The ACCC’s report into the east coast gas crisis, released in April, found that a large number of pipeline operators have been engaging in monopoly pricing which resulted in higher gas prices for consumers, and that the existing test for regulation was ineffective, and needs to be replaced by a new test under tightened regulation.

The new test would give the relevant minister discretion to consider if a pipeline has substantial market power; a pipeline is likely to continue to have substantial market power in the medium term; and coverage will or is likely to contribute to the achievement of the National Gas Objective.

Less than 20% of the east coast’s transmission pipelines are currently subject to regulation, which is much lower than comparable jurisdictions including the US, the European Union and New Zealand.

The ACCC also recommended that pipeline operators publish financial information so shippers can negotiate more effectively; and that the dispute resolution mechanisms under the National Gas Law and National Gas Rules should be amended to make it more accessible to shippers.

Clifford Chance partner Dave Poddar said the ACCC offered very little in the way of data which points to monopoly power and questioned why the government gave the body the responsibility of conducting such a review in the first place, as conflict of interest issues are bound to spring up.

He said that what the ACCC is arguing for was “quite problematic”.

“People would not have expected 18 months ago that the people in the crosshairs of this are the pipeline people,” Poddar told Energy News.

“If you believe in free market – as we do – you need to understand why you should regulate things unless there are genuine infrastructure monopolies. Not sure I understand this quote.

“At this time in Australia there is not, in our view, a need to have heavy-handed increased regulation when the underlying circumstances don’t show a lack of competition.”

He said there was an “inherent tension” in the group conducting the market study becoming the regulator, as the ACCC has suggested with gas pipelines.

“Normally you’d expect the Productivity commission would be more appropriate, particularly when you’re looking at the national competition policy where we have moved towards having less regulation of infrastructure assets where there is competition,” Poddar said.

“It is always better to ensure that in a sector you have policies very consistent with policies in other sectors so you don’t end up with the possibility of having distortions in capital investment in very important sectors of the economy such as energy.

“So you need to be very careful about how you regulate things so you don’t chill investment in important areas such as gas and energy, and in their transportation.”

Cartwright, CEO of the Australian Pipelines and Gas Association, told Energy News that her industry group was comfortable with the matter being referred to the ACCC because the government had been relying on the Australian Energy Market Commission to do the review – and there have been multiple reviews in four years.

The AEMC has no power to look at the market’s supply sector; it is purely involved in transmission and distribution.

However, Cartwright said she did find it surprising that the ACCC, in its April findings, had “fallen back to the simple solution in their minds which is to regulate pipelines, when it’s not addressing the issue of gas supply-demand imbalance or the number of players in the market”

“In order to get a functioning market, you need a lot of players, perhaps small producers to be encouraged into the domestic market by providing purchases in the domestic market which currently go through the retailers,” she said.

“Perhaps the users should be going directly to the suppliers to increase the number of operators in the market, which would help create a deeper and more liquid market, but as it is, it’s not working that way.”

She said the ACCC’s focus on transmission pipelines was “too simplistic”

“thought they wouldn’t come up with a more intelligent outcome,” Cartwright said.

She also questioned why the ACCC highlighted a number of concerns about a range of areas yet chose one – pipelines – on which to actually suggest action, “and that’s a cop out”.

“Just because the other areas are tougher to deal with, doesn’t mean that you wimp out on it and just go to the simple solution in the regulator’s mind,” she said.

“He also acknowledges in the report that increased regulation can hamper investment but doesn’t do anything about addressing that. He just goes ahead and suggests it anyway.

“It’s a disappointment. I thought he would’ve been smarter.”

Policy unrest

The ACCC’s recommendations, however, were directly contradicted by Labor’s proposed “national interest test”, which Cartwright called a “gas reservation policy in disguise”

This would require there to be enough gas for the domestic market before new or expanded LNG projects are approved – a proposal which Commonwealth resources minister Josh Frydenberg called a “disaster” but gas users say does not go far enough.

Labor also pledged to extend the “water trigger” policy to cover shale and tight gas formations, while Opposition leader Bill Shorten backed his Northern Territory leader Michael Gunner’s promise of a frac ban if elected on August 27.

Shorten said his NT colleagues’ pledge was based on “best science”, which industry found gobsmacking given that claim contradicted reports from CSIRO, NSW chief scientist Mary O’Kane, the NT’s own Hawke Review and the Australian College of Learned Academies, which have all found the risks can be managed with good industry practice and effective regulation.

Western Australian Labor has also promised a fraccing freeze ahead of that state’s March 11, 2017 election.

With all this swirling around the east coast gas market, the Australian oil and gas industry’s angst has been palpable as it gathers in Brisbane for APPEA 2016, with Shell Australia chairman Andrew Smith and APPEA chairman Bruce Lake already addressing the vexing issue of dealing with industry opposition.

“The national interest test is gas reservation in disguise – and a very short term view of the market, and the ACCC has stepped into the CSG moratorium issue and called for state governments to lift moratoriums on CSG development, but that’s not the only solution,” Cartwright said.

“It’s also easy for the ACCC to say ‘lift moratoriums’ – as they should – but it still hasn’t addressed the challenging issues that the ACCC could have.”

Key discussions

Clifford Chance counsel Nadia Kalic also told Energy News that such discussions on the east coast gas market are essential ahead of the July 2 federal election, particularly in light of Labor’s contentious pledges.

She said much thought needs to be given as to what Labor being elected might mean both for new LNG facilities or expansions of existing LNG facilities, particularly in light of the ALP’s proposed national interest test.

“In the context of Queensland, given some of the big untapped reserves that have been identified and sitting in the Bowen Basin, that’s an interesting potential trigger that may apply to this domestic gas reservation concept,” Kalic said.