Proposed changes to AEMO’s remit could give it power to direct gas exporters to supply domestic customers
The energy market operator could be given greater powers to intervene in east coast gas markets, in the latest reforms aimed at preventing a repeat of this year’s energy crisis.
Federal and state governments will stop short of handing the energy market operator direct control of the east coast gas market, but could give AEMO the power to divert “available” gas into domestic markets under a suite of market reforms proposed on Monday.
While the energy market operator will not be given the power to run east coast gas markets, AEMO could be handed the power to order Queensland gas exporters to divert supplies into the east coast gas market to cover shortfalls, or to direct major users – including gas-fired power stations – to curtail operations to preserve gas supplies.
The council of state and federal energy ministers quietly released the proposed changes to AEMO’s gas market remit on Monday, circulating a consultation paper detailing proposed new powers for the energy market operator ahead of legislative and regulatory changes to be passed by state governments ahead of next winter.
The changes flow from the emergency meetings of state and federal energy ministers held amid the energy crisis earlier this year, as gas and electricity prices surged. The crisis put energy-intensive industries at risk, sent some retailers to the wall, and added to the national inflation spike as wholesale gas and electricity prices surged.
Under the proposals floated on Monday, AEMO would be given greater power to monitor gas markets – including the ability to demand production and use data from gas producers and major users. It would also gain the power to intervene directly in the market in the event of another supply and price crisis.
AEMO’s new powers, believed to be broadly modelled on Victoria’s Declared Wholesale Gas Market (DWGM), would allow it to direct gas producers to “inject available gas into the interconnected network”, or to fill natural gas storage facilities.
It would also be able to tell major users to curtail gas use in the event of a fresh crisis, and direct pipeline operators to transport gas to “specific locations within the interconnected network”.
Major gas users and producers are understood to have been briefed on the new proposals late last week, and are still digesting the potential impact on the proposed changes to their own businesses.
But gas market majors have been given only two weeks to form a view on the proposed changes to legislation giving effect to AEMO’s new powers, with responses to the consultation paper due by October 7. Consultation over changes to regulations will run for another two weeks.
State and federal governments are scrambling to put a new gas market framework in place to avert a repeat of the July 2022 crisis that forced AEMO to cap spot gas prices at $40 a gigajoule, and pushed NSW retailer Weston Energy to the wall.
The aggressive timeline for consultation has been dictated by the need to put in place extra market protections ahead of next year’s expected winter surge in gas demand, exacerbated by the need to win agreement from the Victorian government before the state’s November 26 state election.
Under a quirk of AEMO’s operating rules, legislation giving effect to its mandate is made in the South Australian parliament – but the proposed new rules must win the approval of other state ministers before Victoria’s caretaker period begins on November 1, to remove the risk of delays that could mean they will not be in place ahead of the 2023 winter.
Analysis from the Australian Competition and Consumer Commission (ACCC) and AEMO has already forecast potential supply shortfalls emerging next year, with the ACCC saying in July the east coast gas market could be facing a 56 Petajoule shortfall in 2023 – about 10 per cent of forecast demand – unless more gas from Queensland liquefied natural gas producers is supplied into the domestic market.
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