PROJECTS

Pipeline regulation to support a liquid wholesale gas market

The problem

A boom in LNG exports drove up gas prices in Australia’s East Coast wholesale gas market and, by linking domestic gas prices to global oil prices, threatened increased price volatility and physical shortages. In response, the Australian Energy Market Commission (AEMC) aimed to create a deeper, more liquid wholesale market. Existing regulatory powers allowed third-party access to the privately-owned gas transmission pipelines to be mandated, but AEMC worried that this might not be enough.

How we helped

AEMC commissioned Castalia to provide an expert opinion on whether mandating third-party access to gas pipeline would be effective in creating a liquid, efficient market. We drew on our experience with the application of the Australian third-party access regime to rail and port sectors, and our knowledge of wholesale gas markets, to assess whether mandating third-party access would work to create a more liquid wholesale gas market. We found that it would not and that a bespoke regulatory regime was required.

Impact

AEMC relied on Castalia’s report and recommended that it be given new statutory powers to create a pipeline capacity market to complement other reforms (including creation of gas trading hubs with transparent pricing). The reform package is expected to result in an annual increase in Australia’s Gross Domestic Product of between $500 million and $3.3 billion by 2040.