Market Transparency Rule

The commencement on 15 March 2023 of the National Gas Amendment (Market Transparency) Rule 2022 (Market Transparency Rule) significantly expanded the reporting obligations of gas market participants under the National Gas Rules. The Gas Bulletin Board was first introduced in 2013 as a digital platform administered by AEMO to publish (often aggregated) data reported by gas producers and pipeline operators based on a facility specific reporting threshold test. Prior to the Market Transparency Rule, this included data such as gas producers' short and long term production forecasts, pipeline service providers' short and long term capacity forecasts, and daily flow data.

The Market Transparency Rule marked a major extension of the Gas Bulletin Board to additional types of data sets and industry participants. This year has seen many such participants, to whom the Gas Bulletin Board did not previously apply, quickly getting up to speed with the registration and reporting requirements.

In particular, the Market Transparency Rule broadened the scope of the Gas Bulletin Board to include the following responsibilities.

Short term gas transactions

Obligations for the seller under a short term gas transaction to report certain transaction information to AEMO, including amongst other things, the contract price, trade date, parties, supply term, receipt and delivery points, maximum daily quantity, minimum take or pay quantity and any price escalation mechanism. The transactions which are captured are those which:

1. consist of either a swap or sale of gas which involves the physical delivery of gas including in both the wholesale and retail markets in all participating jurisdictions;
2. are for a term of less than 12 months;
3. have a maximum quantity that a party can be required to supply on any gas day during the supply period of at least 1 TJ;
4. are not transactions where the purchaser is a residential customer or small business consumer under the National Energy Retail Law; and
5. are not 'related party transactions', or subject to another exemption.
6. Given many large industrial users and power generators sell gas to manage their supply profile, the short term gas transaction reporting obligations can extend to them, despite not being primarily engaged in the business of selling gas.
7. Another notable feature of the rule is the requirement to report the information to AEMO within 1 business day of the trade date in most circumstances. Given many short term gas transactions are conducted through trading desks which can involve up to three levels of trade confirmation at different times (e.g. verbal, confirmation by email and then finally with a signed transaction notice), determining the trade date for a transaction can be challenging. Yet the importance of prompt reporting is clear, and the AER is keenly monitoring compliance.

Large users

Obligations for operators of 'BB large user facilities' to report daily gas consumption information to AEMO where the nameplate of the user facility is equal to or greater than 10TJ/day. The meaning of 'user facility' is drawn from the National Greenhouse and Energy Reporting Act 2007 (Cth). It includes a facility that consumes gas as a fuel or feedstock, but excludes LNG processing facilities and production, storage or compression facilities.

The large user reporting rule is intended to capture gas consumers such as large industrial facilities and gas fired generators. It requires facility operators to register with AEMO and report daily consumption data, unless a reporting exemption applies (although there is no exemption from the requirement to register).

Field owners

Obligations for persons holding a net revenue interest in petroleum tenements granted under the laws of any participating jurisdiction to report certain field information and reserves/resources data to AEMO for publication on the Gas Bulletin Board (partly in aggregated form). Much of this information is already provided to State based petroleum regulators, but is not otherwise made available to the market.

One interesting component of the framework is that the registration and reporting obligations apply to all persons holding a net revenue interest, including (for example) every participant in a petroleum joint venture. While the Gas Bulletin Board facilitates certain other reporting obligations being discharged by an appointed operator, the gas field reporting obligations do not permit such an approach unless there is joint marketing involved. As a consequence, non-operator participants in upstream joint ventures need to consider and comply with the registration and reporting requirements of the framework.

Facility developers

Obligations for developers of 'facility development projects', being projects to extend or expand an existing facilities on the bulletin board or to develop a new natural gas industry facility that will be caught once commissioned, subject to certain classification criteria being met (including that the facility has a nameplate capacity of 10TJ/day or more).

Entities which are obliged to register as facility developers are required to report certain information about the facility including type, location, proposed nameplate rating, stage of development (using AEMO's assessment framework) and commissioning date range.
LNG facilities

Obligations for LNG facility operators to report a variety of information to AEMO, including with respect to daily processing information and short term LNG export transaction information.

Pipeline access framework reforms

The new pipeline access framework commenced in March 2023 following the enactment of the National Energy Laws Amendment (Gas Pipelines) Act 2022 (SA) and the making of the National Gas Rules (Gas Pipelines) Amendment Rules 2023. We covered the key features of the new framework in our November 2021 technical update Big gas pipeline reforms looming.

The new framework reforms the regulation scheme and non-scheme pipelines, but the reforms to non-scheme pipelines are most notable. They include:

Removal of the 'no third party access' exemption

A key feature of Part 23 was the availability of an exemption from the access request/dispute framework for pipelines which were not currently offering or providing third party access. Once the pipeline was exempt, it was not possible for a prospective user to apply for access. This exemption has not been replicated in the new framework. However, an exemption from the information disclosure requirements in Part 10 is still available for pipelines not currently providing third party access (now termed a 'Category 1' exemption).

Extension of the ring-fencing and associated contract provisions to non-scheme pipeline operators

A major element of the new framework is the extension to non-scheme pipelines of ring-fencing rules in the National Gas Law that previously only applied to the operators of scheme pipelines (formerly known as covered pipelines). The key elements of the ring-fencing rules include:

1. Structural separation: A prohibition on pipeline service providers carrying on a business of producing, purchasing or selling gas (other than for the safe and reliable operation of the pipeline or for the provision of balancing services;
2. Marketing staff: Prohibitions on certain employees of the pipeline service provider being marketing staff of a related business (and vice versa);
3. Accounts: Requirements for the pipeline service provider to maintain separate accounts for pipeline services; and
4. Associate contracts: Prohibitions on pipeline service providers from entering into contracts with an associate (e.g. related body corporate) that are i) likely to have the effect of lessening competition in a market for gas; or ii) inconsistent with the competitive parity rule (i.e. effectively a requirement the contract terms be arm's length).
5. The ringfencing rules will not apply to non-scheme pipeline service providers who hold a Category 1 exemption, but if the exemption is lost, the ringfencing rules will begin to apply after a 12 month transitional period from when the exemption is lost. This underscores the significance of considering the potential future application of the ringfencing rule to the business structure of new pipeline service providers.

Right to interconnect

The creation of a new right for persons to establish a connection with a pipeline provided the connection is technically feasible and consistent with the safe and reliable operation of the pipeline, and the connecting party meets the associated costs. The rules include a requirement for service providers to publish an interconnection policy as part of their pipeline user access guides, as well as a connection agreement (and any other agreement) that they may require an interconnecting party to enter into. The user access guide was a feature of Part 23, but non-exempt service providers will be due to publish their updated user access guides, interconnection policies and agreements by 22 December 2023.

Progress on hydrogen, biomethane and other renewable gasses reform

The year also saw progress on reform efforts to bring hydrogen, biomethane and other renewable gasses under the national gas regulatory framework, which we covered extensively in our April 2022 update Hydrogen blends and renewable gases to be included in national gas framework.

The Statutes Amendment (National Energy Laws) (other Gases) Bill 2023 (SA) received assent on 23 November 2023, although it is unclear when the accompanying changes to the National Gas Rules will commence (with earlier indications having been in late 2023 or early 2024).

Aside from these reforms, proponents of hydrogen development projects should be keenly aware of the other reform efforts in the NGR, including for example, the facility developer obligations introduced through the Market Transparency Rule and the implications of the new pipeline access framework.

Code of Conduct

Much ink has already been spilt on the development of the Code of Conduct and questions remain as to the extent of its application. There is speculation that less than 10% of East Coast gas may be subject to the Federal Government's price cap, in part due to the exemption framework.

The Federal Government recently announced that Senex and APLNG had been granted exemptions from the pricing provisions in the joint media release: Gas code secures supply for domestic market by the Ministers for the Department of Industry, Science and Resources.

It remains to be seen whether the intervention will achieve competitive prices for domestic consumers without creating barriers to investment in supply. Industry participants and regulators will be keenly watching with the ACCC's first scheduled review of the current $12/GJ price cap in 2025. If nothing else, the introduction of the Code of Conduct together with other recent and planned reforms demonstrate the current Federal Government's willingness to intervene in markets when voting consumers demand to be heard.

One area of increased focus this year is the use of price review clauses in long term gas supply contracts. Price review clauses typically permit the seller or buyer to initiative a market based price review if the contract price ceases to reflect market conditions, subject to certain qualifications. While wholesale gas prices in recent years have been high, there remain long term supply agreements with prices well below the peaks seen earlier this year.

The introduction of the Code of Conduct has opened the door for parties to argue that the price set by the Code of Conduct is a significant indicator of the market value of natural gas in the East Coast market. It remains to be seen how effective such arguments might be, but we expect that buyers and sellers will be reviewing the price review mechanisms in their agreements and considering the implications of the Code of Conduct when negotiating such mechanisms in new agreements.

Australian Domestic Gas Security Mechanism (ADGSM) Reforms

Reforms to the ADGSM commenced on April 2023. These include:

1. permitting the Minister to declare a domestic shortfall on a quarterly, rather than annual basis;
2. requiring all LNG exporters in the shortfall market to share the shortfall liability equally;
3. facilitating allowable volume export permissions to be tradeable between the LNG projects; and
4. limited protections for long-term contracts where certain criteria are met.

Safeguard Mechanism – industry trends

While not directed specifically at the national gas market, the reforms to the Safeguard Mechanism introduced on 1 July 2023 have major implications for the development of new gas projects. We reported on the reforms to the Safeguard Mechanism in our March 2023 update on Safeguard Mechanism reforms.

The economic effects of the reforms on the hurdle rate for new major projects are still being assessed, but contracting parties are nevertheless developing new carbon scheme provisions in joint venture agreements aimed to address the implications of the reforms, particularly with respect to trading ACCUs and sole risk operations.

Gas Industry Reform - what's ahead for 2024 and 2025?

Reforms are expected to continue into 2024 and 2025. One topic which drew our attention was the Energy Ministers' statement in August 2022 that they had agreed to examine a framework for third party access to upstream gas and storage infrastructure. A Regulation Impact Statement was intended to have been released in 2023

Upstream production and storage facilities are not currently subject to access or economic regulation. It does not appear the Regulation Impact Statement has been released during 2023, but this is an area to watch for gas producers and storage facility operators, including those developing hydrogen project.

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