The Australian Energy Market Commission today released the Stage 1 Draft Report in its review of the design, function and roles of facilitated gas markets and gas transport arrangements on Australia’s east coast.

The review is being carried out for the COAG Energy Council to support energy ministers’ vision for Australia’s future gas market. Today’s draft report proposes a set of immediate and long term market reform priorities for stakeholder consultation.

AEMC Chairman, John Pierce, said new dynamics were driving the need to consider whether current arrangements would allow eastern gas markets to adapt to significant changes in supply and demand conditions in the long term.

“East coast gas markets are seeing a period of growth and change, as unconventional gas resources become more important and domestic prices are increasingly exposed to international price trends.

“The gas market framework must be flexible and resilient enough to respond to both domestic and global change in the interest of consumers,” Mr Pierce said.

The East Coast Wholesale Gas Market and Pipeline Frameworks Review looks at how gas is bought and sold once it leaves the ground.

In this review, the Commission is considering:

  • the appropriate structure, type and number of facilitated markets on the east coast, including options to enhance transparency and price discovery, and reduce barriers to entry;
  • opportunities to improve effective risk management, including through liquid and competitive wholesale spot and forward markets which provide tools to price and hedge risk; and
  • changes to strengthen signals and incentives for efficient access to, use of and investment in pipeline capacity.

“Our draft report has identified a set of practical initiatives that can be implemented now to take us in the right direction, while we examine long-term market design issues over the next 6-12 months,” Mr Pierce said.

The AEMC has also been asked to undertake a detailed review of the pipeline capacity, investment, planning and risk management mechanisms in the Victorian Declared Wholesale Gas Market. The draft report released today incorporates the initial phase of analysis for the Victorian Review. Further work specific to the Victorian market will be carried out in the latter half of this year. 

The Stage 1 draft report provides a clear overview of how Australia’s gas markets are currently structured and outlines areas where reforms may be required to accommodate the changing dynamics that LNG exports and increasing coal seam gas reliance brings. The priority areas for longer term reform include:

  • Liquid wholesale market delivering an efficient reference price;
  • Ability to trade pipeline capacity in response to price signals; and
  • Pipeline investment in the Victorian Declared Transmission System (DTS).

The draft report also outlines practical initiatives for comment by stakeholders which could be pursued immediately to boost the efficient and effective operation of the gas market, including:

  • Improving price transparency through either a survey-based index for contracts and/or aggregating existing publicly available information;
  • Establishing the Bulletin Board as a one-stop shop for gas market data, including enhancing compliance with Bulletin Board requirements;
  • Establishing a technical working group to start analysis on simplification of the Short Term Trading Market design with the goal of transitioning to a balancing market;
  • Assessing the degree to which the Enhanced Pipeline Capacity Information rule request recently proposed by the COAG Energy Council will deliver sufficient information to the market to support secondary capacity trading and achieve the National Gas Objective;
  • Harmonising definitions of gas trading days across the markets; and
  • Removing the limitation in the National Gas Law on who can submit Declared Wholesale Gas Market rule changes.

Mr Pierce said the Commission’s work needed to be considered alongside work being undertaken by other government agencies, particularly the ACCC inquiry into Eastern and Southern Australian wholesale gas prices. 

“Our review starts when gas enters the transmission pipeline and ends when it is released in the consumer’s home, so we’re not looking at gas supply issues or prices. We are however working closely with other agencies looking at those issues,” he said.

The Commission is seeking submissions on the stage one draft review from interested stakeholders by Monday 1 June 2015.