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National Gas (South Australia) (Pipelines Access-Arbitration) Amendment Bill

Second Reading

Adjourned debate on second reading.

(Continued from 29 March 2017.)

Mr VAN HOLST PELLEKAAN (Stuart) (16:37): I advise that I am the lead speaker, but I will not be challenging the house's time, and say right at the start that the opposition will support the bill. On 29 March 2017 the Minister for Mineral Resources and Energy introduced the National Gas (South Australia) (Pipelines Access-Arbitration) Amendment Bill amending the National Gas (South Australia) Act 2008.

The bill establishes the framework for arbitration for the non-scheme pipeline services, otherwise known as non-regulated pipelines, where commercial negotiations between a prospective user or users and the pipeline service provider break down. It also provides a framework for greater disclosure of information by non-scheme pipeline service providers. There are two gas pipelines in South Australia that would be affected by this bill: the Moomba to Adelaide pipeline and the Port Campbell to Adelaide pipeline.

The bill is the result of a report for COAG Energy Council that found that uneven bargaining relationships exist around the transportation of gas. Given that transportation makes up approximately 15 per cent of the price of gas, it is hoped that costs will be lowered through mandating commercial arbitration and greater transparency of pipeline services. All state and territory energy ministers, as part of their membership of the COAG Energy Council, support the legislation. Regarding the arbitration process, this bill requires a user or prospective user of a pipeline and the pipeline service operator to negotiate in good faith. Only if negotiations between the parties break down can the arbitration process commence. The arbitration process is only to be used as a last resort measure.

The Australian Energy Regulator (AER) is appointed as the scheme administrator. The AER can be notified by either the user or the provider that a dispute exists and then determine whether the matter should be referred to an arbitrator. An arbitrator for the dispute is to be appointed by mutual agreement of the parties involved; however, if they are unable to agree on an arbitrator then the AER will appoint one for them. The cost of the arbitrator will be borne equally between both parties unless the arbitrator deems otherwise in accordance with the National Gas Rules (NGR).

When making a determination, the arbitrator must take into account any pricing or other principle specified by the NGR. Under this bill, the arbitrator's determination is binding on the parties involved in the dispute. Like many other acts, much of the detail will be outlined in the rules and regulations attached to the act. The National Gas Rules will primarily specify the details of the arbitration process. The bill itself only provides the high-level framework for the arbitration process to be established.

In a government briefing, I was advised that draft National Gas Rules will be presented to the COAG Energy Council for approval at its next meeting in July 2017. If approved, the National Gas Rules would be implemented in South Australia if this bill passes both houses of our parliament. The bill also stipulates that the collection, disclosure and publication of information relating to the services that may be provided by a non-scheme pipeline operator should be specified in the NGR. This includes the terms and conditions under which the service provider is prepared to make a non-scheme pipeline available for use, the relevant costs and/or prices and the access contracts and arrangements by the service provider.

I support the general intent of the bill to improve the bargaining relationships that exist in the gas transportation industry and the potential for lower costs to the end user. However, it is important to note that there is nothing in this bill that requires that cost savings achieved by a pipeline user must be passed on to gas consumers.

With regard to consultation, during the COAG Energy Council process submissions were received from the following stakeholders: the Australian Energy Regulator, the APA Group, the Australian Pipelines and Gas Association, Australia Pacific LNG, DBP Transmission from WA, Epic Energy, Santos GLNG, Hydro Tasmania, Jemena, Major Energy Users Incorporated and the Energy Users Association. Stakeholders were generally supportive of the intent of the legislation, but raised various issues relating to some parts of the bill, predominantly around the potential structure of the arbitration process, which will be detailed in the National Gas Rules. Most stakeholders raised no concerns with regard to greater transparency.

Like many bills we discuss here, generally the framework in the bill or the potential act is quite sensible and based on principle. We are almost always told that we have to wait for the detail of how that will be implemented, that that would come in the regulations and, in this case, in the NGR, which will form the regulations attached this bill. As I said at the start, we support the bill. We want to do absolutely everything possible from opposition to contribute to achieving lower energy costs to energy consumers. Of course, that includes reducing the cost of the transportation of gas if possible.

We will support the passage of the bill through both houses and wait earnestly to know what will actually be in those National Gas Rules/regulations. Just like other bills—one that comes to mind very recently was the Firearms Bill—we all largely agreed on the principle in the bill itself but many, many months later the regulations are still being negotiated in great detail. That is proving a very fraught process, and I hope that will not be the case with this bill. As long as the regulations and National Gas Rules are sensible and impose burdens of transparency but no other unfair burdens on either the users or the suppliers of the service, then this bill will be very useful. I commend it to the house.

Mr HUGHES (Giles) (16:44): I rise also to speak in support of the bill, and I acknowledge the succinct description given of the bill and some of its implications by the member for Stuart. We all want to see cheaper energy prices. I am particularly mindful when I rise to speak in support of this bill of the impact of gas prices on some of the big users in our state.

I know that the Arrium operation is to a degree dependent upon natural gas for a number of processes. They sometimes use natural gas, sometimes in combination with syngas that is produced on the site, for their energy assets. Just a few years ago, they made a very significant investment in upgrading the reheat furnace and shifting that furnace from using predominantly gas that is produced on site to using natural gas because of its higher calorific value, which was going to generate efficiencies and some environmental benefits as well.

Access to gas at competitive prices is incredibly important, and this bill is just one element that is needed for the overhaul of the regulatory environment of the pipeline industry, especially that section of the industry that is not regulated to a significant degree. Last year, the ACCC invited submissions on the examination of the current test for the regulation of pipelines. If you have the time, it is worth going through some of those submissions.

One particular submission that appealed to me was from Central Petroleum Limited. The reason it appealed was that it was to the point and made some telling criticisms of the current national regulatory environment of the pipeline industry for gas. The executive summary gave an account of the National Gas Objective, 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'. It could be argued that, on a number of those measures, there is a failure of the regulatory framework. They went on to state in their submission:

The efficiency of the gas market and its competitiveness are distorted by natural gas transmission pipelines which are clear natural infrastructure monopolies yet operate without any effective economic regulation. Initial high tariffs are appropriate and necessarily part of the pipeline investment decision. But under the current regime pipeline owners are able to continue charging these initial high tariffs well past the full recovery of the original investment and, in effect, are able to continually increase those charges in step with new build cost, which is the only alternative available to the market…

They make an incredibly important point, and it is an important point because:

Approximately 75% of domestic gas consumption is industrial or gas-fired generation, for which the wholesale citygate price is the relevant pricing point…

That price has increased very significantly over the last decade. It has doubled and is going even farther than that. Some of the anticipated price rises represent more than a doubling over the last decade. This is going to have a major impact if we do not address these increasingly high gas prices, of which transmission is an important element. It is going to lead to higher manufacturing costs, less competitive manufacturing and the discouraging of investment in a new or improved plan.

Longer term, it will cause disinvestment as the Australian manufacturing sector withers and imports displace local manufacturers. That is not something we want to see happen. It is one of those conundrums, though it is probably not a conundrum because it is quite simply explained: how can there be a shortage of domestic gas supplies when there is so much liquefied natural gas available? In their submission, Central Petroleum Limited say:

The reason is not a shortage of potential natural gas supply available particularly within the east coast and the Northern Territory.

And that does have an impact upon us here. They also state:

Rather, the constraint on the domestic supply of competitively priced natural gas is simply due to market failure within the East Coast Gas Market. The rising gas price with no responsive increase in new gas supply investment despite the abundant resources available provides the strongest empirical evidence of market failure. The recent ABS statistics show a 69.5% decrease in drilling for onshore gas despite historically high citygate prices.

They go on to say:

In an efficient gas market, high demand increases incentives to invest and develop new gas supply—

this is not just all about the moratoriums; there are other elements at play—

with an over-supply driving gas prices lower for end-users. Currently in Australia's domestic gas market, a significant portion of the price signal is absorbed by the monopolistic pricing practices of pipeline owners. Potential new gas supplies remain under invested and end users face constricted supplies and consequently, significantly higher prices.

It is the nature of the market at the moment, when it comes to transmission, that that is one of the significant problems. It is not the exclusive problem, but it is one of the significant problems. They go on to talk about price gouging in this way:

Currently, price signals between gas suppliers and end users are heavily distorted by monopolistic pricing models used by pipeline owners.

The absence of effective economic regulation of pipelines results in higher delivered costs for the end user and lower ex-field gas prices for gas suppliers than what would otherwise have been the case. The distortion in the price signal by monopolistic pipeline pricing is now…generating unnecessary and significant dislocation in the gas market.

Market failure is assured by the loss of efficient pricing signals which are the core objective of the National Gas Objective and evident by the profitability of incumbent pipeline operators. The gas pipeline transmission pipeline is an integral part of the natural gas market.

Essentially, price gouging is happening and any comparison to profits made by the transmission owners against the sorts of returns on the Australian Stock Exchange demonstrate that they are generating super profits. They continue:

Current regulations allow pipeline operators in perpetuity to price services at rates that reflect the replacement costs of the pipeline infrastructure, even though the initial investment was underwritten by users…This monopolistic pricing strategy remains in force throughout the 60 or 80-year life-span of any particular pipeline. It continues to apply long after the pipeline owner has recovered a reasonable return on that investment commensurate with the risk of that asset. This generally occurs in the first 15 years of operation post-construction…and is underpinned by the pipeline's foundation contracts which serve to underwrite the risks of new pipeline investment.

There is definite price gouging going on when it comes to gas transmission assets in Australia. This needs to be addressed, and not just this particular element but a number of other elements when it comes to the regulatory environment of what are essentially non-regulated assets at the moment.

The arbitration element referred to in this bill goes some of the way, but it goes nowhere near what needs to be done to address some of these issues. We need to address some of these issues for longer term needs. As we shift increasingly to renewables, gas is often referred to as a transition energy source. Gas is incredibly important when it comes to addressing the intermittent nature of renewable energy supply. There will be other ways of addressing that as well.

The gas industry itself reflects that there might well be a long-term use for the gas pipeline infrastructure that is in place in Australia, which is a huge asset. The gas industry and a number of other peak bodies talk about the gas infrastructure that is in place as playing an incredibly important long-term role. I refer to an article in The Australian back in March, which states:

The nation’s huge collection of gas pipes and distribution networks could store as much energy—

and they like to give an equivalent—

as six billion Tesla Powerwall batteries and be used as a massive battery in the future as the energy sector moves towards renewables, according to Australia’s gas sector.

It was interesting to listen to the Treasurer the other day talk about the hydrogen road map. In a grievance debate last year, I went into some detail about hydrogen and its potential importance for the future of this state, and also nationally, being a long-term resource that could underpin the move towards renewables, not just for domestic use but also the potential for the export of hydrogen either as hydrogen or as ammonia, as a carrier for hydrogen, to overseas markets. I think it is incredibly important that, when it comes to the regulation of the gas transmission system, we get it right, but we do have a long way to go.

Mr PEDERICK (Hammond) (16:57): I rise to speak to the National Gas (South Australia) (Pipelines Access-Arbitration) Amendment Bill introduced in this house on 29 March 2017. I make the point, as I have before, that I have worked in the Cooper Basin, the Alice Springs oilfields and in Jackson, Queensland, back in the early eighties.

This bill establishes the framework for arbitration, which we have already heard about today, for the non-scheme pipeline services, the non-regulated pipelines, where commercial negotiations between a user, or a prospective user, and the pipeline service provider break down. It also provides the framework for greater disclosure of information by non-scheme pipeline service providers.

There are two gas pipelines in South Australia that essentially are affected by this bill: the Moomba to Adelaide pipeline and the Port Campbell to Adelaide pipeline, which is the SEA Gas pipeline. It actually runs just outside Coomandook through to the back of Murray Bridge and Mannum through to the city. In fact, I talked in this place recently about the proposal for an Investec electricity generator a few years ago (I think it was 2010) just outside Mannum at Tepco.

This bill was the result of a report for the COAG Energy Council, which found that an uneven bargaining relationship existed around the transportation of gas. Given that transportation makes up 15 per cent of the price of gas, it is expected that costs will be lowered through mandating commercial arbitration and greater transparency of pipeline services. As part of their membership of the COAG Energy Council, all state and territory energy ministers support the draft legislation.

In regard to the arbitration process, this bill requires a user or prospective user of a pipeline and the pipeline service operator to negotiate in good faith, and only if negotiations between the parties break down can the arbitration process commence. The arbitration process is only to be used as a case of last resort. The Australian Energy Regulator is appointed as the scheme administrator. They can be notified by either the user or the provider that a dispute exists and then determine whether the matter be referred to the arbitrator.

An arbitrator for the dispute is to be appointed by mutual agreement of the parties involved. However, if they are unable to agree to an arbitrator, then the AER will appoint one for them. The costs of the arbitrator will then be equally borne by both parties unless the arbitrator deems otherwise in accordance with the National Gas Rules. When a determination is being made, the arbitrator must take into account any pricing or other principle specified in the National Gas Rules. The arbitrator's determination is binding on the parties involved in the dispute.

As we have heard today, much of the detail will be outlined in the regulations. I also note that the firearms regulations have been in the process of being negotiated for nearly 18 months. The National Gas Rules will primarily specify the details of the arbitration process, and the bill only provides the high-level framework for the arbitration process to be established. In a briefing supplied to us, we were told that a draft NGR would be presented to the COAG Energy Council for approval at their next meeting in July 2017 and, if approved, the NGR will be implemented in South Australia.

In regard to transparency, the bill stipulates that the collection, disclosure and publication of information relating to services that may be provided by a non-scheme pipeline operator be specified in the NGR. This includes the terms and conditions on which the service provider is prepared to make a non-scheme pipeline available for use, the relevant cost prices and access contracts and arrangements used by the service provider.

We on this side support the general intent of the bill to improve the bargaining relationships that exist in the gas transportation industry and the potential for lower costs to the end user, but it is important to note that there is nothing in the bill that requires cost savings to a pipeline user to be passed on to gas consumers. During that COAG Energy Council process, submissions were received from the following stakeholders: the Australian Energy Regulator, the APA Group, the Australian Pipelines and Gas Association, Australia Pacific LNG, DBP Transmission (based in Western Australia), Epic Energy, Santos GLNG, Hydro Tasmania, Jemena, Major Energy Users Inc and the Energy Users Association.

In the main, the stakeholders were supportive of the intent of the legislation. Some stakeholder issues were raised around some parts of the bill, predominantly the potential structure of the arbitration process that is likely to be detailed in the National Gas Rules. That will come out in the regulation process. Most stakeholders raised no concerns with the requirement of greater transparency.

Certainly, back in the day in the Cooper Basin in the eighties, there were many work teams, mainly pipeline engineering teams, building many hundreds of kilometres of pipeline. The men would work shifts of four weeks in and one week out, and I salute all the men on those shifts because they did not get home very often. With full X-ray inspection, gas pipe welding has to be absolutely spot-on, and I take my hat off to what those people did in the field.

To improve the efficiency of gas pipelines, there are things called 'pipeline pigs and scrapers'. These improve system performance for greater profitability, and many companies have been doing this for many decades. You can get pigs that do cleaning, batching, gauging and liquid displacement. Specialty pigs are available in multiple diameters and designs to meet specific pipeline and product demands.

Mr van Holst Pellekaan interjecting:

Mr PEDERICK: You can. Customisation and configuration options ensure tailored solutions can be found for different pipeline diameters. Pigs are used to achieve maintenance and integrity goals, reduce downtime, maximize throughput and mitigate operational risk.

Mr Picton interjecting:

The DEPUTY SPEAKER: Do you need my protection, member for Hammond?

Mr PEDERICK: Absolutely, Independent Deputy Speaker. Chuck him out. He has been at it all day, ma'am. Pigs are best used for cleaning to maintain line efficiency and control corrosion; batching operations to prevent product mixing and contamination in multiproduct pipelines; gauging operations to prove pipeline roundness and help detect obstructions and defects; displacement of air ahead of hydrostatic testing and water after the test, as well as displacement of hydrocarbons prior to field repairs; recovery of natural gas liquids; and application of corrosion inhibitors.

Pigs come in a wide range of pipeline diameters, and multiuse, bidirectional and dual diameter capabilities are available. There are standard and custom configurations for maximum flexibility. Pigs have tough, long-lasting original components and replacement parts. Pigs can be combined to perform a broad variety of functions.

The reasons pigs are used in the industry include removing construction debris, hydrotesting and gauging and, in terms of operation, they are used for commission, cleaning, condensate/water removal, batching and application of inhibitors. They are used for maintenance and repair, pre-inspection cleaning and isolation. They are also used for renovation and rehabilitation, including chemical pigging, removal of contaminants, pre-product conversion cleaning, decommissioning and recommissioning.

Pigs can be used offshore, but they may require special design features. Generally, pigs used offshore must be able to accommodate very heavy wall pipe and large variations in wall thicknesses due to different design codes for platform and riser piping versus subsea mainline pipe. In addition, offshore applications often require extra-long pigs. These can be used and supplied by various companies.

Mr Hughes: How long have you been waiting to talk about pigs?

The DEPUTY SPEAKER: I am going to have to protect you again, member for Hammond.

Mr PEDERICK: They just keep harassing me, Deputy Speaker.

The DEPUTY SPEAKER: Back off, member for Giles.

Mr PEDERICK: Batching pigs are used to provide a highly reliable barrier between dissimilar products in the pipeline, such as jet fuel and gasoline, protecting pipeline owners and operators from the significant costs associated with product mixing and contamination. Cleaning pigs provide one of the simplest, most cost-effective ways for pipeline owners and operators to optimise flow, reduce corrosion and minimise the presence of foreign matter in products.

Gauging pigs offer pipeline owners and operators a fast, cost-effective way to determine whether there is an obstruction or pipe diameter reduction in their pipeline, whether it is in the pre-commissioning phase or in service. Liquid displacement pigs capture valuable natural gas liquids to filling dewatering pipelines after hydrotesting, displacing liquids essential to optimising production, performance and profitability.

Obviously, you need replacement components for pigs, such as cups, blades and brushes, which can help pipeline owners and operators extend the overall life, efficiency and cost effectiveness of their pigs. As their name suggests, special application pigs enable pipeline owners and operators to perform unique cleaning or maintenance services.

Members interjecting:

Mr PEDERICK: That's it.

The DEPUTY SPEAKER: I am going to have to protect you again.

Mr PEDERICK: Throw them out, Independent Deputy Speaker. That was a brief overview of the use of pigs in the gas industry.

Mr Picton: Tell us more!

Mr PEDERICK: I could, but we are limited by time. I was not the lead speaker, but I would have loved to. What I would like to reflect on is that it is an expensive industry: you do not just put gas into a pipe and it flows to the house, the industry or the business. Over the Christmas period, Epic Energy spent a considerable amount of money at Port Pirie, and they had to have gas stored there for industry. Obviously, they used the downtime for industry at Port Pirie, and a lot of people worked a lot of overtime.

It cost them a lot of time to check the stability of pipelines after a recent issue with a pipeline breaking down while in service. They had to put large storage tanks in place to store enough gas so that industry in Port Pirie could keep operating. They then did their testing, and obviously part of that testing was to run different pigs to make sure that those pipelines were operating effectively and efficiently.

It is a very complex business. It is not as simple as looking at a pipeline and hoping that everything works well. Way back in the day in the eighties, I was home on leave from working in the Cooper Basin. There was a break in the Adelaide-Moomba line—an explosion—and they reckoned there was one heck of a fire that took some time to bring under control. Certainly, gas is vital to the community, it is vital for power generation, it is vital for industry and it will be vital for a long time into the future to keep the energy needs of our state going.

Mr ODENWALDER (Little Para) (17:11): That is a hard act to follow. I rise to support the National Gas (South Australia) (Pipelines Access-Arbitration) Amendment Bill. As the minister has said, and as others have repeated, the bill amends the national energy legislation to promote efficient gas transportation and to address the natural monopoly characteristics of gas pipelines and the market power held by pipeline owners in their negotiations. I am not going to repeat the observations of the minister or the excellent contributions of other members—the member for Giles, the member for Stuart, and particularly the member for Hammond.

The Hon. S.W. Key: He was outstanding.

Mr ODENWALDER: He was outstanding; it goes without saying. I want to make a few very brief observations about the importance of gas in our energy economy, which the member for Hammond has touched on.

Gas exploration, and the sourcing and security of the supply of gas, is of critical importance to us in Australia. Indeed, one of the key planks of the Premier's energy plan and our government's energy plan, is for South Australia to source and to use more South Australian gas to generate its own electricity and thereby enhance our own energy security. We know that South Australia has enormous untapped gas resources. Indeed, it is estimated that the Cooper Basin alone could supply all of Australia's energy needs for at least 200 years.

To this end, we are making no secret of our efforts to incentivise exploration for gas and to help unlock this abundant resource. This is about energy security, and it is also about jobs, as the member for Hammond also observed. As I said, we are doing all we can to incentivise gas exploration. We are partnering with industry to increase gas supplies to benefit all South Australians. So far, this government has granted $24 million through our Plan for Accelerating Exploration (PACE) Gas grant initiatives. These grants are aimed at accelerating exploration and development of gas fields to deliver security of supply, particularly to South Australian gas-fired electricity generators, manufacturers and retail consumers.

The PACE initiative is one of this government's medium-term measures to increase energy market competition, to drive down costs for businesses and consumers and, also importantly, to reduce carbon emissions. This funding recognises the need for new gas supplies following predictions in some quarters that the demand for gas in the Eastern States, particularly, will increase in coming years. As I said, it also helps South Australia transition towards a lower carbon future.

Round 1 of the PACE grants, which is a total allocation of $24 million, was, in the end, insufficient to support all the meritorious projects that were the subject of applications. In total, eight applications were received in the first round. Subsequent to five of those successful applicants benefiting from the first $24 million, an additional $24 million was announced in round 2 on 14 March this year to further incentivise gas production from South Australian gas fields for South Australian consumers.

The first round of PACE grants was announced in March. These grants are limited to the projects with the most substantiated prospects of adding to gas supplies from South Australia by the end of 2019. These first five PACE Gas grant projects will generate up to $174 million in new investment by oil and gas companies in local production projects, and it is likely that self-funded follow-up work by the successful applicants will result in investments of hundreds of millions of dollars into this state. One PACE Gas grant project out of that five is for the use of fracture stimulation in existing petroleum well bores in the Cooper Basin.

It is important to note that since 1969 over 850 petroleum wells have been fracture stimulated in South Australia's Cooper Basin and Officer Basin, in both conventional and unconventional reservoirs, all safely and all without harmful impacts. There are no proposals on the table to undertake fracture stimulation in the South-East. However, should such a proposal arise, the community can have confidence that the existing regulatory regime under the Petroleum and Geothermal Energy Act will deliver balanced, trustworthy, efficient and effective regulatory decision-making that takes into account regional and statewide risks and benefits, as well as the full range of community views when assessing whether or not a proposal is approved.

The Hon. S.W. Key interjecting:

Mr ODENWALDER: I hope you take some comfort from that. Grants for PACE round 2 will be capped at $8 million each and applications will close on 1 August 2017, with successful applicants being announced in October 2017. I support any measures that will ensure energy security for South Australians, including measures such as those contained in the bill that will have the effect of increasing the supply of affordable gas into South Australia. I commend this bill to the house.

The DEPUTY SPEAKER: The member for Kaurna is going to speak, but I understand you are also going to close the debate; is that right?

Mr PICTON (Kaurna) (17:17): That is right. Thank you, Deputy Speaker. As mentioned, I am very delighted to speak on behalf of the Treasurer and the Minister for Mineral Resources and Energy to sum up the debate on the National Gas (South Australia) (Pipelines Access-Arbitration) Amendment Bill 2017. Firstly, I would like to thank all the speakers who have contributed to this debate in the house this afternoon—namely, the members for Stuart, Hammond, Giles and Little Para—for their fantastic contributions. We learnt a lot, particularly from the member for Hammond, about the use of pigs in the pipeline industry. I have taken away some knowledge out of this.

An honourable member: You can't unlearn it.

Mr PICTON: I can't unlearn it. It is one of those speeches that we will look back upon and refresh ourselves when needed. The member for Hammond knows this industry very well having worked in the gas industry previously. I know that there are a lot of members on both sides of parliament who are very passionate about the gas industry in South Australia because it is such an important industry for the state.

In particular, I have been up to Moomba a couple of times. The first time was with the member for Bright and the second time was with the members for Napier and Flinders as part of the Natural Resources Committee investigation into unconventional fracking developments in the South-East. It is very impressive to see the work happening up there in the member for Stuart's electorate and the huge number of people who are employed in the area and, of course, we want to see more and more people employed in that industry in South Australia.

Gas is particularly important not just for the jobs, industry and development involved in the drilling and exploration, but also for what it delivers, particularly for households. It is very important for heating and cooking in our homes but particularly also for industry. In his speech, the member for Giles talked about the importance of gas for industry, particularly for manufacturing in this state. Gas is also very important for the production of electricity in this state. We know that by far the largest component of our electricity comes from gas-fired power stations in South Australia. We are a gas state. Other states are coal states and the majority of their power comes from coal-fired power stations.

We rely on those gas-fired power stations in South Australia, and of course an important provision of our state energy plan is to develop a new state-owned gas-fired power station, which would be a fast-start power station, but also to use the contracting of government energy loads to bring in a new provider, which may be a new gas-fired power station into South Australia, but that remains to be seen. We also understand that there are a number of other proposals for people to build new gas-fired power stations in South Australia and we have also seen recently the unmothballing, if you like, of the Pelican Point power station, which has been a fantastic development for our energy security in South Australia.

We know that it is very important for those jobs in exploration, and we know that it is very important for homes and businesses, but it is also very important for our electricity production in South Australia. For all those reasons, the pipeline situation is very important for South Australia. We need to make sure that we have a strong and effective system for pipelines not just in South Australia but across the country to make sure that access is available to those pipelines so that we can get a fair and equitable transmission of gas across the country and make sure that it is done without people charging monopoly rents for that gas and make sure that the gas can get where it needs to go for all those important reasons I have highlighted.

In that context comes this bill, which is the result of the COAG Energy Council's agreement late last year to put in place a commercial arbitration framework for disputes over pipeline access. You can understand that disputes over pipeline access occur from time to time where people who own those pipelines might be setting prices that the people who need to use them would not want to see. This bill is aimed at addressing the information, the symmetry that currently exists between parties negotiating for access to non-scheme pipelines on the one hand and the pipeline operators in a superior negotiating position on the other.

Of course, that is what happens when you own a pipeline: you are in a superior negotiating position and also, of course, as part of that you have superior information to go into that negotiation with. That is what this bill is looking to address. I think it is important that we look at the context in terms of the work that has been happening from the Australian Competition and Consumer Commission (ACCC) inquiry that has recently been underway in regard to the price of gas around Australia. We know that the recommendations of that inquiry have informed the formation of this bill.

It was back in 2015 that the commonwealth government directed the ACCC to hold an inquiry into the competitiveness of wholesale gas prices in eastern southern Australia. It released its report in April 2016 and made a number of recommendations, including a new test for determining whether a gas transportation pipeline should be subject to price regulation. The key findings of the ACCC inquiry concluded:

The wholesale market is not functioning well and regulatory restrictions on supply and current low oil prices are hindering the development of new gas for the market. New supplies from new producers are vital to promote competition and to assure supply into the future.

I think that last point touches on a number of government policies in place, namely, one that the member for Little Para talked about in his speech—that is, the fact that we are not seeking to put restrictions on unconventional fracking developments in South Australia, unfortunately I have to say, as those opposite are proposing to do. We want to see more gas developing in South Australia, and that is why we have introduced new PACE grants to make sure that new developments can happen here.

However, across much of the rest of the country we have seen moratoriums being put in place—in fact, I think Victoria's is quite extreme to the point of including even conventional gas developments having a moratorium. They are reducing the amount of exploration we are seeing across the country, and that is one of the reasons we are seeing increases in prices across the country that are hurting both businesses and consumers.

The second key finding of the ACCC inquiry included that the regulatory regime that currently applies to transmission pipelines is not fit for purpose and not constraining the exercise of market power by pipeline operators and needs to be strengthened. That is, of course, one of things that has led to our bill here today. Thirdly, the gas market is hampered by limited information which favours producers, suppliers and large incumbents. All of those are important reasons why we are seeing reform being undertaken.

The ACCC found evidence that pipeline operators are engaging in monopoly pricing and that this behaviour is widespread and affecting the prices payable on both major and smaller pipelines. There is also evidence that the ability and incentive pipeline operators have to engage in this behaviour is not being constrained by competition, the countervailing power of shippers, stranding risk, or threat of regulation. This is resulting in users paying higher prices for gas and, in some cases, producers receiving less for their gas. This, in turn, is leading to inefficient outcomes, including lower than efficient levels of gas use and investment in facilities that use gas.

Few transmission pipelines are regulated, and the threat of regulation is also failing to impose an effective constraint on the behaviour of unregulated pipelines. This is because the current test for regulation under the National Gas Law (the coverage criteria), which largely mirrors the declaration criteria under part IIIA of the Competition and Consumer Act, is unlikely to be met by the majority of transmission pipelines, given the characteristics of the market. The ACCC's recommendations in this space are designed to make the test for regulation and other aspects of the regime fit for purpose, targeted and proportionate to the market failure that has been observed by the ACCC, and to contribute to the achievement of the National Gas Objective.

The east coast gas markets lack transparency in many areas, including the level of reserves and resources, current and expected future production, gas prices, transportation prices, and the level and availability of storage. Informational gaps are hindering efficient market responses to the changing conditions and are not signalling expected supply problems effectively. The ACCC's recommendations in this area will be addressing these informational barriers.

We can see that this report from the ACCC really highlights some important issues in gas across the whole country, namely, in regard to regulation of those pipelines, which is important to make sure we have an effective and efficient national gas market that operates in a competitive fashion. Relevant to this bill, the key findings included the regulatory regime for transmission pipelines not effectively constraining the market power of pipeline operators.

The COAG Energy Council released a reform package in August last year based on addressing the ACCC recommendations and the recommendations of the AEMC's East Coast Wholesale Gas Market and Pipeline Frameworks Review. This reform package identified four areas of priority: gas supply, market operation, gas transportation and market transparency. This bill goes towards improving market transparency and aims to bridge the gap between the levels of information available to the different players in the market. It is an important step in reforming the wholesale market to ensure it is operating as effectively and efficiently as possible. It is certainly something that has the support of everybody on this side of the house.

I would like to thank everybody in the department and in the energy markets division who has worked so hard on this and on so many other areas of COAG energy reforms, namely, Vince Duffy and Rebecca Knights. I am sure that they go to bed at night dreaming about gas pipelines regulations and competition reform. They know all this information back to front and sideways, which certainly provides the government with good advice in what can sometimes be a very technical area. I also thank members of the Treasurer's staff who have worked on this, including Emma Schwartz. This is an important part of our COAG energy reform package and we commend it to the house.

Bill read a second time.

Third Reading

Mr PICTON (Kaurna) (17:29): I move:

That this bill be now read a third time.

Bill read a third time and passed.

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