Brisbane short term trading market for natural gas
Dec 2011 |Introduction
Following the implementation of a short term trading market (STTM) for gas in Adelaide and Sydney mid last year, the operation of the market will extend to Brisbane, with the market 'going live' on 1 December 2011.
Participation in the market will be compulsory for parties transporting gas through the 'Brisbane hub'1 with the intention of "the creation of an open market with transparent pricing and a systematic approach to system balancing and security."2
Although required participants will, by this stage, be aware of the potential impact of the STTM on existing operations, gas traders should also consider the potential opportunities that are presented by the introduction of a regulated spot market.
Overview of the market
The STTM was established with amendments to the National Gas Law, the operation of which will extend to the Brisbane market. Part 20 of the National Gas Rules provides for the detail of the conduct of the market. Technical and procedural details are contained in the STTM Procedures published by the Australian Energy Market Operator (AEMO), which will be responsible for the regulation of the market.
Participation in the STTM is required despite the existence of long term sales arrangements. The same party may, however, sell and buy gas into the market in order to meet their contractual obligations and maintain long-term contractual pricing.
The market will operate on an 'ex ante' basis, with gas being traded the day before it is taken. 'Shippers' deliver gas for sale in the market and 'Users' buy that gas for on-sale to consumers.
The Brisbane hub consists of various notional custody transfer points along the Roma to Brisbane Pipeline - Riverview, Redbank, Swanbank, Ellen Grove, Willawong, Runcorn, Mt Gravatt, Tingalpa, Doboy, Murrarie, Gibson Island and Lytton.
Participants
The key participants in the STTM are AEMO as the Market Operator, Shippers, Users, Facility Operators and Allocation Agents.
As Market Operator, AEMO sets the market price for gas traded in the STTM and provides schedules of expected quantities each day. Title to gas will not transfer to AEMO at any stage and hence it has no responsibility for gas specifications or the operation of the distribution system.
A party is required to register as a STTM Shipper if it has the right to transport gas to a hub (e.g. under a contract with a service provider for the transmission of gas to a hub).3 Shippers place offers to sell gas to other participants in the STTM.
To withdraw gas from a hub and place offers to buy gas in the STTM, a party must register as a STTM User.4
Capacity entitlements on a pipeline must be registered with AEMO5 - such entitlements are known as 'trading rights' for the purposes of the STTM. Each offer to buy or sell gas in the STTM must relate to a registered trading right6.
If participants do not wish to trade in the STTM, they may assign their trading rights to other STTM participants.
Operators of transmission pipelines, production facilities and storage facilities supplying gas to the hub must register as STTM Facility Operators. These parties schedule deliveries of gas to the hub and allocate it in accordance with their separate contractual arrangements with Shippers.
An Allocation Agent, who is appointed by the Facility Operator and Shippers, is required for each receipt point in the STTM facility. The Allocation Agent is responsible for submitting to AEMO daily quantities allocated to each Shipper at these receipt points.
Ex ante market - key features
As noted above, gas is traded in the STTM a day ahead of the day it is taken (referred to as D-1 in the relevant rules and procedures). On this day, Users place bids to buy gas and Shippers place offers to sell gas, with trading closing at 1.30pm for the Brisbane market.
Following close of trading, AEMO sets the market price. Shippers submit bids in pricing bands and the price is determined by stacking and matching offers with bids in price order.7 Offers to sell gas at a lower price will be scheduled ahead of higher priced offers.
AEMO will then publish a market schedule, setting out the gas required to be flowed and taken by each Shipper and User on the gas day. For the purposes of the market, parties are required to comply with this schedule, despite the quantities actually offered or bid for. If they do not comply, they will be charged a fee for the deviation.8
There is some avenue for participants to conduct a market schedule variation in agreement with another Shipper or User (a variation must be matched with an opposite variation to ensure there is no affect on actual gas flow).9
Parties continue to nominate quantities for delivery under transportation arrangements as normal. In addition, pipeline operators are required to provide AEMO with allocations of actual quantities flowed to and from the hub for each Shipper.
Market operator service and contingency gas
The market has mechanisms to deal with over and under supply of gas and ensure that the physical demand at the hub is met each day.
The first of these is a market operator service (MOS).10 AEMO will, at regular intervals, call for Shippers to participate in the MOS under standing arrangements (called the MOS stack). These arrangements will then be called upon to increase or decrease the flow to a particular Shipper on any day the service is required to balance what was scheduled for delivery with the quantities actually delivered.
If MOS will be insufficient on any day to effectively balance the market, AEMO may call on contingency gas for this purpose.11 If contingency gas is likely to be required, AEMO will call a conference between facility operators and other relevant participants to discuss an appropriate response. Shippers who are able to increase supply and Users who are able to decrease withdrawal can offer contingency gas to respond to required situations.
Impacts and opportunities
Required participants in the market have had the opportunity to consider and test the potential affects of the market on their current operations during a market trial. Although the intention is that long term transport and sales arrangements will sit alongside the market and remain largely undisturbed, these arrangements may have required various amendments to ensure the market operates in respect of those arrangements as the parties intend it to. Such amendments will now largely be complete in anticipation of the commencement of the market, however, agreements may continue to evolve as parties adjust to participation in the market.
Overall, the introduction of the STTM in Brisbane should be considered an opportunity for gas traders to sell excess or purchase additional gas if required, outside the bounds of long term arrangements. If the market has the desired outcome, this will see participants having a greater choice in purchasing gas supplies at a price that should properly reflect the true supply-and-demand situation.
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1 Sections 91BRC and 91 BRD of the National Gas Law require persons who supply gas to or withdraw gas from an STTM hub to register as a participant in accordance with the STTM Rules. In addition, Rule 406 of the National Gas Rules 2008 requires those participants who intend to supply gas to or withdraw gas from a hub to include that quantity in an ex ante offer or bid in accordance with the Rules.
2 Overview of the Short Term Trading Market for Natural Gas, Australian Energy Market Operator, Version 4.1 2011, page 2.
3 Rule 135ABA National Gas Rules 2008
4 Rule 135ABA National Gas Rules 2008
5 See Rules 380 - 386 National Gas Rules 2008
6 Rule 407 National Gas Rules 2008
7 Called the Scheduling and Pricing Algorithm - see Rules 404 and 405 National Gas Rules 2008
8 See Rule 461 National Gas Rules 2008
9 Rule 423 National Gas Rules 2008
10 See Division 6 National Gas Rules 2008
11 See Division 8 National Gas Rules 2008
