The Australian Energy Market Commission (AEMC) has released recommendations for changes to the wholesale gas market in Victoria to improve price and investment signals.
The recommendations are set out in the Draft Report for the Review of the Victorian Declared Wholesale Gas Market published today. The review was requested by the Victorian Government, with the agreement of the COAG Energy Council.
The AEMC’s recommendations for the Victorian gas market form part of a broader roadmap for gas market development on the East Coast of Australia outlined in the Stage 2 Draft Report for the East Coast Wholesale Gas Market and Pipeline Frameworks Review, also released today.
“Our recommendations to provide greater flexibility for market participants to trade gas in Victoria form an integral part of the AEMC’s wider reform package”, said AEMC Chairman John Pierce.
“The overall reform program will promote the achievement of the COAG Energy Council’s Vision of a liquid wholesale gas market that provides efficient signals for the production and use of gas, and for investment over the longer-term”, said Mr Pierce.
The AEMC’s recommended changes in Victoria seek to develop a new “Southern Hub” for trading gas, and are focused on two key areas:
- Trading gas: unlike the existing market arrangements, where trading and balancing occurs on a mandatory, operator-led basis, the AEMC recommends that trading should occur a voluntary, continuous basis but be underpinned by a mandatory residual balancing mechanism to provide security of supply. A key feature would be the introduction of exchange trading, similar to that currently in place at the Gas Supply Hub at Wallumbilla in Queensland.
- Access to transportation capacity: to support this new form of trading, the existing market carriage pipeline arrangements would be replaced by 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 on the Victorian gas transmission system.
These changes would provide market participants with the opportunity to trade gas independently of its location in the system and with any other participant on a continuous basis, allowing them to better manage their gas portfolios in response to their short and long term needs.
The system of entry and exit capacity rights would also contribute to decision-making about future pipeline investment by creating signals driven by market participant choices to book entry and/or exit capacity.
Mr Pierce said, “these recommendations will provide more options for market participants to physically trade gas, and also put in place the preconditions – which have been missing to date – for financial risk management products to develop. This will improve the ability of existing participants and new entrants to transact, improving competition so consumers can benefit from prices that better reflect the costs of gas supply.
“In addition, the new signals given by the sale of entry and exit capacity rights would reallocate existing investment risks away from consumers, towards market participants that are better able to manage them.”
For information contact: Media: Communication Manager, Prudence Anderson 0404 821 935 or (02) 8296 7817