Market Reviews: Open

Review of the Victorian Declared Wholesale Gas Market

Reference:
GPR0002
Reviewed by:
AEMC
Initiated by:
SCER
Date initiated:
04-Mar-2015
Project Leader:
Jenessa Rabone
Overview

On 21 October 2016 the Commission published a draft final report for its review of the Victorian declared wholesale gas market. The draft final report investigated the issues facing the DWGM and set out the Commission’s recommendation to address the issues.

On 21 October 2016 the Commission published a draft final report for its review of the Victorian declared wholesale gas market. The draft final report investigated the issues facing the DWGM and set out the Commission’s recommendation to address the issues.

Given the complexity of this review, on 9 March 2017 the Victorian Government extended the timeframes and requested that a final report be provided by September 2017. The purpose of the extension is to allow additional consultation with stakeholders, with a particular focus on some of the incremental options to improve the DWGM and other alternatives.

The Commission is expecting to release an assessment of the alternative market designs for consultation in late March 2017.

Background

On 4 March 2015, the Victorian Government, with the agreement of the COAG Energy Council, asked the AEMC to conduct a review of the DWGM.

Terms of Reference

The Terms of Reference for the review require the AEMC to consider:

  1. The ability of market participants to manage price and volume risk in the DWGM and options to increase the effectiveness of risk management activities.
  2. Whether market signals and incentives are providing for efficient use of, and efficient and timely investment in, pipeline capacity on the DTS.
  3. To maximise the efficiency of trade in natural gas and facilitate competition in upstream and downstream markets, producers and shippers should be able to effectively operate across the different gas trading hubs on the east coast without incurring substantial costs.
  4. Whether the DWGM arrangements continue to facilitate market entry and promote competition in upstream and downstream markets and how this could be improved.

The AEMC is to consider the National Gas Objective and the COAG Energy Council’s Gas Market Development Plan in conducting its review.

First Discussion paper – September 2015

On 10 September 2015, the AEMC published a discussion paper for the Review of the Victorian DWGM. The discussion paper identified and discussed possible gaps in the existing market design and market carriage model under the themes of risk management, market signals, market-driven investment, regulatory investment arrangements and exports.

Five high level packages for reform were developed and each package included one or more policy measures to address the gaps identified in the existing market design and regulatory framework in Victoria.

Submissions closed on 8 October 2015, with 12 submissions received. 

Draft Report – December 2015

On 4 December 2015, the AEMC published a Draft Report for the Review of the Victorian DWGM. With a view to the longer term, the Commission developed a package of reform for the DWGM and associated market carriage arrangements which govern access to the Victorian DTS. This report focused on two key areas:

  • Trading gas at the Southern Hub: transitioning from the DWGM - where trading and balancing occurs on a mandatory, operator led-basis - to a new model where trading would occur on a voluntary, continuous basis but is underpinned by a mandatory residual balancing mechanism. 
  • Access to transportation capacity at the Southern Hub: to support this new form of trading, transitioning the market carriage model and associated limited pipeline transportation rights to a system of entry and exit rights for capacity allocation. This would allow network users to book firm transportation capacity rights independently at each entry and exit point to the DTS. 

Submissions closed on 12 February 2016, with 9 submissions received.

Second Discussion paper – March 2016

On 3 March 2016, the AEMC published a discussion paper for the Review of the Victorian Declared Wholesale Gas Market. This discussion paper was based around four key themes and focused on the key design issues relevant to the Southern Hub model: managing capacity at the Southern Hub, capacity allocation mechanisms, capacity pricing and revenue and balancing.

Submissions closed on 29 March 2016 and the Commission received 12 submissions.

Project extension

On 13 May 2016, the Victorian Government responded to the DWGM Review draft report and extended the timeframes within which the AEMC must undertake its Review of the Victorian Declared Wholesale Gas Market. The purpose of the extension was to enable the AEMC to prepare a more detailed design for the recommendations and enable further consultation with stakeholders.

Working group

The AEMC has convened a technical working group to progress the detailed design of the Southern Hub gas market model proposed for Victoria in the Draft Report. The working group comprised of technical experts from market participants and other industry and consumer groups.

Four working group meetings were held over June to August 2016. These meetings were well attended by industry members.

The working group meetings were used to identify and work through issues identified by stakeholders to make sure there were no “showstoppers” and that issues were resolvable.

The working group discussed a number of key facets of the market design, including commodity trading, on-the-day balancing arrangements and capacity allocation. It also considered transitional issues.

The meetings were also used to educate and inform market participants on the detail of various aspects of the Southern Hub model.

Draft final report

On 21 October 2016, the Commission published a draft final report that investigated the issues facing the current DWGM and set out the Commission’s recommendations to address these issues. The recommendations principally involve introducing a new set of arrangements to establish a ‘Southern Hub’ for trading gas across the declared transmission system (DTS). This would involve substantially reforming the DWGM to introduce:

  • new trading arrangements to give participants greater ability to manage price risk and improve longer-term price signals to facilitate investment decisions; and
  • explicit capacity rights for the use of pipeline infrastructure, which would enable investment decisions to be driven by market participants’ purchases of rights, reducing costs and risks to consumers.

Consultation closed on 2 December 2016 and the Commission received 18 submissions.

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Documentation

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Consultant Reports

Public Forum

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Review Extension

AEMC Documents

AEMC Documents

Submissions

AEMC Documents

Submissions

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Review Extension

AEMC Documents

COAG Energy Council Documents

Submissions

Late Submissions