Thread by @TennantReed

Tweeting today from the Australian Pipeline Gas Association Stakeholder Forum

Steve Davies, APGA: the future of the pipeline sector is directly linked to the health of the gas market and gas users.
Aust pipeline industry unique - large area but low absolute demand. Narrow pipes over long distances.

Michael Vertigan: reflections on Part 23 pipeline access reform
(Speaking individually)
2016 ACCC found abuse of pipeline market power, not restrained by competition, countervailing power or the threat of regulation.
COAG EC asked Gas Market Reform Group to look at solutions

V: GMRG key focus was assessing any deficiencies of current test for coverage of pipelines by economic regulation.
Evidence: customers faced opaque pipeline market, power imbalance, tough terms, more probs.
Int’l comparison: Aust pipeline returns above those in other countries

V: there was not enough stakeholder support for a more regulatory response - commercial response preferred.
Main recs:
1. enhanced disclosure inc on full range of services sought;

2. Framework for binding arbitration in Nat Gas Law

Agreed by COAG EC in 2016

V: arbitrated prices must reflect commercial rate of return commensurate with risk.
Expected arb to be used rarely.
Transparency rules were expected to reduce disputes.
Unfortunate that EC accelerated start date - left less time to finalize rules, made stakeholders grumpy

V: GMRG not tasked to monitor, but V has views on subsequent events.
Macro: contracts are being entered, greater satisfaction with pricing outcomes. Threat of arb has had effect, though no real test of pt23 arb yet.
New pipeline proposals advance, no freeze on investment

V: initial disclosures were inadequate but not called out by Reg at time. Needs to be addressed to keep framework effective.
Warns against pressure to add yet more requirements to framework - wait five years to assess, and don’t slide into full regulation.

V: but does support eliminating “light regulation” category - just have Pt23 or full regulation re: any given pipeline.
Reform should be viewed in microeconomic terms, not just shallow chase for price reductions

Darren Rogers, APA Group:
Pipeliners still have work to do to respond to customer and ACCC concerns.
Market is evolving due to high prices and uncertainty about role of fossil fuels.
Key role for APA is to increase supply to market and meet customer needs

DR: reforms so far are delivering.
Eg 23 PJ allocated through pipeline capacity auctions.
But customers are doing it tough; gas has to travel further to market with higher costs.
Multi-asset services simplify transport, eg $2/GJ for Qld to Melb

DR: arbitration model is constructive and working.
We’ve made our service offer simpler for customers.
Capacity trading is facilitating seasonal peak, mostly at zero cost.
Disagree with Reg views that transport costs are too high.

DR: after 4 years of reform we should let gas pipeline model settle down.
Without customers we don’t have a business.
Still working on new pipeline proposals.

Anton Boey (Jemena): we all want a well functioning energy market that brings supply where it is needed.
Nobody knows where the market is going
Fundamental gas price problems in Australia
Jemena’s role is in efficient supply, including early-stage work with producers for low cost

AB: early feedback is pipeline reforms are big, lots of implementation changes to systems etc, but going well.
ACCC is positive about pt23 reforms so far and suggesting reform/action focus now is more on supply than transport

AB: the gas market is becoming much more dynamic, nontraditional flows across the system, new services needed.
More policy uncertainty through more pipeline reforms would be counterproductive.
Need a number of years for current reforms to settle down and generate evidence.

AB: reform treadmill would produce confusion, contradictory signals. Need gradual rollout, assessment, adjustment where needed.
Five years would be a good assessment period. If industry can’t resolve any issues, we’d expect more reform.

AB: pipeline industry taking customer concerns more seriously than ever - real cultural change.

New connection points for gas supply into markets are needed. Need to get away from fights between segments of gas supply chain and solve overall problems.

AB: pipeline costs are a relatively small part of the total delivered price of gas. To solve price problems we need to facilitate upstream suppliers getting to market speedily.

(Then I spoke about the gas market situation and costs - will add this on later)

Trent Morrow (AEMO):
Capacity trading has worked well in some respects but highly concentrated - most re: just one supplier.

TM: stronger competition has delivered lowest prices in trading
Integration with gas markets varies.

TM: traders have been able to profitably increase supply from QLD to southern markets.

TM: Adelaide gas prices have risen above Sydney, partly because of lack of pipeline capacity trading participation.

TM: many ways to improve pipeline capacity trading.
We haven’t seen any exchange trades yet, only auctions. Needs multiple participants.

Nicole Ross, ACCC: on July 2019 Gas Inquiry interim report
Agree we shouldn't assume more intervention will necessarily deliver lower prices; we aim to provide the best information to judge policy/market decisions

NR: ACCC found supply shortfall unlikely in 2020, though market remains tight. Adequacy of supply depends on how much produced in south, especially Cooper, and how much gas-fired electricity demand there is.
Prices in QLD dropped in line with netback metric, but south remains $$$

NR: Gas retailers had high margins 2014-18 but market now changing.
Transport pricing - most new contracts are for 1 year or less, only one signed of 5 years or more.
Shippers seek more flexible services - as available, interruptible. Response to producers offering less flex

NR: Transport pricing - some services have gotten cheaper, but firm forward haul is about the same as 2015 in general (and pricier in some cases)

NR: Review of Pt23 - disappointed to find some pipeliners weren't taking disclosure responsibilities seriously. There are opportunities to improve.

NR: Weighted average prices - required to be published, but not always comparable to standing prices (different charges included, inconsistencies, different methods), and not representative of prices paid by individual shippers.

NR: Review of a sample of Recovered Capital Values found all were overstated: errors, methods for inflated values, high ROR, inconsistent approaches.

NR: Pt23 is influencing negotiations with some positive outcomes. But could be improved:
- change AER financial reporting guidelines
- change National Gas Rules

NR: ACCC gas inquiry has been extended out to December 2025. Will keep monitoring pipeline capacity trade reforms. Concerns still raised about ability of shippers to access regional pipelines; cost reflectivity of pipeline charges

My contribution: here to inject a note of despair and doom on behalf of gas users. Whatever the success of pipeline reforms so far, the gas market as a whole seems set to continue delivering high prices and marginal improvements won't save users.

TR: the East Coast LNG takeoff has utterly transformed the market and will remain the dominant feature of demand. Other sources of demand look stable in AEMO GSOO projections, but don't be so sure - very vulnerable.

TR: wholesale gas prices offered to industrial customers in East Aust are ~$10/GJ, a vast increase from long term $3-4 average.

TR: metrics of Australian and international gas pricing are arguable and imperfect, but we've clearly lost ground as a place to use gas.

TR: if East Aust gas prices remain oil-linked and bounded by production+transport cost, depending on oil and exchange rates we could see wholesale of $8-20+/GJ. Super painful for gas users.

TR: Most of the Australian economy is not very gas intensive and hence not super sensitive to gas prices.
(Note this chart only looks at direct gas spend exposure; gas currently also plays a big role in electricity prices. But most of econ not elec intense either.

TR: But some parts of the economy are *very* gas intensive (chart depicts gas spend as % of industry value added, assuming that recent general gas price rises are universally passed through)

TR: price sensitive gas users use most of the gas! Industrial users may be able to switch (especially over longer term) and can definitely close/move. Volumes from gas-fired generation are very vulnerable. So the gas sector has a lot to lose if it can't provide better prices.

TR: Solutions? Over to the gas people. But real solutions please. eg hydrogen may be terrific for many purposes (very excited myself). But $20+ per GJ is not going to help price sensitive gas users.

Mark Grenning @E_U_A_A : members see a dysfunctional gas market. All parts need to work together to deliver better end user outcomes, or there is no industry.

MG: it’s amazing what transparency can achieve! ACCC scrutiny has been very important. Previously users, govts dependent on suppliers assurances that all was fine.

MG: Biggest driver of increasing competitive challenge to gas from other energy sources is Govt policy for a zero carbon world.

MG: users recognize that $4 gas is gone, but are now stuck with marginal (opportunity) cost of marginal gas for export, not the sub-marginal has that still exists.

MG: we don’t want to balance the gas market through demand destruction (users closing/leaving). Flow ons from loss of mfg industry big, bad.
A big stick for gas is not in anyone’s interests (inefficient), but will happen if there is no improvement.

MG: lots remains to be done. Power networks all go through Reg process, but only a few gas pipelines do. Pipeliner active engagement with consumers is mostly optional; some have been doing a good job.

MG: disappointed by ACCC findings on pt23. Pipeliners not forthcoming, have erroneous info, some appear to intentionally mislead. Raises serious trust issues.

MG: endorses ACCC rec to remove scope to exempt sub-10TJ/d pipelines from pt23. Cites member complaint about small fully contracted pipelines (an audience member disagrees here)

MG: ACT Govt has adopted net zero emissions goal and is subsidizing households to get off gas. Could entail substantial electricity grid investment; gas suppliers say do H2 instead (past 2030). Who should wear risk of stranded gas network extensions if H2 isn’t the gas solution?

Andrew Pankowski (Cth Dept Environment and Energy): Pipeline Consultation Regulation Impact Statement is due out today. Govt wants input on costs and benefits of options; other probs/solutions.

AP: COAG EC asked for this RIS in August 2018 to revise coverage test; examine forms/ number of Reg options.
Lots of consultation, survey, modelling inputs so far.

AP: key problems in the RIS:
When to regulate
How to regulate
Disclosure
Negotiation

AP: when to regulate?
Threshold for regulation may over-regulate
Greenfield exemption may distort investment
Coverage test may under-regulate
Governance may create delays

AP: when to regulate - options
(To be considered in coherent packages with options in other areas of RIS)
Option 4 (access regulation by default) is a big change and may have adverse effects, but is how other major markets (USA, Canada) do it.

AP: how to regulate - options

AP: info disclosure - options

AP: negotiation/dispute resolution options:

AP: we’ve commissioned PwC to do costs benefit analysis, reg burden assessment, competition impact analysis.
Workshops coming soon (mid-late Nov) for stakeholders to give evidence/perspective for all this.
Register interest at [e-mail]

Q&A with the last few speakers
Q: how will RIS consider risks to investment?
AP: keen for input on this in consultation.
APGA: new pipeline projects are highly competitive, wants greenfield exemption from access regulation.

Q: are the RIS options firmly set or is mix-and-match possible?
AP: open to input on better combinations.

Q: is there too little focus on regulation of the rest of the gas sector, beyond pipelines?
APGA: monopoly infrastructure regulation is Govt bread-and-butter; harder to see intervention in competitive sectors delivering better outcomes than even minimal competition.

APGA cont’d: but taking a good look at these options is worthwhile. Certainly not much more to achieve through more Reg of pipelines.

MG: hope that pipeliners can respond well, get off front page, and debate can focus on producer-side - and latter will respond to avert heavy-handed intervention.

MG: users have no interest in gas pipeline revenue cap regulation, which has landed them with market size risk in electricity networks.

ACCC: there are a lot of problems in the gas market and something has to be done. Read the political context.
MG: we don’t want to have no alternative but blunt intervention.

The event ended at that point - no more gas tweets from me today!