Gas Market Reform Group

COAG

Mar 22
Gas Market Reform Group

On 21st March 2017, the Gas Market Reform Group (GMRG) published its implementation options paper outlining alternatives for implementing a new information and arbitration framework under the National Gas Rules (NGR).  The objective of the new framework is to enable improved commercial negotiations between shippers and the operators of non-scheme pipelines by (i) reducing the imbalance in bargaining power that shippers can face and (ii) posing a constraint on the exercise of market power by pipeline operators.

The bargaining power of shippers is expected to be increased by:

  • requiring pipeline operators to publish information that shippers need in order to make informed decisions about whether or not to seek access to a pipeline service and to assess the reasonableness of an offer made by the pipeline operator; and
  • introducing a binding commercially oriented arbitration mechanism into the NGL, available to parties using non-scheme pipelines if commercial agreement cannot be reached.

Although a resort to binding arbitration is available under the new framework it is hoped that greater information disclosure and the ‘threat’ of arbitration will be sufficient for parties to find a commercial solution.  With more timely and effective commercial negotiations and contracting, it is expected that this will support more investment in and efficient use of natural gas and that the prices charged for pipeline services are more cost reflective and representative of pricing that would exist in a more competitive market.

Five increasingly transparent information release options have been recommended by the GMRC and five alternative arbitration mechanisms have been outlined for consideration by stakeholders.  Responses to the options paper are required by 13th April 2017.

This is in keeping with the timetable for reform.  In December 2016, the Council for Australian Governments (COAG) requested that the GMRG bring forward its detailed design work to enable the new framework to commence on 1 May 2017.

Background

The release of this options paper is part of a Gas Market Reform Package initiated in August 2016 by COAG and reported by Future Effect.  The reform package comprised 15 measures across the four priority areas of gas supply, market operation, gas transportation and market transparency and in addition, the establishment of the GMRG to lead the design, development and integration of the recommended gas market reforms.  These reforms were in response to:

  • the findings and recommendations of the Australian Competition and Consumer Commission’s (ACCC) Inquiry into the East Coast Gas Market; and
  • the Australian Energy Market Commission’s (AEMC) Eastern Australian Wholesale Gas Market and Pipelines Framework Review: Stage 2 Final Report.

In addition to the information and arbitration framework, the GMRG is also responsible for progressing reforms related to:

  • transportation (pipeline and hub services) capacity trading – including the development of (a) standardised terms and conditions for transportation contracts to make capacity products more interchangeable and to facilitate more capacity trading, (b) a day-ahead auction of contracted but un-nominated pipeline and hub services capacity and (c) a capacity trading platform(s) that provides for exchange based trading of commonly traded services and a listing facility for other services.
  • market transparency – including the development of terms of reference for the AEMC’s biennial review on the growth in liquidity in wholesale gas and pipeline capacity trading markets; and
  • wholesale gas market – primarily relating to progressing any reforms to the Southern Hub and Victorian Declared Wholesale Gas Market (DWGM) that the AEMC recommends at the completion of its review.