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House of Assembly - Fifty-Fifth Parliament, First Session (55-1)
2022-11-30 Daily Xml
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Bills

National Gas (South Australia) (East Coast Gas System) Amendment Bill

Introduction and First Reading

The Hon. A. KOUTSANTONIS (West Torrens—Minister for Infrastructure and Transport, Minister for Energy and Mining) (15:36): Obtained leave and introduced a bill for an act to amend the National Gas (South Australia) Act 2008. Read a first time.

Second Reading

The Hon. A. KOUTSANTONIS (West Torrens—Minister for Infrastructure and Transport, Minister for Energy and Mining) (15:37): I move:

That this bill be now read a second time.

I seek leave to have the second reading explanation and explanation of clauses inserted in Hansard without my reading them.

Leave granted.

The government is delivering an important reform to national energy frameworks agreed by Energy Ministers on 28 October 2022, which involves amendments to the National Gas Law to extend the Australian Energy Market Operator's (AEMO) functions and powers to manage reliability and gas supply adequacy for the east coast gas market over winter 2023 and beyond.

This is in response to events experienced in the National Electricity Market and east coast gas markets in the winter of 2022 and forecasts of future risks to reliability and supply adequacy going forward. These risks are emerging with the forecast decline in southern gas reserves, increasing reliance on gas from Queensland and challenges to the reliability of coal generation as the energy market transitions.

The domestic east coast gas market has become more susceptible to external shocks. In winter 2022, impacts of the Russian invasion of Ukraine increased international demand for Australian gas (in the form of Liquefied Natural Gas). Additionally, coal generator outages and lower renewable energy generation increased domestic demand for gas powered generation. This confluence of events, amongst others, led to record high prices and multiple interventions from AEMO to address supply adequacy risks in the Victorian Declared Wholesale Gas Market (DWGM) and the Short Term Trading Markets (STTM).

The Australian Competition and Consumer Commission (ACCC) and AEMO have raised concerns that domestic gas supply adequacy has declined substantially since early 2022. AEMO's 2022 Gas Supply and Systems Adequacy Risk report and the ACCC's July 2022 Gas Inquiry interim report both highlight increased risk of peak day and seasonal gas supply shortfalls in southern states in winter 2023.

While LNG exporters have committed to offer additional uncontracted supply to the east coast market, risks to supply shortfall remain, such as unexpected maintenance or outages, production and infrastructure constraints and unexpected increases in demand.

In August 2022, Energy Ministers agreed to the accelerated development and implementation of a broad range of actions to address the significant risks of forecast gas supply shortfalls and help AEMO to manage those risks.

Unlike the National Electricity Market which has well established frameworks under which AEMO maintains reliability and supply adequacy, AEMO has limited powers and tools to identify and respond to supply-demand imbalances in the east coast gas market outside of Victoria.

The broad aim of the regulatory amendments outlined in the National Gas (South Australia) (East Coast Gas System) Amendment Bill 2022 is to implement a framework that provides AEMO with the tools to monitor risks to supply adequacy in advance of those risks being realised, to signal those risks to the market and seek a response.

Should the market fail to respond, this Bill will give AEMO the power to manage reliability and supply adequacy threats through seeking further information, engaging the market to identify and implement actions, such as trading in gas—including related services such as procurement of pipeline services or services provided by a compression service provider or a storage provider—as well as directing participants in the market to better manage existing issues.

AEMO's ability to exercise its directions powers and trading function is limited to when AEMO is of the opinion that the giving of the direction or exercise of the trading function is necessary to prevent, reduce or mitigate an actual or potential threat identified by AEMO in the exercise of AEMO's proposed monitoring and signalling functions.

The Bill is intended to complement other initiatives by governments and industry to address forecast shortfalls in the east coast gas market. This includes the Commonwealth Government's actions to amend the Australian Domestic Gas Security Mechanism and the recent renegotiation of the Heads of Agreement. The Bill also builds on recently implemented transparency measures as seen in the- National Gas (South Australia) (Market Transparency) Amendment Act 2022.

More specifically, the Bill outlines AEMO's new east coast gas system reliability and supply adequacy functions, which are broadly proposed to encompass:

Monitoring trends in supply and demand of natural gas across the east coast gas system and factors which affect, or may potentially affect, the reliability or adequacy of the supply of gas within that system;

Identifying, communicating and publishing information about actual or potential risks or threats to reliability and adequacy of gas supply within the east coast gas system;

Reporting to Energy Ministers on these matters;

Giving directions and trading in gas (and associated services) to maintain and improve the reliability or adequacy of gas supply in the east coast gas system where AEMO considers it necessary to prevent, reduce or mitigate an actual or potential threat; and

Other functions conferred on AEMO by the Rules for the purposes of the new east coast gas system reliability and supply adequacy functions.

The Bill introduces a new term, the east coast gas system. The east coast gas system encompasses the east coast jurisdictions covered by the framework and includes a natural gas industry facility, regulated gas market or gas trading exchange for which AEMO has an established gas trading exchange agreement as well as other matters as specified in the Rules.

The Bill outlines that AEMO must account to the relevant Ministers for performance of east coast gas system reliability and supply adequacy functions.

AEMO will be empowered to exercise a range of directions powers, similar to those which AEMO can utilise in relation to the Victorian DWGM but modified to be more generally applicable to the east coast gas system as a whole. As set out in the Bill, these powers will be exercisable:

to maintain and improve the reliability of the supply of natural gas within the east coast gas system; and

to maintain and improve the adequacy of supply within the east coast gas system.

AEMO directions may relate to the operation, maintenance or use of any equipment or installation, the control of the flow of natural gas, or any other matter that may affect the reliability or adequacy of gas supply within the east coast gas system.

The Bill provides for the requirement for AEMO to prepare, in accordance with the rules, guidelines relating to the exercise or performance of AEMO's directions power and trading function.

The Bill provides a head of power for the Regulations to specify:

the relationship between the operation of AEMO's east coast gas system reliability and supply adequacy functions, or a provision of these functions, and a law of a participating jurisdiction, in the event of an inconsistency;

the extent to which a relevant entity is or is not required to comply with an east coast gas system direction in circumstances where the direction is inconsistent with a law of a participating jurisdiction;

the extent to which an east coast gas system direction is not valid in circumstances where the direction is inconsistent with a law of a participating jurisdiction.

The Bill provides for the Rules to specify matters that AEMO may or must consider in determining there is or is not an actual or potential threat to the reliability or adequacy of the supply of natural gas within the east coast gas system; the kinds of directions that AEMO may or may not give under this function; and the matters that AEMO may or must consider in determining whether to exercise its directions power or trading function.

The Bill provides that the East Coast Gas System Procedures may deal with the matters specified by the Rules and any other matter relevant to AEMO's east coast gas system reliability and supply adequacy functions on which this Law or the Rules contemplate the making of Procedures. Compliance with the East Coast Gas System Procedures is also dealt with in the Bill and outlines who would be applicable and must comply with the Procedures.

AEMO's declared system functions will be expanded to include purchasing pipeline services or services provided by a compression service or storage provider.

AEMO's information gathering powers will be broadened to include its new function for east coast gas system reliability and supply adequacy.

AEMO's powers to make general market information orders, or serve market information notices, will be expanded to include making or serving an order or notice in relation to the exercise of an east coast gas system reliability and adequacy function. The Bill allows for the Rules to specify a person, or class of persons, to whom such an order or notice may be issued. AEMO must determine the type of consultation that should occur before making such an order.

The Bill extends AEMO's ability to disclose protected information to include adequacy of gas supply.

The Bill extends the obligations to make payments under the Rules and Procedures to apply to relevant entities subject to AEMO's directions power.

Consistent with the introduction of most energy legislation, the Bill inserts a head of power for the South Australian Minister to make an initial set of rules. The Bill will allow the Minister to make further rules for a maximum period of six months from commencement of the Bill. This additional six month period is aimed at refining the initial package of Rules with respect to any outstanding issues. Once the time period has expired, the Minister will have no power to make any further amendments.

New subject matters for the making of National Gas Rules will be inserted into Schedule 1 under the heading 'East coast gas system reliability and supply adequacy functions'. This will empower the Australian Energy Market Commission to consider rule change proposals for further development of a range of matters in relation to AEMO's east coast gas system reliability and supply adequacy functions including:

The development of reliability standards;

Arrangements to enable AEMO to contract with other parties to reduce or curtail natural gas demand;

Arrangements to procure, by or on behalf of AEMO, the supply or storage of natural gas, transport capacity and other services for the purposes of AEMO's east coast gas system reliability and supply adequacy functions;

Obligations on retailers, gas powered generators and other large gas users to develop plans to manage peak or other demand scenarios; and

Arrangements to assist AEMO and participating jurisdictions to coordinate with each other in relation to addressing actual or potential threats.

I commend this Bill to members.

Explanation of Clauses

Part 1—Preliminary 1—Short title

2—Commencement

3—Amendment provision

These clauses are formal.

Part 2—Amendment of National Gas Law

4—Amendment of section 2—Definitions

Definitions are inserted for the purposes of the measure.

5—Amendment of section 74—Subject matter for National Gas Rules

Additional subject matters are added to the list of subject matters in relation to which the AEMC may make National Gas Rules.

6—Amendment of section 91A—AEMO′s statutory functions

Additional functions are conferred on AEMO, being the east coast gas system reliability and supply adequacy functions.

7—Insertion of Chapter 2 Part 6 Division 1A

New Division 1A is proposed to be inserted into Chapter 2 Part 6:

Division 1A—AEMO′s east coast gas system reliability and supply adequacy functions

91AD—AEMO′s east coast gas system reliability and supply adequacy functions

AEMO′s east coast gas system reliability and supply adequacy functions are set out.

91AE—AEMO to account to relevant Minister for performance of east coast gas system reliability and supply adequacy functions

AEMO is required to provide information about the performance of its east coast gas system reliability and supply adequacy functions at the written request of a Minister of a participating jurisdiction or the MCE.

91AF—AEMO′s power of direction—east coast gas system reliability and supply adequacy

AEMO is authorised in specified circumstances to give a written direction (an east coast gas system direction) to a relevant entity for 1 or more specified purposes. Provision is made in relation to east coast gas system directions.

91AG—East Coast Gas System Procedures

Provision is made in relation to East Coast Gas System Procedures made for the purposes of section 91AD.

91AH—Compliance with East Coast Gas System Procedures

The section provides for compliance with East Coast Gas System Procedures.

8—Amendment of section 91BA—AEMO′s declared system functions

This amendment is consequential.

9—Amendment of section 91F—Information gathering powers

10—Amendment of section 91FA—Making and publication of general market information order

11—Amendment of section 91FB—Service of market information notice

12—Amendment of section 91GG—Disclosure of protected information for safety, proper operation of the market etc

The amendments to the above sections are related to the conferral of the east coast gas system reliability and supply adequacy functions on AEMO.

13—Amendment of section 91H—Obligations under Rules or Procedures to make payments

This amendment is consequential.

14—Insertion of section 294H

Section 294H is proposed to be inserted:

294H—South Australian Minister may make Rules relating to AEMO′s east coast gas system reliability and supply adequacy functions

The South Australian Minister is authorised to make Rules relating to AEMO′s east coast gas system reliability and supply adequacy functions. The provision expires 6 calendar months after it commences.

15—Amendment of Schedule 1—Subject matter for the National Gas Rules

The list of subject matters for the National Gas Rules in Schedule 1 is extended to include subject matters relating to the east coast gas system reliability and supply adequacy functions.

Debate adjourned on motion of Mr Tarzia.

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