Pipelines under threat

THE Northern Gas Pipeline would never have been sanctioned under the "heavy-handed" regulatory regime which has been proposed for Australia's pipeline industry, a senior Jemena executive told Energy News ahead of today's industry conference in Perth.
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The Australian Competition and Consumer Commission's East Coast Gas Inquiry report into the "increasingly complex and uncertain" gas market issued in April said the regime regulating gas pipelines was "not fit for purpose".

It said pipeline pricing was "largely unconstrained by either the threat of regulation or effective competition".

"Pipeline pricing exacerbates the effect of supply tightness on wholesale gas prices. There are currently very few constraints on monopoly pricing by pipeline operators," ACCC chairman Rod Sims said.

"Compounding supply tightness, and the effects of pipeline pricing, is the effect of an opaque and illiquid east coast gas market. Confidential bilateral negotiations remain the norm for both gas supply and transportation contracts. The lack of consistent, publicly available data on the sector is an impediment to participants, investors, and policy makers," Sims said.

However, Jemena executive general manager - strategy, regulation and markets Shaun Reardon, who will provide the welcoming address today at the Australian Pipelines and Gas Association conference, told Energy News that such regulation would threaten future investments and would hurt gas customers.

"Gas transmission costs make up less than 10% of the final cost of gas to customers, and putting these proposals in place in policy then this much more heavy-handed regulation has the risk of deterring investment in our sector," Reardon said.

"We have examples in Jemena where the Northern Gas Pipeline, which that Jemena is currently building, would not be built if it was being established under a regulatory framework, because our pipeline is only one third contracted, and building that pipeline when it's one-third contracted under a regulated arrangement the prices would be prohibitive for customers to be able to sign on.

"In the case of the NGP, Jemena has put up the money up front and is taking the risk, and recognises that needs to be over more than a 10 year period to recover our investment but are concerned about the rules changing along the way."

"The risks of regulation are that investment would be reduced or delayed in coming to market.

"This is quite a concern when the government's objective is very much about liquidity in the market and being able to get gas to market in a very agile way, and that means investment needs to be ready on tap to be able to connect new sources of gas supply to the various demand centres."

For now, Jemena hopes to continue discussions with Dr Michael Vertigan and his panel, who will report back to COAG in December having investigated pipeline regulation as proposed by the ACCC.

"He comes from an independent position to speak to all the parties to consider the ACCC's information, recognising that the ACCC's recommendations were not consulted upon as part of that process, and bringing the industry together to form a view to bring to government," Reardon said.

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