The last few years have seen substantial developments in gas markets in Australia. The National Gas Law and National Gas Rules came into effect in 2008, bringing the market oversight structure of the Australian Energy Market Commission (AEMC), the Australian Energy Regulator (AER) and the Australian Energy Market Operator (AEMO) to the gas markets of eastern Australia. The Gas Bulletin Board, Gas Statement of Opportunities and the Short-Term Trading Market (STTM) have also been implemented, providing new information and trading opportunities.

Most recently in December 2011, at the behest of the Queensland Government, a STTM hub has been implemented in Brisbane. The suitability of Brisbane as an STTM is questionable; the original design of the STTM only considered markets supplied by more than one transmission pipeline, but the gas industry of Queensland has worked with AEMO to make it work.

Notwithstanding the range of developments since 2008, there are currently a couple of processes flagging more change, more transparency, and ultimately moving further down the path of converging gas and electricity markets.

A change in the NGR

The first process is the current AEMC consultation on a change to the National Gas Rules (NGR) proposed by the Australian Energy Regulator that would see the rate of return for all regulated energy assets – gas and electricity – determined through the same process at the same time. This is a massive change from the current provisions of the NGR, which require that each regulated gas asset has a rate of return commensurate with prevailing market conditions and the specific risks of the business determined individually. It’s a complicated matter, and the detail is of more interest to economists and the few owners of regulated gas transmission assets. The process concluded its first round of consultation on 8 December 2011, and APIA’s submission is available on its website.

A review of the STTM

The second process is AEMO’s Phase 1 review of the STTM, which involves reviewing certain aspects of the STTM as well as system wide gas market information. It is the second element that could impact pipelines most, with proposals for expanded bulletin board information including seven-day capacity forecasts, linepack information and maintenance plans being considered. The proposal for maintenance plans covers all pipelines with existing bulletin board obligations, and requires the provision of a 12 month maintenance plan, updated monthly on a rolling basis, with an indication of the activities planned and their impact on capacity.

In theory, proponents of this type of information claim it is necessary for gas markets served by more than one pipeline to be aware of all potential supply issues. If shippers on one pipeline are aware of upcoming capacity issues caused by maintenance on that pipeline, they have an unfair advantage over gas market participants that do not have a contractual relationship with that pipeline.

In practice, APIA is at a loss to see how this information is relevant or useful. Pipeline maintenance is scheduled to avoid disrupting supply, it is highly flexible and subject to change. There is no value in knowing a 12-month forecast maintenance schedule on a pipeline you have no position on, and it is likely to lead to a presumption that the information can be relied on. A major gas user might think to schedule maintenance or plant downtime of its own to coincide with forecast pipeline maintenance. What happens when the timing of the pipeline maintenance changes? The gas user will complain.

The next logical step is that AEMO would be required to approve or confirm maintenance plans, and changes to this must be justified. These kind of proposals are an insidious form of regulatory creep, and are of great concern to the industry.

What should be of particular interest to all pipeliners in these two developments is the push to impose requirements and mechanisms of the electricity market onto gas markets. The first process seeks to apply the existing rate-of-return arrangements of regulated electricity transmission assets to gas assets. The second process looks to impose electricity-style information requirements on gas infrastructure. The implications of this is that energy policy makers may well look in the future to align the markets as closely as possible. This could mean no more contract carriage for gas transmission, centralised operation of assets, and a Victorian-style wholesale gas market.

We all know gas is fundamentally different from electricity. To outside observers, and policy makers, it seems they are both energy, sold by retailers, delivered by distribution systems, they are more similar than different. If we don’t want to end up in a market that looks more like electricity than gas, we need to think hard about selling the message, and providing solutions to address perceived problems with the differences in gas and electricity.