Today the AEMC published a final report tracking changes in trading activity in Australia’s gas markets and the impact of reforms we have designed since 2016.
The Commission’s biennial review indicates a number of positive signs – and evidence that progress is being made towards the energy ministers’ vision to establish a liquid wholesale gas market that provides the right market signals for investment and supply. However, the findings vary across the different gas markets and traded products.
A liquid market exists when no single transaction is likely to move gas prices excessively, individual trades can be easily executed, there is an ability to trade large volumes in a short period of time, and the market can recover after being exposed to shocks.
The east coast markets have seen extensive reform towards more flexible and resilient gas markets.
All the work undertaken to date has focussed on delivering against COAG Energy Council objectives to make it easier to buy and sell gas in Australia – and help keep the cost of getting gas from source to consumers as low as possible.
The ability to move gas around efficiently is important for household and business use as well as a fast-response fuel for electricity generation.
This report will set a baseline for the state of market liquidity against which the effects of the COVID-19 pandemic can be assessed in the next review in 2022. The economic effects of the pandemic may affect domestic and international demand, prices, and industry confidence both in overall terms and in relation to future liquidity development. The report provides preliminary information on the impact of COVID-19 on gas prices and demand, however the information used by the review largely predates the impacts of the COVID-19 pandemic. Most surveys and interviews occurred in early March when there was limited information on the impacts of the COVID-19 pandemic.
Surveys of gas market participants, conducted in early March, showed that stakeholders reported being either satisfied or very satisfied with liquidity in the DWGM, STTM and the day-ahead auction of pipeline capacity. Slightly lower levels of satisfaction were observed for the GSHs with much lower levels of satisfaction for the pipeline capacity trading platform.
A number of significant reforms are underway in the east coast that could contribute to further liquidity growth, particularly at the gas supply hubs and for pipeline capacity trading, and progress should continue to be monitored. As such the Commission considered it is too early to consider further major reforms in this review.
Media: Kellie Bisset Media and Content Manager 0438 490 041
Background on this review
In 2016, the AEMC completed a review of the gas markets and gas transportation arrangements on the east coast of Australia (the East Coast Gas Review). In the final report on the East Coast Gas Review, the AEMC recommended a market redesign that would capture the characteristics of a liquid market and allow for the monitoring of liquidity in the Australian wholesale gas and pipeline capacity trading markets.
In the final report on the East Coast Gas Review the AEMC also recommended that it should report to energy ministers every two years on the growth in trading liquidity in these markets. In December 2017 the COAG Energy Council directed the AEMC to conduct a review into liquidity in wholesale gas and pipeline trading markets. This is the second biennial review.