Following on from the first LNG shipments leaving Queensland, and looking ahead at the forecast growth in domestic gas consumption, in this article we look at the short term gas trading markets in Australia, including their purpose and some recent changes.
What are they?
The short term trading markets (STTMs) for gas in Australia are intra-day, wholesale gas trading markets which operate through hubs in Sydney, Adelaide and Brisbane. The STTMs in Sydney and Adelaide commenced on 1 September 2010 and the STTM in Brisbane commenced on 1 December 2011.
They are governed by the National Gas Rules and operated by the Australian Energy Market Operator (AEMO). Gas traded on the STTMs flows through major transmission pipelines before being consumed in the Sydney, Adelaide and Brisbane metropolitan areas. In Queensland, the only transmission pipeline feeding directly into the Brisbane hub is the Roma to Brisbane pipeline.
What is their purpose?
The underlying purposes of the STTMs are to provide pricing transparency, facilitate information sharing and increase the reliability and security of gas supply.
Gas retailers buy gas from the STTM to on-supply to residential, commercial and industrial consumers, although some major gas consumers purchase gas directly from the STTM.
STTM participants in the Brisbane hub include companies such as AGL, Origin, Santos, Alinta, BP, Stanwell, ERM and EnergyAustralia. In order to participate, a company must register with AEMO and be granted a trading right in respect of the relevant hub.
How do they work?
AEMO issues two- and three-day forecasts of gas prices and quantities for each hub. Gas is then traded between STTM participants with respect to a hub one day before (D-1) the 'gas day'. The D-1 price is applied to all gas supplied to the relevant hub on the gas day. On D-1, a formal market schedule and gas pricing is released by AEMO based on supply and demand (offers are accepted in increasing price order and bids are accepted in decreasing price order). A gas day commences at 6:30am EST in Adelaide and Sydney and at 8:00am EST in Brisbane.
AEMO monitors the financial exposure that participants have to the market, and maintains security requirements and trading limits to protect the market. In addition, STTM participants have good faith obligations in order to provide further comfort to other participants.
In December 2014, following industry consultation by AEMO, a redeveloped National Gas Market Bulletin Board was launched. The Bulletin Board was originally established on 1 July 2008 as a gas market and system information website. The Bulletin Board includes information in relation to all major gas production fields, storage, consumption centres and transmission pipeline systems. The objective is to assist gas market participants to make informed decisions on the basis of accessible, accurate and up-to-date information.
Following the redevelopment of the Bulletin Board, and with effect from 8 January 2015, the National Gas Rules were amended to improve the short- and medium-term information required to be published on the Bulletin Board. The period of the short-term capacity outlook was increased from three to seven days and a new medium-term capacity outlook was introduced.
Late last year, the COAG Energy Council identified that, whilst the commencement of LNG exports in eastern Australia will bring positive economic benefits to Australia, it will also instigate a transformation of the domestic market and bring about new challenges for producers, users, infrastructure owners, regulators and the community. The establishment and improvement of the STTMs is one of many mechanisms designed to improve gas supply response and gas markets generally in Australia during this time of transition.