13 March 2026

Submission: Gas Market Review Report

Introduction

The Gas Market Review (GMR) took place at a crossroads for the East Coast Gas System (ECGS). Alongside global headwinds resulting from Russia’s illegal war on Ukraine, there are existing structural supply-demand imbalances that have led to forecast shortfalls over the coming decade. Coupled with changing residential and industrial demand in some states, and an increasingly burdensome and unpredictable regulatory framework, the environment for private investment in both gas supply and gas infrastructure has been, at best, challenging.

Regulatory instruments designed to increase domestic gas supply are no longer fit for purpose and cannot provide sufficient long-term certainty for investment and supply to gas market participants. This is not industry rhetoric, rather a key finding of the GMR.

To address this, the GMR proposes implementing a domestic gas reservation scheme to ensure domestic supply of gas and simultaneously lifting those regulatory instruments impeding the market. This approach will provide much-needed signals to invest in both domestic supply and the infrastructure that will provide it to the market. As evidenced by recent major investment decisions, the gas infrastructure industry will respond when it can see policy settings are supportive, and APGA is confident that forecast gas supply deficits can be managed or averted if the Commonwealth enables market-led investment.

To achieve this, APGA recommends the GMR framework contributes to a stable regulatory and investing environment where the market is able to respond to investment signals faster and more efficiently than any government-led intervention, through:

• Encouraging private sector investment in pipeline networks and storage (GMR Recommendation 5c). This will require amendments to the National Gas Law framework to lift a major contributor to regulatory uncertainty chilling gas infrastructure investment on the east coast – the AER’s self-initiated Form of Regulation Review, and to incentivise developments and foundation customer contracting (as in Recommendation 5e).
• Addressing supply, which is fundamental to securing ECGS reliability. A gas reservation scheme that incentivises the development of lowest-cost supply, underpinned by long-term contracting, and avoids implementing any additional barriers to investment will provide this certainty. Additional proposed reforms such as market liquidity and mechanisms to boost short-term spot market trading (Recommendations 9-11) will add to regulatory uncertainty and further distort the market.
• Avoiding implementing further barriers to investment, specifically additional powers for AEMO to invest in infrastructure (Recommendation 5d). Such powers would immediately become a default requirement for gas infrastructure development, increasing cost and inefficiency, and will stand in direct contradiction with the aim to improve private sector investment.

Encourage private sector investment in pipeline networks and storage

Regulatory reform must encourage private sector investment

The private sector is best placed to develop and deliver the necessary gas infrastructure to connect supply and demand, quickly and efficiently.

APGA is pleased to see this recognised in Recommendation 5c of the GMR Report, which encourages private sector investment in pipeline networks and storage. The gas infrastructure industry has materially responded to market signals to invest as much as it can under the current regulatory framework.

A substantial suite of pipeline, storage and related infrastructure projects has either recently reached completion or are well advanced, and a further pipeline of major investments is progressing across the east coast. These are just the infrastructure projects that have been publicly announced; market participants are well aware of more infrastructure projects that are being actively scoped and investigated.

These investments have advanced in spite of pronounced market disruption and heightened regulatory risk. This disruption has likely affected the timing of some investments but has not extinguished investment intent, and infrastructure development is expected to continue as market needs persist.

By way of recent example, in February APA announced that it would be proceeding with Stage 3 of its East Coast Gas Grid (ECGG) Expansion Plan, which will add approximately 30% additional transport capacity and address projected southern market gas shortfalls from 2028.[1] This project had been materially and, arguably, needlessly delayed by the Australian Energy Regulator (AER)’s decision in 2024 to undertake a Form of Regulation Review of the South West Queensland Pipeline, a key component of the ECGG.

While this announcement progresses Stage 3A to Final Investment Decision (FID), Stage 3B is subject to the outcomes of this Gas Market Review process. The impact of the Form of Regulation Review process is considered later in this submission.

The chilling effect of over-regulation

It is timely that the Gas Market Review recognises the contribution of access regulation to a slow investment environment. While not discussed extensively in the GMR Report, Recommendation 5e acknowledges that reforms would improve incentives for investment and foundation contracting, thereby increasing the level of investment.

Notwithstanding recent investments in gas infrastructure in the east coast there remains considerable regulatory barriers which have chilled the investment pipeline.

The chilling effect of access regulation on infrastructure investment is a well understood economic principle. In short, if an investor expects that future regulatory decisions will appropriate the returns of an investment, the investor may delay, scale back or avoid investing altogether.

This principle has been acknowledged and set out in the foundation of modern competition regulation in Australia, the Hilmer Review. It featured across the Productivity’s Commission’s 2013 Review of the National Access Regime. APGA recommends Professor Allan Fels AO’s submission to the 2013 Review of the National Access Regime as a comprehensive review of the mechanisms by which access regulation can deter investors.[2]

The increased pace of regulation is chilling investment

Legislative efforts to avert the chilling effects of regulation on pipeline investment have stagnated since 2006, when Greenfields Incentive and Price Protection Determinations were incorporated into the Gas Pipelines Access (South Australia) Act 1997. Conversely, over the last decade, the access regime for gas pipelines set out in the National Gas Law has changed dramatically, with the ability of the regulatory regime to intervene in the commercial arrangement of a pipeline increasing in multiple consequential ways. The timeline of these changes is set out in the table below.

Alongside the GMR Report, further reforms loom in 2026 as the AEMC progresses rule change requests to implement reliability and supply adequacy tools for the ECGS and the Gas Networks in Transition package.

It is clear that the ability of regulatory tools and decisions to intervene in the commercial arrangements of a gas pipeline has increased dramatically since 2017, with the ultimate effect being uncertainty baked into the rules of engagement. While it is impossible to quantify the impact of this on investment in gas infrastructure, it is possible to say that is likely it has chilled investment in gas infrastructure. It is definite that in 2026 the East Coast Gas Market would benefit from more investment in gas infrastructure.

Gas Market Review identifies necessary access reforms but must go further

APGA is pleased to see Recommendation 5e implicitly acknowledges the chilling effect of access regulation by recommending examining the merit of amending the National Gas Law for two specific reforms: the Greenfield Incentive, to incentivise development, and the Day Ahead Auction, to incentivise long term contracting.

Recommendation 5e (i): Extending the Greenfield Incentive to brownfield investments to incentivise development.

When developing infrastructure options, there are greenfield (new) and brownfield (expansion of existing) options. Often, there will be competing proposals. There are cases where it may be more efficient to expand the capacity of an existing pipeline, rather than building a new one. It also likely to be faster and easier to expand existing pipelines than go through the extensive approvals processes to build a new pipeline.

Where greenfields projects are competing with brownfields projects, the Greenfield Incentive and Price Protections in the National Gas Law[3] may lead to outcomes where less efficient greenfields projects can more easily reach FID than more efficient brownfields projects, or lead to pipeline length extensions instead of capacity expansions.

To encourage private investment in all types of gas infrastructure, it is appropriate to consider how the regulatory protections of the Greenfields Incentive can be extended to brownfields investment.

Recommendation 5e (ii): Providing exemptions to the Day Ahead Auction to incentivise foundation contracting.

The Day Ahead Auction (DAA) was introduced to address a perceived inefficiency of contractual congestion of pipeline resources on the East Coast. The DAA allows gas transport customers to bid for access to contracted but un-nominated transportation capacity, with a reserve price of zero. Because of this, on some days, transport customers can access services for free. This effectively embeds a free rider problem in the gas transport market and disincentivises gas customers from contracting all, or even most, of their transport needs. This is especially true for entering foundation contracts for new capacity: any gas customer will be rightly concerned that competitors can frequently access the new capacity through the DAA on very favourable terms.

The DAA may enable a “more efficient” allocation of pipeline capacity on existing pipelines, but it does this at the cost of disrupting the link firm gas transport contracts and the economic viability of new pipeline development. Exemptions to the DAA for new pipeline developments could incentivise foundation customer contracting.

APGA agrees that these amendments to the National Gas Law should be progressed, given we proposed both these reforms in our original submission to the GMR. Given the need and intent to encourage private investment in all types of gas infrastructure, it is highly appropriate to consider how the regulatory protections of the Greenfields Incentive can be extended to brownfields investment, and how exemptions to the Day Ahead Auction could avert the free-rider problem and incentivise foundation contracting.

The above recommendations in the GMR are an excellent start, but are not the only reforms that should be considered. There are many nuances of regulation that could form part of a broader review of the access regime.

For example:

• In the interconnected East Coast Gas System, it is possible for augmentation through new or expanded infrastructure to free up capacity in another part of the network. The regime should consider how it can properly encourage this additional capacity with exposing an investor to further regulatory risk.
• The DAA was intended to address contractual congestion, yet applies to pipelines that are not fully contracted. This limits the ability of some expansion projects to proceed.
• The decade of reform culminating in 2023’s Form of Regulation Review being added to the NGL means the overarching access regime for gas pipelines bears no resemblance to the National Access Regime in Part IIIA of the Competition and Consumer Act 2010 on which it was originally based. There are elements of these changes that should be at least reviewed.

But the chief barrier to investment that must be lifted, as a priority, is the AER’s power to undertake self-initiated Form of Regulation Reviews.

The investment elephant in the room: the Form of Regulation Review

Prior to 2023, changes to the form of regulation applying to pipeline, or “coverage”, were subject to a robust decision-making framework and required ministerial determination. This ensured that decisions with broad public interest implications were not left solely to regulators who would also then be responsible for applying the form of regulation they determined.

Key elements of heavy regulation under the National Gas Law include the AER setting an asset value and a reference tariff for a reference service that must be provided by an asset owner. Importantly, unlike for electricity infrastructure, the NGL provides no revenue certainty to a gas pipeline; an asset owner must still secure contracts from market participants to generate revenue.

Key elements of light regulation include a mandatory code of conduct for commercial negotiations, extensive transparency obligations and the ability of a customer to seek binding commercial arbitration.

Amendments to the National Gas Law in 2023 introduced the Form of Regulation Review (FoRR), which is the mechanism by which it is determined if a pipeline should be a scheme or non-scheme pipeline. That is, should a heavy or light form of access regulation apply.

This gave the AER the power to self-initiate FoRRs for any non-scheme pipeline at any time. These can be initiated without a complaint, ministerial referral, or requirement to demonstrate material concern. This is a clear departure from the original policy intent of Energy Ministers, which was to provide a mechanism for the “relevant regulator (AER/ERA) to more actively monitor the behaviour of service providers and to refer pipelines for a form of regulation assessment (review) if it suspects market power is being exercised.” [4]

The existence of the FoRR directly increases regulatory risk

There are several fundamental characteristics of the FoRR that materially increase regulatory risk to investors from the risks that previously existed under the former access regime based on the National Access Regime.

While there are clear and reasonable guardrails around third party applications for a review, the AER is not similarly guided by those guardrails: the AER can initiate a review, at any time, for any pipeline, for no specific reason. These features combine to dramatically increase the likelihood of reviews occurring and that reviews will lead to higher levels of regulatory intervention.

There are many reasons APGA considers these risks high. Fundamentally, infrastructure regulators are very likely to have different views to infrastructure investors on market risk, asset value, rates of return and other matters which mean it very likely a regulator will form a different view to asset owners on appropriate tariffs for access to infrastructure – that increased regulation is beneficial.

This is a major regulatory risk that chills investment. The AER can retrospectively determine an ‘efficient’ asset value and new tariffs for access. Hence, new greenfield and brownfield transmission projects must now price in the risk of a mid-project regulatory change, on top of existing commercial risk: the cost of debt, the equity risk premium, and the capital recovery risk can all rise, while reclassification triggers a lengthy access arrangement process that can block returns on new investment for up to 2 years.

An asset owner can provide terms and conditions for access that are acceptable to customers but still be subject to a review process if the AER considers it may be in the interest of the National Gas Objective.

These risks can render otherwise viable investments uncommercial, and/or additional costs are ultimately borne by consumers through higher transmission tariffs and wholesale market prices. And this has indeed been the case: the AER’s FoRR of the South West Queensland Pipeline prompted APA to pause its investment in Stage 3 of the ECGG Expansion, with FID for Stage 3a only announced in February 2026.

Form of Regulation Review of the South West Queensland Pipeline

In March 2024, the Australian Energy Regulator initiated a FoRR on the South West Queensland Pipeline (SWQP). This review was not in response to any complaint or evidence of market failure, but rather as the first in a program of reviews.

In May 2024, APA Group paused its proposed ECGG Expansion, a five-stage project that would lift north-south capacity by ~24% and included augmentation to the SWQP. APA cautioned at the time that an adverse outcome “delayed critical projects that would otherwise strengthen the East Coast Gas Grid” and could “stymie investment and drive up end-user costs.”

The AER ultimately decided not to change the form of regulation applying to the SWQP – “at this time”. It conceded in its final decision that while it considered investment impact on the SWQP itself to be transitory and that it was unlikely that uncertainty created by the scheme regulation process would significantly impact pipeline investment, “it could have broader implications for the east coast gas market at this time.”[5]

Along with direct delays to APA’s ECGG Expansion, this process also signalled to the market a readiness by the AER to continue to intervene, chilling investment signals for broader investment across the interconnected east coast.

These risks are clearly at odds with the Gas Market Review’s Recommendation 5c, to encourage more private sector investment in pipeline networks and storage, and indeed Recommendation 5e which urges examination of two tools in the National Gas Law to address chilling of investment.

The FoRR powers were implemented in 2023. Three years and one FoRR process later, APGA considers that this is an appropriate timeframe to review how these powers are operating. Given changes to the FoRR will require changes to the National Gas Law which will likely undergo considerable revision following the Gas Market Review, failing to include the FoRR in those revisions will leave investors fighting an upstream current.

Addressing supply is fundamental to securing ECGS reliability

APGA has consistently articulated, including in the submission to the Gas Market Review, that addressing the difficulties in investing in new gas supply will make the most impact on gas supply and capacity issues.

When it comes to developing that supply, however, APGA acknowledges there are significant structural issues in the East Coast Gas System which make pure market-led solutions difficult. This, in turn, has contributed to reliability and supply adequacy risks in the east coast, and subsequent higher gas prices for consumers. These issues have led to a series of well-intentioned interventions including the Australian Domestic Gas Security Mechanism, the Heads of Agreement, and the Gas Code of Conduct, all designed to support domestic supply. But APGA agrees with the GMR Report that in 2026, those instruments are no longer fit for purpose and have not been able to establish sufficient long term investment certainty.

A gas reservation scheme would support domestic supply

APGA agrees in principle with the GMR Report recommendation to create a domestic reservation scheme to ensure gas is proactively supplied by Australian gas producers to the domestic market. APGA is largely agnostic about the specifics of the operation of the scheme, provided it enables the development of genuine additional supply to the market, but there are important nuances and principles that should guide its development.

A domestic scheme should, at a minimum,

• Be prospective, and designed in a manner which does not impede or impact existing contracting arrangements and commitments, or unnecessarily distort market pricing.
• Enable and prioritise lowest-cost options for compliance by providing producers flexibility in how they meet their obligations via a mix of technologies including onshore pipelines, and regasification terminals to improve Australia’s energy system security.
• Ensure gas reserved under the scheme is genuinely new supply across a diversity of regions, rather than displaced supply, and managed in a way that does not undermine competition in the market.
• Have clear and reasonable implementation timelines which provide certainty to the market.
• Ensure reserved volumes are made available on a long-term, rather than a short-term contracting basis and avoid prioritising market liquidity over long term contracting, which is the foundation of investment in the necessary infrastructure to transport gas efficiently to where it is needed.

Ultimately the scheme should be designed to allow the market to deliver, without additional interventions that will act to distort the market and disincentivise investment. This includes the proposed Recommendation 5d.

Avoiding implementing further barriers to investment

Additional powers for AEMO will disincentivise private sector investment

APGA warns that Recommendation 5d, to continue to support work underway through ECMC to potentially expand AEMO’s powers to “enable it to better address gas infrastructure constraints in the east coast market”, will actively disincentivise private sector investment in pipeline networks and storage.

APGA’s full commentary to the Energy and Climate Ministers Council consultation on the proposed reforms provides more detail,[6] but in summary, the proposed Long Term Reliability and Supply Adequacy (LT RSA) tool will

• Materially influence commercial decisions in several predictable ways, resulting in unintended consequences including inefficient project selection, a reduction in long term contracting or length of contracts, and an increase in the cost of capital.
• Become an implicit precondition, rather than the proposed last resort, for pipeline projects reaching FID.
• Risk inefficient investment or an overbuild of infrastructure, which will ultimately cost gas consumers more.

The LT RSA will likely result in a decrease in efficient market-led investment, as less efficient projects are nonetheless selected for through the influence of the tool.

APGA considers that the LT RSA is unnecessary in a future investment environment where a domestic reservation scheme is operating. The gas infrastructure industry has consistently demonstrated a strong capacity to respond to market signals, with recent investment decisions reinforcing this track record despite significant structural barriers created by regulation.

APGA recommends that the Commonwealth not proceed with Recommendation 5d – noting this is part of a separate consultation process. It will not support the private sector gas infrastructure investment Recommendation 5c seeks to encourage.

Gas Market Review reforms could add further investment barriers

As discussed above, regulatory uncertainty is a barrier to long-term contracting, and so addressing this uncertainty should be a key priority for the GMR alongside implementing a domestic reservation policy. This should not be complicated by the introduction of other reforms, as this will introduce still more regulatory uncertainty while the market considers the impact of and responds to the substantive reforms.

While removing duplicative reporting requirements in Recommendation 14 and 15 are welcomed, the GMR Report goes further to proposes other market reform measures. Some of these are relatively minor, but others represent significant structural reforms. Mandating the use of the Gas Supply Hub (Recommendation 9b) and AEMO-facilitated spot markets (Recommendation 9c) seek to replicate market models internationally or import concepts from the electricity market, which are not appropriate to the Australian gas market context. There may be benefits to considering such reforms in the future, but to do so at the same time as a major market reform such as implementing a domestic gas reservation scheme risks distortion of incentives and adds further regulatory risk.

APGA comments on Gas Market Review Recommendations

[1] APA Group, 2026, APA to deliver pipeline capacity needed to solve projected east coast gas shortfalls, media release, 19 February 2026, https://www.apa.com.au/news/asx-and-media-releases/apa-to-deliver-pipeline-capacity-needed-to-solve-projected-east-coast-gas-shortfalls

[2] Fels AO, Prof. A, 2013, Submission to the Productivity Commission Inquiry into the National Access Regime, https://assets.pc.gov.au/inquiries/completed/access-regime/submissions/submissions-test/submission-counter/sub040-access-regime.pdf

[3] National Gas Law, Chapter 3, Part 3, Divisions 1-3

[4] Energy Ministers, 2021, Options to improve gas pipeline regulation - RIS for Decision, https://oia.pmc.gov.au/sites/default/files/posts/2021/09/Pipeline%20Decision%20Regulation%20Impact%20Statement.pdf

[5] AER, 2024, Final Decision – South West Queensland Pipeline form of regulation review, https://www.aer.gov.au/system/files/2024-12/AER%20-%20Final%20decision%20for%20SWQP%20form%20of%20regulation%20review%20-%206%20December%202024.pdf

[6] APGA, 2026, Submission: Proposed extension of AEMO’s reliability and supply adequacy functions, https://apga.org.au/submissions/proposed-extension-of-aemos-ecgs-rsa-functions