This attention is welcome; gas markets are facing some very large challenges as the new export facilities in Queensland and Western Australia ramp up activity. Governments are beginning to respond. The Victorian Government has convened a Gas Market Taskforce. The New South Wales Government has established a Downstream Gas Inquiry. The Australian Energy Market Commission (AEMC) has declared gas markets as one of its strategic priorities and set out terms of reference for a Gas Market Scoping Study. The Federal Government addresses the supply issues well in its Energy White Paper released last year, but there is little evidence it is preparing a plan of action.
There are potential downsides. The wholesale markets for gas supply outside of Victoria are effectively unregulated, with market forces ensuring those who value the gas most highly will pay appropriately for it and secure supplies. Gas supply infrastructure, retail markets and facilitated markets such as the Declared Wholesale Gas Market (DWGM) in Victoria, the Short Term Trading Markets (STTMs) in Adelaide, Brisbane and Sydney and the soon-to-be launched gas supply hub at Wallumbilla are all under the jurisdiction of the National Gas Law and National Gas Rules, and are regulated to a greater or lesser extent. In looking for a solution to issues arising from upstream markets, governments and policy makers are likely to look for mechanisms and levers already available to them. This could lead to unnecessary intervention; the need to be “˜seen to be doing something’ will be as great as the drive to address the problem. In a situation like this where there are no easy or hard answers that everyone can agree to, it is very likely the solutions proposed are ones that are more announceable than effective.
Consider the issues identified in the terms of reference for consideration in the AEMC’s Gas Market Scoping Study:
- Whether the current level of integration of Australia’s downstream gas market frameworks is expected to continue to meet the National Gas Objective (NGO), given the range of potential future outcomes for the gas sector on the east coast;
Whether the contract-carriage and Victorian market-carriage transmission, planning and investment arrangements are promoting efficient pipeline investment and gas access; - Whether improvements to gas market interoperability and emergency arrangements with the National Electricity Market might increase efficiency and reduce costs for participants and consumers; and,
- The extent of consistency between gas and electricity markets, such as market price caps and cumulative price thresholds for the STTM, DWGM and National Electricity Market, and the implications for efficient interaction between the electricity and gas markets.
The AEMC has shown itself an effective, independent thinker in energy market regulation and does not suggest these issues are related to the supply issues being experienced in gas markets. However, this might not stop others from acting on its recommendations as a response to supply issues or claiming that the AEMC is acting to address supply issues.
An example of activity and market development that is being linked to government addressing issues facing the gas market is the work underway to progress pipeline capacity trading. The Federal Government’s Energy White Paper lists the investigation of pipeline capacity trading as one of its responses to supply issues and is due to release a regulation impact statement (a form of consultation paper) on the subject (by the time you read this it may be out). The Victorian Gas Market Taskforce is also considering an area of potential reform.
A few important questions seem to have been forgotten:
- Who needs to trade pipeline capacity?
- Can they already do it?
- Is there anything traded pipeline capacity can provide that access to interruptible capacity cannot?
- Is this a big issue?
APIA thinks a consideration of these questions would likely lead policymakers to not worry about facilitating pipeline capacity trading if it were not for bigger questions on their minds, such as:
- Is there anything we can do in gas markets that we are not already doing?
- Can this be held up as a response to larger issues in gas markets?
The answers to these questions might lead some to conclude there is a role for government to play in facilitating trading of pipeline capacity.
The purpose of the National Gas Law and the National Gas Rules is to achieve the NGO, which is to “promote efficient investment in, and efficient operation and use of, natural gas services for the long term interests of consumers of natural gas with respect to price, quality, safety, reliability and security of supply of natural gas.”
A Question that has come to my mind lately that policy makers need to ask themselves is this: if gas infrastructure, gas retail markets, the STTMs, the DWGM and the Gas Supply hub are all regulated to achieve the National Gas Objective, why is there no action to ensure other gas supply markets in Australia are trying to achieve the same goals?
