Submission: Competition and Consumer Amendment (Gas Market) Bill 2022 Exposure Draft Consultation

The Australian Pipelines and Gas Association (APGA) represents the owners, operators, designers, constructors and service providers of Australia’s pipeline infrastructure, connecting natural and renewable gas production to demand centres in cities and other locations across Australia. Offering a wide range of services to gas users, retailers and producers, APGA members ensure the safe and reliable delivery of 28 per cent of the end-use energy consumed in Australia and are at the forefront of Australia’s renewable gas industry, helping achieve net-zero as quickly and affordably as possible.

APGA welcomes the opportunity contribute to the Federal Treasury consultation on the Competition and Consumer Amendment (Gas Market) Bill 2022 (the Bill) Exposure Draft (the Consultation). APGA is concerned that the Bill introduces legislative duplication and highlights the opportunity to address the medium-term gas supply challenge in an emission-sensitive manner through federal support for renewable gas production.

APGA supports a net zero emission future for Australia by 2050[1]. Renewable gases represent a real, technically viable approach to lowest-cost energy decarbonisation in Australia. As set out in Gas Vision 2050[2], APGA sees renewable gases such as hydrogen and biomethane playing a critical role in decarbonising gas use for both wholesale and retail customers. Alongside the Federal Government, APGA is the largest contributor to the Future Fuels CRC, which has over 80 research projects dedicated to leveraging the value of Australia’s gas infrastructure to deliver decarbonised energy to homes, businesses, and industry.

Clarity about pipeline services is required

The Section 53B definition of gas commodity includes services relating to supplying or acquiring gas. Gas market participants typically require a Gas Sales Agreement (GSA) and a Gas Transportation Agreement (GTA) to get gas from the point of sale to the point of use. GTA’s are contracts covering the provision of pipeline services and do not include the supply or acquisition of gas.

Services provided through GTAs are already subject to substantial economic and access regulation under the National Gas Law.

Given there is a relationship between GSAs and GTAs and the use of the phrase ‘services relating to supplying or acquiring gas’, it is unclear whether for the purposes of the Bill that:

• Pipeline services are intended to be captured by the definition of gas commodity; and
• Hence whether the provision of pipeline services providers is intended to be captured under gas market conduct; and
• Hence whether pipeline service providers are intended to be captured under the definition of gas market participant.

Clarity on the above definitions is critical for APGA and its members to effectively consider impacts of the Bill upon pipeline service provider businesses.

If the definition of gas commodity is not intended to capture pipeline services

APGA anticipates that it is not the intention of Energy Ministers to capture pipeline services within the Bill’s definition of a gas commodity. However, part (b) of the definition of gas commodity (goods or services relating to supplying or acquiring gas) implies that pipeline services could be captured by the definition.

High priority recommendation

If the definition of gas commodity is not intended to capture pipeline services, then APGA stresses the importance of Treasury taking action to clarify within the Bill that:

• Pipeline services are not captured by the definition of a gas commodity;
• The provision of pipeline services providers is not intended to be captured under gas market conduct; and
• Pipeline service providers are not intended to be captured under the definition of gas market participant.

APGA proposes the Section 53B definition of gas commodity be amended to avoid confusion about pipeline services in the following manner:

gas commodity means:

(a) gas; or

(b) goods or services relating to supplying or acquiring gas.

but does not include services regulated by the National Gas Law.

The gas pipeline industry is well positioned to facilitate enactment of the Bill

In the event the definition of gas commodity is not intended to capture pipeline services, existing provisions within the National Gas Law (NGL) will ensure gas made available via instruments introduced under the Bill can be affordably and reliably delivered to gas customers. The NGL provides gas market participants:

• Protection from pipeline service providers preventing or hindering access to pipeline services (including uncontracted capacity) across both scheme and non-scheme pipelines under Section 133 of the National Gas Law;
• A mandatory code of conduct, set out in Part 23 of the National Gas Rules, for the negotiation of Gas Transportation Agreements (details of which are provided below); and
• Access to contracted but unnominated pipeline capacity via capacity auctions for transportation services introduced under Division 2C of the National Gas Law.

On 31 March 2022, Energy Ministers agreed to the final package of changes to the legal and regulatory framework required to give effect to the reforms to the gas pipeline regulatory framework[3]. Application of The Statutes Amendment (National Energy Laws) (Gas Pipelines) Bill 2022[4] to the National Gas Law ensures the gas market participants will be able to refer any pipeline service provider to the Australian Energy Regulator (AER) for review. The AER will subsequently be able to set regulated tariffs for pipelines with a minimal threshold of intervention.

Customers who are able to access gas via instruments introduced under the Bill will have ready access to gas transport services through existing provisions within the National Gas Law. Pipeline service providers have a proven track record of delivering upon firm haulage contracts, boasting a loss of supply rate 10 time less than that of the powerline industry[5].

If the definition of gas commodity is intended to capture pipeline services

Passing of the Bill including a definition of gas commodity which includes pipeline services will unnecessarily duplicate provisions in the National Gas Law.

The National Gas Law already includes provisions relating to[6]:

• Two forms of regulation – Scheme and Non-Scheme (stronger and lighter)
• A Form of Regulation Test
• Access Arrangements including pipeline service price setting for Scheme pipelines
• Terms and conditions of contracts for pipeline services
• Transparency, reporting obligations and data provisions
• Monitoring and response powers by a Relevant Regulator (identified as the AER)
• Greenfield incentive, price protection and other exemption provisions
• A mandatory code of conduction that includes:
  • Negotiation requirements and response timeframes;
  • Cost transparency and an asset pricing methodology;
  • A binding arbitration framework differentiated between the forms of regulation
• Capacity Trading and Auction market provisions
• Prohibitions from preventing or hindering access to pipeline services
• Cost recovery via market participant fees

If the Bill intentionally includes pipeline services under the definition of gas commodity, APGA is concerned that at least the following clauses will conflict and compete with the coverage of the National Gas Law:

• 53M Minister may make gas market emergency price orders
• 53Q Dealing with other gas market participants
• 53R Negotiations, expressions of interest and offers
• 53S Agreements
• 53T Terms on which gas commodities are supplied or acquired, including price
• 53V Requirements to supply or not to supply gas commodities etc.
• 53W Dispute and complaint resolution
• 53X Terms on which gas commodities are supplied or acquired, 31 including price
• 53Z Transparency
• 53ZA Reporting, records and auditing
• 53ZB Conferral of powers and functions
• 53ZC Fees
• 53ZD Incidental or related matters
• 53ZT Commission may require person to provide information

Recommendation

APGA strongly recommends against the Bill including a definition of gas commodity which includes pipeline services and refers to its proposed alternate drafting noted above.

If the intent of Energy Ministers is for the Bill to include a definition of gas commodity which includes pipeline services, then APGA recommends that Treasury undertake an audit to understand how each of the identified provisions interacts with provisions within the National Gas Law and to subsequently provide clarity within the Bill about where the National Gas Law will take precedence above the Bill or vice versa.

Figure 1: Figure 1 from the Department of Climate Change, Energy, the Environment and Water

Information Paper: Improving gas pipeline regulation[7]

Medium-term solution for increased gas supply and reduced emissions

The medium-term solution for high gas prices is increased gas production and the urgent development of a domestic renewable gas market. Alongside electrification, a dual pathway to decarbonise through support for a renewable gas market works in tandem with renewable electricity to provide a zero-carbon insurance policy for households, businesses, and industry.

Renewable gases such as hydrogen and biomethane can decarbonise gas supply just as solar and wind have decarbonised electricity supply. However, renewable gases are at the start of their commercialisation journey and require Federal Government support to grow. The Federal Government helped create the Australian renewable electricity industry through the Renewable Energy Target, and it has the opportunity to support a local Australian renewable gas industry through the creation of a Renewable Gas Target.

Biomethane production cost can be as low as $12.20 per gigajoule today and $9.80 in 2030[8], at which point hydrogen is also anticipated to cost as low as $13.31 per gigajoule[9]. But previously, the Renewable Energy Target was put in place when the levelized cost of energy from solar PV was more than $500 per megawatt hour. Upfront investment in supporting the domestic market today through federal renewable gas incentives will play an important role in delivering a lower-cost and simpler pathway to net zero tomorrow.

The opportunity to reuse or repurpose today’s natural gas infrastructure for renewable gases is being realised globally[10]. Similar opportunities exist in Australia, where more energy is delivered via existing gas infrastructure than is delivered via electricity infrastructure[11]. However, the short-term impacts of lowering gas commodity prices today may have flow-on effects to the gas infrastructure that will transport the renewable gases of tomorrow.

Recommendation – Support renewable gas production

APGA plans to provide recommendations for progressing renewable gas development and a medium-term solution to east coast gas prices within its response to the Federal Treasury 2023-24 Pre-Budget submissions process. APGA’s recommendations within its Pre-Budget submission will include:

• A detailed study on implementing a national Renewable Gas Target, which replicates the functional features of the Renewable Energy Target; and
• A study to investigate ways to ensure the east coast gas market returns to being long in supply, including facilitation of increased natural gas and renewable gas production.

These recommendations combine to help solve the simultaneous challenges of reducing gas supply and progressing gas use decarbonisation.

Recommendation – Avert capture of renewable gas production under the Bill

APGA believes that the Bill is intended to enable price cap instruments applicable to natural gas alone. However, the Bill is not specific about what gases are able to be captured under a price cap instrument, risking capture of renewable gas production under the Bill.

Renewable gas production investment will be subject to significant barriers and disincentives if renewable gases are able to be captured by future price cap instruments. This will increase revenue risk, impeding investment in the renewable gas production required to create a dual renewable energy pathway to decarbonise Australian households, businesses, and industry.

APGA proposes that replacing references to gas in the Bill with references with references to natural gas would most simply avert this risk. Alternately, this risk could be averted by:

1. Introducing the definition of regulated gas from Section 4 of the Draft price cap instrument into the Section 53B Definitions of the Bill, and
2. Changing the definition of gas under Section 53B of the Bill to reference the definition of regulated gas alongside its original definition.

This could be achieved by amending 53B of the Bill with the following definitions:

gas means:

(a) regulated gas; and

(b) includes gas in a liquid state.

regulated gas means a substance that:

(a) is in a gaseous state at standard temperature and pressure; and

(b) consists of naturally occurring hydrocarbons, or a naturally occurring mixture of hydrocarbons and non-hydrocarbons, the principal constituent of which is methane; and

(c) is suitable for consumption; and

(d) does not include liquefied natural gas (within the meaning of the National Greenhouse and Energy Reporting Regulations 2008).

To discuss any of the above feedback further, please contact APGA National Policy Manager, Jordan McCollum, on +61 422 057 856 or jmccollum@apga.org.au.

Yours sincerely,

STEVE DAVIES

Chief Executive Officer

Australian Pipelines and Gas Association

[1] APGA Climate Statement, available at: https://www.apga.org.au/apga-climate-statement

[2] APGA, 2020, Gas Vision 2050: Delivering a clean energy future, available at

https://www.apga.org.au/sites/default/files/uploaded-content/website-content/gasinnovation_04.pdf

[3] Australian Federal Department of Climate Change, Energy, the Environment and Water, 2022, Information Paper: Improving gas pipeline regulation, available at
https://www.energy.gov.au/sites/default/files/2022-04/Information%20Paper%20Improving%20gas%20pipeline%20regulation.pdf

[4] The Statutes Amendment (National Energy Laws) (Gas Pipelines) Bill 2022 has passed both houses of South Australian Parliament.

[5] GPA Engineering, 2022, Pipelines vs Powerlines: A Technoeconomic Analysis in the Australian Context
https://www.apga.org.au/sites/default/files/uploaded-content/field_f_content_file/pipelines_vs
_powerlines_-_a_technoeconomic_analysis_in_the_australian_context.pdf

[6] See Figure 1: Figure 1 from the Department of Climate Change, Energy, the Environment and Water Information Paper: Improving gas pipeline regulation

[7] Department of Climate Change, Energy, the Environment and Water, 2022, Information Paper: Improving gas pipeline regulation, available at:
https://www.energy.gov.au/sites/default/files/2022-04/Information%20Paper%20Improving%20gas%20pipeline%20regulation.pdf

[8] ARENA, 2021, Australia’s Bioenergy Roadmap, available at:
https://arena.gov.au/assets/2021/11/australia-bioenergy-roadmap-report.pdf

[9] A$1.89 per kg, CSIRO, 2021, Green hydrogen production costs in Australia: implications of

renewable energy and electrolyser costs, available at:
http://iceds.anu.edu.au/files/2020%2009%2001%20-%20ZCEAP%20-%20CCEP%20Working%20Paper%20-%20Green%20hydrogen%20production%20costs.pdf

[10] European Hydrogen Backbone website, 2022, available at:
https://ehb.eu/

[11] Australian Federal Department of Climate Change, Energy, the Environment and Water, 2022, Australian Energy Statistics 2022 Energy Update Report, available at
https://www.energy.gov.au/publications/australian-energy-update-2022