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Australia: Roadmap released to reform east coast gas market

By  AOG Staff Thursday, 28 July 2016 22:28
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The Australian Energy Market Commission (AEMC) today released a package of 15 key recommended reforms to remove roadblocks to faster and more efficient gas trading and access to pipeline transportation along the east coast of Australia.

AEMC Chairman John Pierce said if implemented in full, the reforms have the potential to increase Australia’s GDP by AU$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 final report of the East Coast Wholesale Gas Market and Pipelines Frameworks Review (Stage 2) to the Council of Australian Governments Energy Council was publicly released today to deliver the Council’s Vision for Australia’s gas markets.

The report comes at a critical time for Australia’s energy markets. Gas prices are impacting an electricity sector increasingly reliant on gas-fired generation, particularly where gas fired generation is needed to support intermittent renewable generation.

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 unutilized pipeline capacity.

“Changes to the wholesale gas market can only achieve so much” said the Australian Petroleum Production & Exploration Association chief executive Dr. Malcolm Roberts.

“Urgent policy and regulatory reform is also required to increase supply, enhance competition and put downward pressure on prices,” Roberts said separately in a statement. “Market reform is important but removing the existing restrictions on exploration and development is vital.”

He said it was essential next month’s Council of Australian Government energy council meeting consider in tandem the recommendations of the AEMC report and the Australian Competition and Consumer Commission’s (ACCC) report on its east coast gas inquiry.

The ACCC report, released in April, warned that onshore regulatory restrictions and hydraulic fracturing bans in NSW, Victoria and Tasmania – as well as a proposed fracking ban in the Northern Territory – had increased uncertainty and contributed to reducing investment in gas operations.

Dr. Roberts said that while the AEMC’s terms of reference did not specifically include examining regulatory barriers, its report did point out that restrictions in some states are impeding gas supply resulting in higher wholesale prices and less market liquidity than would otherwise have been the case.

He said the AEMC report was timely given the crucial role of gas in alleviating recent energy supply problems in South Australia.

“APPEA supports moves to enhance gas and pipeline market transparency and to simplify and better align existing and proposed trading mechanisms and looks forward to working with governments, gas customers and other stakeholders to progress the AEMC’s recommendations,” Dr. Roberts said.

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