On 3 October 2019 the AEMC released a final determination not to make a rule to introduce a forward trading market in the Victorian declared wholesale gas market (DWGM). 

The rule change request

On 5 November 2018 the AEMC received a rule change request from the Victorian Minister for Energy, Environment, and Climate Change to amend the National Gas Rules to introduce a forward trading market to operate in the Victorian declared wholesale gas market (DWGM). 

The proposed voluntary market was intended to:

• facilitate the trading of forward contracts for physical gas
• be based broadly on the design of the gas supply hubs currently operating in Wallumbilla and Moomba
• operate on the Trayport platform
• offer a range of contract tenures (e.g. daily, weekly, monthly, seasonal)
• settle any variances between traded and scheduled quantities at the 6AM DWGM price on the gas delivery day specified in the forward product.

Final determination

On 3 October 2019 the AEMC released a final determination not to make a rule.

There are currently several options for participants in the DWGM to manage their spot price risk, including trading gas at trade-points just outside the declared transmission system, trading financial products on the ASX, and trading bilaterally negotiated contracts such as gas supply agreements (GSAs) and over-the-counter (OTC) contracts.

Analysis conducted as part of the AEMC’s 2017 Review into the Victorian Declared Wholesale Gas Market found minimal trading of risk management products, and proposed investigating the introduction of a forward trading market to improve spot price risk management options.

However, since that time there has been an increase in trades on the ASX Victorian gas products, and the ASX is intending to introduce a market maker for these products, as it has done with its electricity products. Several brokers have entered the Victorian gas market in the past year which is expected to facilitate more trading on the OTC market. Information transparency about gas contracts has also improved due to increased trades on publically listed ASX products, data in the ACCC gas inquiry interim reports and, at a cost, through brokers.

In light of these developments, and after consulting with market participants, there is no longer a clear need for an additional spot-price risk management market.

There are costs associated with setting up a forward trading market. For example, AEMO would need to update its IT systems and settlement processes, and market participants would need to update their internal strategies, systems and processes. The level of participation in the new market would need to be sufficient to outweigh these implementation costs and it is not clear this will occur.

The Commission supports other developments that may remove barriers to trading gas contracts in the DWGM. The COAG Energy Council is currently considering improvements to transparency of short-term gas contracts including introducing mandatory reporting of contracts with a tenure of less than 12 months on the Gas Bulletin Board. Additionally, the Commission recommends the Gas Wholesale Consultative Forum consider other improvements to administrative processes such as sub-allocation and bid accreditation that may act as a barrier to short-term trading. Finally, the Commission will also continue to monitor the liquidity of the Victorian gas contract market through its Biennial review into liquidity in wholesale gas and pipeline trading markets.

Background

On 5 November 2018, the AEMC received three rule change requests from the Victorian Minister for Energy Environment and Climate Change to amend the National Gas Rules (NGR). The rule change requests proposed the following changes:

• introduce a clean and simple wholesale gas price for the DWGM in Victoria (DWGM Simpler wholesale price)
• establish a forward trading exchange which will make it easier for buyers and sellers to trade gas and lock in a future price in the Victorian gas market (DWGM Forward trading market)
• improve the allocation and trading of pipeline capacity rights (DWGM Improvement to AMDQ regime).

These requests were based on recommendations made by the AEMC in June 2017, as part of the Review of the Victorian declared wholesale gas market final report (DWGM Review).

Draft determination

On 4 July 2019, the AEMC released a draft determination not to make a rule.
There were four submissions to the draft determination, and these can be found below.

Workshop

The AEMC held a public workshop in Melbourne on 16 May 2019. Slides from the workshop are available below.