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Gas reform firmly on the energy policy agenda – but will it make a difference?

This year is off to a very big start for gas policy, with the Energy White Paper Issues Paper released in late-December 2013 and the Eastern Australian Domestic Gas Market Study released in early-January 2014. The gas transmission industry is also directly affected by the Gas Transmission Capacity Trading Decision Regulation Impact Statement, released in mid-December 2013.

All of these processes will feed into the Federal Government’s 2020 Gas Supply Strategy, a project committed to during the election, which will seek to provide a way through the current supply tightness being experienced and set out a reform agenda that will ensure a strong gas industry into the future. In effect, the 2020 Gas Supply Strategy will be the detailed “˜gas chapter’ of the Energy White Paper, which covers a wide range of energy related topics at a very high level.

The findings of the Eastern Australian Domestic Gas Market Study have the greatest potential to impact the gas transmission sector, which poses a number of reform options that relate directly to our industry. Given the key issue raised by stakeholders was gas supply, APIA considers there is unnecessary attention focused on transmission issues, particularly in light of the proposals detailed in the Capacity Trading Regulation Impact Statement, and has made a comprehensive response.

By way of example, the section in the study on gas supply agreements mentions pipeline contracts twice as often as producer contracts. Big questions posed for gas transmission include consideration of the coverage criteria for pipelines and a review of contract carriage and market carriage.

Key issues raised in our submission include:

  • Transparency and liquidity are best developed by increasing the size of markets;
  • Government policy should focus equally on increasing the amount of gas used in Australia and the number of active participants in gas markets;
  • The existing market frameworks for gas transmission have delivered the investment the gas market needs and there are no widespread issues that warrant major reform;
  • The Australian Energy Market Commission should play a greater role in market development;
  • The forward reform agenda needs to focus on upstream issues; reform to date has focused on downstream matters;
  • The proposals for improved capacity trading in the Capacity Trading Regulation Impact Statement (RIS) should be implemented. Along with the industry-led development of an operational transfer service, these should be sufficient to increase transparency and flexibility; and,
  • Questions on the access regime for upstream infrastructure need to be asked when developing the forward reform agenda.

Responding to the issues raised in the Eastern Australian Domestic Gas Market Study will be the primary focus of APIA’s policy agenda in 2014. The Association will be focusing particularly on demonstrating the role gas transmission plays in the gas supply (and value) chain and showing that further reform in downstream markets – where the reform agenda of the last decade has focused – is unlikely to be as beneficial as focusing reform on other parts of the supply chain.

The Gas Transmission Capacity Decision RIS on capacity trading was also released in December 2013. Not unexpectedly, the paper has recommended pursuing an option of increased information and standard terms and conditions for capacity trading. Specific information proposals are:

  • Operational pipeline capacity;
  • Contracted firm capacity by shipper;
  • Contracted “˜as available’ capacity by shipper; and,
  • Deliveries by shipper.

The detail on this information is still to be determined but will undoubtedly impose major new obligations on pipeline operators. APIA will work with the Government to identify the most efficient ways of providing this information and is concentrating on ensuring the industry does not become a middle man between shippers and the Australian Energy Market Operator for information not already collected by pipelines, as has been proposed for some information.

In a proactive move, gas transmission operators have been working together to develop a new capacity trading service enabling operational capacity transfers. Operational capacity transfers are superior to the traditional option of bare capacity transfers as they:

  • Are an incentive to offer capacity, as it reduces the administrative burden for shippers;
  • Provide a more appropriate allocation of risk, as the obligations of the seller are transferred to buyer;
  • Increase operational efficiency, as it preserves the relationship between pipeline operator and shippers, both new and existing;
  • Allow a buyer of traded capacity to easily aggregate capacity from multiple sellers;
  • Improve transparency through publication of bids and offers, information on trades, available and contracted capacity; and,
  • Support new entrants, as it allows new shippers to access short-term capacity.

This industry-led initiative has widespread support and should serve as a timely reminder to Government that industry-led solutions are preferable to the types of regulatory intervention that policy makers often like to propose.

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