A key part of COAG-led gas reforms, the Wallumbilla Gas Supply Hub, has started operations.
Australia's first voluntary short-term forward gas supply hub, the new Wallumbilla Gas Supply Hub in Queensland, started trading today.
Located at the junction of three gas pipelines, the hub is operated by the Australian Energy Market Operator (AEMO), which will offer spot and forward-dated products, including a "day-ahead" product, a "balance-of-day" product, and pipeline capacity.
Unless certain exemptions were obtained, AEMO's procedures for netting of physical gas settlements across multiple transactions and parties may have amounted to a derivatives exchange and a clearing and settlement facility. In the absence of those exemptions, the multilateral netting and clearing arrangements in the hub rules would have had to have been left deactivated, or otherwise:
- AEMO would have needed a market operators licence and a clearing and settlements facility providers licence; and
- traders in the hub would have needed an Australian Financial Services Licence in relation to market-making and/or dealing in gas trading "derivatives" that were capable of being cleared by netting rather than purely by physical delivery.
However, on 13 March 2014 the necessary legislative changes to enable netting and clearing of gas transactions in the Exchange were made. The Corporations Laws Amendment (2014 Measures No. 1) Regulation 2014 exempts the activities of exchange operators and trading participants in a "qualifying gas trading exchange" from the definition of financial services that would otherwise require them to hold licences under the Corporations Act.
Participants and operators in the qualifying gas trading exchange are also exempted from the market misconduct and inside information provisions of Part 7.10 of the Corporations Act if they are engaging in conduct in relation to a qualifying gas trading exchange product.
This is reasonable, given that the contracts for physical delivery of gas (or other commodities) entered outside the exchange have never been subject to those market misconduct and inside information provisions of the Corporations Act. There are already significant conduct and other regulatory provisions contained in the National Gas Law and the Australian Competition and Consumer Act which would apply to regulate conduct in the exchange and non-exchange transactions anyway.