Australia starts consultation on gas market reforms

Australia's federal government has started consultation on boosting the regulatory oversight to the Australian Energy Market Operator (Aemo) for the domestic gas market, with the reforms expected to start before next winter in mid-2023 when gas supply shortfalls are forecast for the east Australia gas market.

The consultation follows the agreement last month by Australian federal, state and territory energy ministers to ensure Aemo has greater regulatory powers to manage supply security and reliability risks across the east Australia gas market.

The range of gas market reforms are proposed to be implemented over two stages. The first stage include extending Aemo's powers to provide it with tools to monitor, signal and manage supply shortfalls in the east coast market in the June-August winter of 2023, according to a consultation paper. The regulatory changes includes a draft legislation bill, draft regulations and an initial set of minister-initiated rules aimed at ensuring the regulatory framework can operate effectively from its start in 2023.

The second stage include measures that involve consulting on a package of reforms, including those that provide Aemo with additional system management mechanisms to respond more effectively if a market response is not forthcoming.

Reforms under this reliability and supply adequacy framework will aim to improve the ability of Aemo and gas market participants to identify and respond to emerging gas supply adequacy concerns and better manage periods of volatility, the paper said. The second stage reforms are expected to be implemented after the winter of 2023.

The Aemo regulatory authority reforms are proposed to complement other initiatives by governments and industry to address forecast shortfalls in the east coast gas market. This includes Canberra's plan to renegotiate the heads of agreement and amend the Australian Domestic Gas Security Mechanism.

The Australian Competition and Consumer Commission (ACCC) and Aemo have cautioned that domestic gas supply adequacy has deteriorated substantially since early 2022, the consultation paper said. Aemo's gas supply and systems adequacy risk report and the ACCC's July 2022 Gas inquiry interim report have both highlighted increased risk of peak day and seasonal gas supply shortfalls in the southern states in winter 2023. The risk of shortfalls is likely to grow without greater certainty about future new supply and infrastructure investment.

The ACCC forecasts that the east coast gas market is at risk of a 56PJ (1.495bn m³) shortfall in 2023 unless more gas is supplied from the operators of the three LNG projects in Queensland. The potential shortfall is equivalent to 10pc of east coast demand and is 46PJ higher than forecast in the ACCC's January 2022 interim report.

Aemo's 2022 Gas Statement of Opportunities notes the large forecast reduction in the Victorian Longford gas plant capacity for winter 2023, with capacity reducing from 1,030TJ/d (27.5mn m³/d) to 650TJ/d. Gas demand could further increase as a result of the expected closure of the Liddell coal-fired power station in New South Wakes in April 2023, it said.

By Kevin Morrison