub in Queensland. The preceding two markets operate as market-based balancing mechanisms that overlay bilateral contracting arrangements. It is intended that the Wallumbilla hub will provide more of commodity market, where participants voluntarily trade gas.

In 2011-2012, around 1,050 petajoules of liquefied natural gas was exported from Western Australia and the Northern Territory. From 2014 there will be a liquefied natural gas industry on the east coast, with 1,550 petajoules of gas expected to be exported annually by 2020 from Gladstone.

Greater competition for gas will lead to upward pressure on prices and a greater focus on the efficiency of the gas supply chain. Markets that promote efficient allocation of gas throughout the economy will have a positive impact on multiple industries, residential consumers and the NEM.

For more information on developments in the eastern gas region, go to the AEMC’s Gas Market Scoping Study.

For more information on Australia’s gas industry and gas markets, go to the AER’s State of the Energy Market reports.

AEMC’s role

We make and amend the National Gas Rules. These include rules that:

The National Gas Rules govern the wholesale and retail gas markets of northern and eastern Australia. The arrangements for access to and provision of gas pipeline services also apply in Western Australia.

We conduct independent reviews and provide advice to governments on the development of natural gas markets.

In both of these functions, we are required by law to have regard to the National Gas Objective.

National Gas Objective

The National Gas Objective, as stated in the National Gas Law, is to:

promote efficient investment in, and efficient operation and use of, natural gas services for the long-term interests of consumers of natural gas with respect to price, quality, safety, reliability and security of supply of natural gas.