National Gas (South Australia) (Capacity Trading and Auctions) Amendment Bill

Second Reading

Adjourned debate on second reading.

(Continued from 2 August 2018).

The SPEAKER: Are you the lead speaker, member for West Torrens?

The Hon. A. KOUTSANTONIS (West Torrens) (20:01): Yes, I am. Just to give a bit of background to where we are, in October 2016 Dr Michael Vertigan released a consultation paper that sought feedback from various stakeholders on the effectiveness of the existing regulatory tests and appropriateness of the ACCC's proposed market power test and, if a change in the regulatory arrangements is warranted, an alternative means of achieving this. What that means in English is: was the current short-term trading market for gas sufficient to deal with latent capacity in the pipelines that we have across Australia and, indeed, across South Australia?

At the December Council of COAG, ministers agreed to bring forward Dr Vertigan's recommendations at the behest of the South Australian government. We were very keen to see these reforms brought forward. Can I also thank minister Frydenberg for seeing the value in bringing these reforms forward. It was subject to the passage of amendments relating to the laws. Our then department, State Development, on behalf of the COAG Energy Council, took the lead in drafting the required amendments to the national gas law and developed a binding arbitration framework to achieve a time frame.

At that time, to get more gas into the system, the then South Australian government invested in something called PACE Gas, which unfortunately for South Australians has been cut in this most recent budget, which I think is disappointing. That will be explored through the estimates process. The reason we were very keen to explore for more gas was what Dr Vertigan had found was that there was no real market in the short-term trading market in the gas market. The opaqueness of the market needed transparency, and these reforms do a great deal, of course, to open up those changes.

I commend the current state government for moving very quickly, and I can inform the house that the opposition will agree to a speedy passage of this legislation in both houses of parliament. It is an important national reform, and this parliament thanks Dr Vertigan AC for his support and the hard work he has done in developing this framework.

Liquidity is everything in markets. I remember the former Tasmanian energy minister being very keen to see these reforms brought forward in Tasmania to get some liquidity into the Tasmanian market. I am not going to waste the time of the house. The opposition do not have any questions in committee. We are very pleased with these reforms. I hope that the house can see a speedy passage of this through all stages, but transparency is the key to an open market, and transparency is important, especially when you have what is basically a monopoly market.

In a monopoly market, it is very hard to get that transparency, and hopefully this new platform that is being built on behalf of the nation by the South Australian legislation will allow a very quick resolution to the illiquidity of the national gas market. I also point out the longstanding tradition in this parliament of having national reforms supported on a bipartisan basis, and on that basis I commend the bill.

Mr MURRAY (Davenport) (20:06): I seek to as briefly as possible cover the salient points of the bill. As the member for West Torrens has alluded to, it is an important series of constructs for the market designed to make it function better. I must say at the outset that there are, for me at least, some interesting parallels with capacity, high energy prices, etc., with our electricity market, but nonetheless I will confine my points to this.

The Australian east coast gas market covers the ACT, Tasmania, Queensland, New South Wales, Victoria and South Australia, and it is that market that this bill is directed to refining and, indeed, ensuring that it works in a far better way than is otherwise the case. I think it is germane, particularly in view of some of the comments of the member for West Torrens and some of the discussions in this place today, to point out that the Department of Industry, Innovation and Science in January this year made the point that Australia is expected to become the world's biggest natural gas exporter by next year, 2019, as a variety of projects near completion.

Australia's LNG export volumes are forecast to reach 77 million tonnes in 2018-19, up from 52 million tonnes in 2016-17, which will mean that as a nation we will replace Qatar as the biggest LNG exporter in the world. It is with that background that this bill is particularly important because that growth in demand has in turn led to not only supply constraints on the domestic market but also price pressures and, additionally, changes in the pattern of gas flows and the use of transportation infrastructure in that marketplace itself.

As a consequence, the COAG Energy Council was tasked in 2015 with reviewing this market that was established way back in 2001, and in August 2016 the COAG Energy Council agreed to implement a package of capacity trading reforms. These reforms had been recommended by the Australian Energy Market Commission's East Coast Wholesale Gas Market and Pipeline Frameworks Review. The COAG Energy Council, as a consequence, established a gas market reform group, which is chaired by Dr Vertigan, as the member for West Torrens has alluded to.

There is a legislative package, which I will not detail. Fundamentally, however, we have the bill and we also have other instruments, variation regulations and a series of rules, in addition to which there is an operational transportation service code. The intention of the bill, as I said, is to enable a more efficient, transparent secondary market for gas transportation operating under the contract carriage model. The principal requirement in an environment of record gas demand is to ensure that domestic transmission of gas is not a major cost impediment, particularly for the end users, industry and consumers.

I will seek to summarise the means by which these reforms have been put in place, but again I think it is reasonable to spend some time in the house covering them off, if not for the fact that they should, I believe, achieve the transparency that we seek. It is also useful as a backdrop for other considerations of other similar marketplaces, as I said, when energy prices are potentially impacted by the distribution mechanism that they are delivered by.

The bill seeks to incentivise transportation users. It seeks to cease speculation on short-term capacity and it aims to reduce search and transaction costs. It will do that via the introduction of a capacity trading platform as well as a so-called day-ahead auction of contracted but effectively under-utilised capacity.

The principal aim is not only to effectively enable the best utilisation of the gas transmission resources that the country has but to establish a market to enable the sale and/or purchase of that capacity, as well as providing some ancillary frameworks; for example, standard operational transportation service agreements, a reporting framework and a standard market timetable.

The Northern Territory, it is worthy of note, is not actually implementing the measures that will arise as a result of this bill. They are doing so on a basis of five-year transitional measures. There will be a review of the day-ahead market itself once it has been operational for a further two years. The intention is to ensure, as I said, increased trading of short-term capacity and greater transparency of the information pertaining to gas price as well as non-price items.

As I said, there is a wide variety of acronym-bound organisations involved, which I will not delve into. Insofar as the specifics with regard to the day-ahead auctions, it is daily. There will be nominated cut-off times, reserve zero price. All contracted but un-nominated capacity—that is, unused capacity—is placed for sale through the auction. There will be trial periods.

Participants, be they retailers of gas products or indeed industry users, will be able to use the auction process to purchase transportation services, stand-alone compression services of the type that are at Moomba, for example, or indeed backhaul services themselves. The trading platform specifics: again, the idea is to enable a better informed marketplace and therefore to ensure that we make best use of the gas transportation infrastructure we have here so as to not only increase efficiency but also ensure that users are afforded the best information and therefore the best and well-informed prices.

The platform will provide an anonymous exchange mechanism. There is the ability to coordinate trades across a variety of platforms—haul services, compression services, etc.—and also a variety of other measures in place. A transportation service code will govern the content of standard operational transportation service agreements, so essentially there is a templated mechanism whereby the agreements for the sale and purchase of these products and/or services are already preset. Therefore—and with great respect to those in the chamber, in particular those who have a legal background—it will not turn into a lawyer's picnic insofar as getting paid is concerned.

These gas transportation agreements will also be used. As I said, standardising reduces the costs and also improves the governance capacity, given that they are standardised and that everyone has pre-agreed to them. There will also be the establishment of a market bulletin board, which will enable the publication of price and other related information. Not surprisingly, in some respects, there will be a harmonised start and cut-off time. As a result the auction will be conducted at fixed times with an equal starting position for all participants.

In summary, in my view the act represents a considered and comprehensive series of reforms that not only establishes a transparent and efficient market but also regulates it so that all participants have an equality of information provision and can therefore make the most efficient and considered decisions. A better informed and therefore more equitable market for gas transmission capacity trading is expected to result, with consequent supply side and cost benefits for industrial uses of gas, as well as consumers, whether directly or indirectly.

Again it is a personal view, but I make the point that I am hopeful this will be a template for similar market refinements in other areas—for example, energy itself. I commend the bill to the house.