Australian Energy Market Commission Recommends Establishing Two Gas Trading Hubs

With the aim of reforming the Australian gas market, the Australian Energy Market Commission (AEMC) on Thursday released a package of 15 key recommendations.

AEMC believes these reforms will remove roadblocks and facilitate faster and more efficient gas trading and access to pipeline transportation along the east coast of Australia.

The Commission has put forward three key recommendations. It has recommended wholesale gas trading at two hubs – a Northern Hub at Wallumbilla in Queensland and a Southern Hub in Victoria, with improved trading arrangements and price discovery in Victoria. AEMC expects this move will reduce market complexity and concentrate trading at key points of demand and supply on the East Coast, allowing for increased liquidity and more risk management options for gas users.

It has also prescribed facilitating short-term pipeline capacity trading markets, including a short-term auction for unused capacity and improved capacity trading platforms. Access to pipeline capacity is a key enabler of wholesale market trading.

AEMC’s third key recommendation says improving information provided through the Gas Bulletin Board to enable market participants to make better-informed decisions about trading, investing in, or using gas.

Commission’s Chairman John Pierce said if implemented in full, the reforms have the potential to increase Australia’s GDP by $8.7 billion in net present value terms by 2040 through improved viability of gas-using industries and flow-on benefits to employment and tax revenues.

The AEMC’s report also addresses issues raised by both the AEMC and the Australian Competition and Consumer Commission (ACCC) about gas access and pricing.

“East coast gas markets are undergoing a period of growth and change. Largely isolated point-to-point pipelines have developed into an interconnected network and gas demand has increased to supply LNG exports,” Pierce said. “We are now seeing the impact of change on both the level and variability of gas flows and wholesale prices both in gas markets and electricity markets. Making it easier to buy and sell gas in redesigned gas markets will increase competition, lower costs and help support gas-reliant industries, with significant flow-on benefits to both consumers and the general economy.”

The AEMC’s recommendations will be considered by the COAG Energy Council and aim to establish a new approach to trading gas, supported by improved access to pipeline capacity and additional information provision.

While bi-lateral contracts will remain a fixture of the markets, the proposed changes would introduce more flexibility to support the efficient exchange of gas between buyers and sellers, with greater incentives to trade contracted but unutilised pipeline capacity.

Pierce said reform was needed now to keep pace with the changing east coast gas market and to ensure sufficient flexibility so consumers don’t pay more than necessary for their gas. 

Initial reforms could be introduced immediately following COAG Energy Council agreement, with implementation of the complete package to occur over several phases involving changes to the National Gas Law and regulations, and new rules.

The AEMC is also recommending the establishment of a dedicated implementation body to ensure industry and market participant involvement in the implementation of the recommendations.