The COAG Energy Council has directed the Australian Energy Market Commission (AEMC) to review the design, function and roles of facilitated gas markets and gas transportation arrangements on the east coast of Australia.
The AEMC has made draft recommendations for an inter-related package of reforms relating to wholesale gas trading markets, pipeline access and information provision that mutually reinforce each other and form a roadmap for the future development of the market.
At its December 2014 meeting, the COAG Energy Council released its Vision for the Australian gas market, and asked the AEMC to review the role and objectives of the facilitated gas markets currently in operation in eastern Australia. The AEMC review is also to set out a road map for the continued development of the markets in order to meet the Council’s Vision.
The Terms of Reference for this review require the AEMC to consider:
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.
The Terms of Reference also ask the AEMC to develop specific actions that can be implemented to strengthen the structure and competitiveness of the east coast gas market, and make recommendations for immediate implementation, where possible.
The review will be conducted over two stages:
Stage 1 outlined the overall direction for east coast market development. The report included a fact base of current market outcomes and a gap analysis between the Energy Council’s Vision and the existing market design. The AEMC released the Stage 1 Final Report after having provided it to the Energy Council prior to its 23 July 2015 meeting.
Stage 2 will more fully develop any necessary medium and long term adjustments. The AEMC published the Stage 2 Draft Report on 4 December 2015, and intends to release a final report in May 2016.
The COAG Energy Council, at the request of the Victorian Government, has also asked the AEMC to undertake a detailed review of the pipeline capacity, investment, planning and risk management mechanisms in the Victorian Declared Wholesale Gas Market (DWGM). The AEMC received the Terms of Reference for this review on 4 March.
The Stage 1 Draft and Final Reports for the East Coast Wholesale Gas Market and Pipeline Frameworks Review incorporate the initial phase of analysis for the Victorian DWGM Review.
As of July 2015, the Review of the DWGM formally commenced a separate workstream.
For more information on the Review of the Victorian Declared Wholesale Gas Market, see the project page.
Pipeline Access Discussion Paper
On Thursday 3 March 2016, the AEMC published a Pipeline Access Discussion Paper. In it, the Commission provides further detail on the reforms to pipeline access frameworks proposed in the Stage 2 Draft Report, and provides stakeholders with an opportunity to contribute to the development of:
the appropriate means of taking the capacity trading related initiatives forward and the governance and regulatory arrangements that may be required to support their implementation; and
the next layer of detail on the proposed package of reforms.
Submissions to the Discussion Paper will close on 29 March 2016. Feedback from stakeholders through the consultation process will inform the Commission's recommendations in the Final Report, which will be presented to the COAG Energy Council in mid-2016.
Further targeted consultation on the new information reporting obligations for the Bulletin Board will be carried out in late March with the relevant stakeholders.
Stage 2: Draft Report
On Friday 4 December 2015, the AEMC published the Stage 2 Draft Report. In it, the Commission recommends a roadmap for gas market development on the east coast of Australia.
The suggested changes to wholesale market design, pipeline access arrangements and information transparency should give market participants more flexibility to trade gas and allow greater trading liquidity to develop.
On the same day, the Commission also published a supplementary report on information and the Gas Bulletin Board, which provides greater detail on the Commission’s draft recommendations in this regard.
Stage 2: Wholesale Gas Markets Discussion Paper
On Thursday 6 August 2015, the AEMC published a discussion paper providing more detail around potential wholesale gas market designs that are being considered to deliver the COAG Energy Council’s Vision for Australia’s future gas market.
The Discussion Paper expands on the requirements for the development of a liquid wholesale gas market and what such a market might look like on the east coast of Australia. The paper also discusses the role of gas hubs, sets out why physical and financial trading of gas takes place and outlines how physical imbalances can be managed. Three high level market design concepts have been developed as a way of seeking targeted feedback from stakeholders.
Submissions to the Discussion Paper closed on 10 September 2015.
Stage 2: Pipeline regulation and capacity trading discussion paper
On Friday 18 September 2015, the AEMC published a discussion paper on Pipeline Regulation and Capacity Trading. The objective of the paper is to stimulate discussion around the arrangements for pipeline regulation and capacity trading in the context of the COAG Energy Council Vision for Australia's future gas market.
The discussion paper assesses the effectiveness of the current regulatory arrangements for pipeline capacity trading, and identifies three broad approaches to address potential issues identified.
The Commission is interested in receiving stakeholder feedback on the nature and extent of the issues identified, the market's likely ability to respond to these issues in a timely manner, and the appropriateness of the approaches set out in the paper.
Submissions to the discussion paper closed on 16 October.
Stage 2: Information and Bulletin Board workstream
On 7 August 2015, the AEMC formed the information provision working group to examine information provision in Stage 2 of the review. The working group met on four occasions between 21 August and 1 October 2015.
Discussion papers for the working group meetings have been packaged together into one document, found below.
Submissions to the working group discussion papers closed on 2 October 2015.
Public forum on the East Coast Wholesale Gas Market and Pipeline Frameworks Review
The AEMC held a public forum at Pullman Sydney Hyde Park on 30 September 2015 to update stakeholders on the progress of stage 2 of this review and the progress of the review of the Victorian Declared Wholesale Gas Market.
The forum provided stakeholders with an opportunity to share their views prior to the release of the draft stage 2 reports in December 2015.
Stage 1 Final Report
On Thursday 23 July 2015, the AEMC published the Stage 1 Final Report for the East Coast Wholesale Gas Market and Pipeline Frameworks Review. This follows the Stage 1 Draft Report, released on 7 May 2015. The final report was presented to the COAG Energy Council prior to its meeting on 23 July 2015.
The Stage 1 Final Report provides an overview of how Australia’s gas markets are currently structured and outlines areas where reforms may be required to accommodate the changing market dynamics on the east coast.
The Stage 1 Final Report discusses four practical initiatives that could be pursued immediately to boost the efficient and effective operation of the market:
Improving price transparency through the introduction of a wholesale gas price index by the Australian Bureau of Statistics (ABS).
Harmonising the start time of the “gas day”, which currently varies across jurisdictions.
Removing the limitation in the National Gas Law on who can submit Declared Wholesale Gas Market (DWGM) rule changes.
Assessing the degree to which additional informational gaps fall within the scope of the Gas Transmission Pipeline Capacity Trading: Enhanced Information rule change and could be addressed in that process.
Next step in developing an ABS wholesale gas price index
In order to improve transparency around price movements in bilateral gas contracts, the AEMC will work with the ABS and industry to establish a wholesale gas price index. A workshop was held on 18 August to facilitate dialogue between the ABS and industry on the development of the index.
The ABS published an information paper on 16 December 2015 setting out potential options for developing a wholesale gas price index.
To provide industry with an opportunity to engage with the ABS on this document, the AEMC facilitated another workshop on 17 February 2016.
The Terms of Reference for the review requires the appointment of an Advisory Group to support the Commission’s work.
The Advisory Group includes representatives of AEMO, pipeline owners, retailers, producers, large consumers and consumer groups.
The Advisory Group met three times during Stage 1 of this review and twice to date during stage 2. It will continue to meet periodically throughout the review.