Australia’s domestic gas market consists of three distinct regions, separated on the basis of the gas basins and pipelines that supply them.
Eastern gas region
An interconnected gas grid connects all of Australia’s eastern and southern states and territories. The gas basins that supply this market contain around one third of Australia’s gas reserves. While traditionally focussed on domestic sales, this market has undergone structural change as the Queensland gas export industry has developed.
Western gas region
The gas basins of the western gas market contain over one half of Australia’s gas reserves. This market is heavily focussed on exports but also supplies domestic consumption in Western Australia.
Northern gas region
The northern gas market is Australia’s smallest producer. Its basins provide gas for export and also for domestic consumption in the Northern Territory.
Wholesale gas markets
The AEMC makes National Gas Rules which apply to three types of wholesale gas markets:
- gas supply hubs (located in Wallumbilla, Queensland and Moomba, South Australia)
- short term trading market hubs (at Brisbane, Sydney and Adelaide)
- the declared wholesale gas market in Victoria.
These markets are operated by the Australian Energy Market Operator (AEMO) with separate rules and price-setting arrangements for each.
Markets in the eastern gas region
Eastern Australian energy markets have been established successively from 1998 until 2016.
The eastern gas region has some wholesale markets for gas, which allow retailers or large customers to purchase gas without entering into long term contracts. They are mainly used for managing short term imbalances that arise on a day when a large buyer’s actual demand differs from its contracted supply.
Under this model, the pipeline owner makes its pipeline available to an independent system or market operator who manages the pipeline capacity through a pool approach. Users of a market carriage pipeline do not reserve physical capacity.
The market carriage model is used for the Victorian Declared Transmission System (DTS), the major transmission pipeline in Victoria. The Australian Energy Market Operator acts as the market and pipeline operator.
Victorian declared wholesale gas market
The Victorian declared wholesale gas market (DWGM) uses a gross pool with an open access (known as market carriage) approach to access the transmission pipeline:
- All scheduled gas must be offered to and bid from the market.
- Otherwise, in the event of a pipeline constraint, the market operator (AEMO) would not have sufficient information to allocate capacity efficiently.
- For each schedule, market participants put in bids/offers to buy/sell gas.
- Based on these bids and offers and subject to pipeline capacity, AEMO’s market clearing engines schedules injections and withdrawals of gas by minimising the cost of supplying the quantity of gas demanded and determines a price for gas.
- This in turn provides direction to the operation of the transmission pipeline.
This model is similar to how the National Electricity Market (NEM) operates.
Contract carriage pipelines
Outside of Victoria, pipelines operate on a contract carriage basis. Trading gas on contract carriage pipelines is voluntary.
Access to such pipelines is allocated on the basis of contracts between the pipeline operator and the pipeline user. The terms and conditions of access are negotiated, and can be:
- firm - other market participants cannot override their access to the contracted amount of pipeline capacity reserved or
- non-firm - firm market participants take precedent and supply to these users can be interrupted as agreed.
Pipeline users are able to trade their contracted pipeline capacity between themselves on a secondary market.
The primary and secondary market for capacity enables market led investment in pipelines – a perceived advantage over regulated investment decision making in market carriage regimes (including the NEM). However a perceived disadvantage is that capacity and commodity allocation are not co-optimised on a operational timescale.
Most trades happen bilaterally and outside of facilitated markets – either at the site of production, in the pipe, or on delivery. However, the STTM and GSH have been developed to support the growth of secondary trades and encourage the efficient use of pipelines and gas.
Short term trading market
The short term trading market (STTM) overlays a gross pool approach on existing contract carriage pipelines.
The STTM hubs are at Adelaide, Brisbane and Sydney. While at different locations, these hubs operate under the same rules.
Capacity payments are used when a non-firm market participant is scheduled through the STTM ahead of a firm market participant.
If a non-firm market participant displaces a firm participant in the STTM schedule because capacity is constrained, the non-firm participant is required pay the firm participant.
There is no requirement for market participants to adhere to the schedule set by the STTM – their gas flows are a matter between them and the pipeline owner, under the terms of their contract.
The capacity payment provides an incentive for market participants to adhere to the schedule in making their nominations on the contract carriage pipelines.
Gas supply hubs
Gas supply hubs (GSH) have been created to facilitate trade on contract carriage pipelines. The GSH operates at Wallumbilla (west Qld) Moomba (north SA).
These hubs are voluntary and compliment trades outside of the market.
The intention of the hubs is to reduce transaction costs and increase price transparency. This should in turn reduce prices, improve risk management, allocate gas more efficiently and improve competition.
Trade is facilitated through an electronic trading platform. Bids and offers are matched and executed, similar to a stock exchange. Gas can be traded for a variety of delivery dates (ie, into the future) and tenures (ie, daily, quarterly). This differs to gross pool models which are spot (only) markets.
Energy markets can be described in terms of network access and trading arrangements:
For more information on developments in the eastern gas market, please visit the AEMC’s gas market scoping study and the project pages for the East coast gas market review and the Victorian DWGM review.
For more information on Australia’s gas industry and gas markets, please visit the Australian Energy Regulator’s State of the Energy Market reports.