Mr PEDERICK (Hammond) (16:57): I rise to support the National Gas (South Australia) (East Coast Gas System) Amendment Bill 2022. This bill aims to implement a framework that provides the Australian Energy Market Operator (AEMO) with the tools and power to monitor risks to supply adequacy in advance of those risks being realised, to signal those risks to the market and seek a response.
Late last year a heads of agreement with the LNG exporters (liquefied natural gas exporters) was designed to prevent a gas supply shortfall and secure competitively priced gas for the domestic market. This included a commitment to offer additional uncontracted supply to the east coast market. In spite of this, the ACCC and AEMO still identified that a number of risks to gas supply shortfall still remain.
I note the federal Labor government intervention with price capping on gas, but I am pretty sure the gas in South Australia is still under those caps naturally anyway, and I am concerned about market intervention at that level because it creates an uneven market and it can have the reverse effect on gas supplies. Unlike the National Electricity Market, which has well-established frameworks under which AEMO maintains reliability and supply adequacy, AEMO has limited powers and tools to identify and respond to supply/demand imbalances in the east coast gas market outside of Victoria.
The suite of reforms was agreed to by the Energy Ministers' Meeting. On 12 August 2022 the Energy Ministers' Meeting agreed to take a range of actions to support a more secure, resilient and flexible east coast gas market. Senior energy officials undertook consultation between 26 September and 21 October 2022 seeking stakeholder comments on proposed regulatory amendments, which included a draft bill, draft regulations and an initial set of minister-initiated rules. On 28 October 2022 the Energy Ministers' Meeting agreed to the amendments to the National Gas Law to extend AEMO's functions and powers to manage reliability and gas supply adequacy for the east coast gas market over winter 2023 and beyond.
On 30 November 2022 the Minister for Energy and Mining, the Hon. Tom Koutsantonis, introduced the National Gas (South Australia) (East Coast Gas System) Amendment Bill 2022 into this house. In December 2022 the Energy Ministers' Meeting considered the initial rules package which sits under this new framework based on consultative feedback. The time frame of the suite of reforms has been unusually short in comparison to previous national energy law rules amendments that were considered last year.
The National Gas (South Australia) (East Coast Gas System) Amendment Bill 2022 aims to implement a framework that provides AEMO with the tools and powers to monitor risks to supply adequacy in advance of those risks being realised, to signal those risks to the market and seek a response. These actions seek to address the winter 2023 east coast gas supply adequacy concerns raised by both the Australian Competition and Consumer Commission (ACCC) in its July Gas Inquiry—Interim Report and AEMO's Gas Supply and System Adequacy Risks report.
The bill also seeks to address forecast future risks to reliability and supply adequacy going forward. These risks are emerging with the forecast decline in southern gas reserves, increasing reliance on gas from Queensland, and challenges to the reliability of coal generation as the energy market transitions. I will talk a bit more about that later on.
Unlike the National Electricity Market, which has well-established frameworks under which AEMO maintains reliability and supply adequacy, AEMO has limited powers and tools to identify and respond to supply/demand imbalances in the east coast gas market outside of Victoria. The broad aim of the proposed regulatory amendments is to implement a framework that provides AEMO with the tools to identify risk to supply adequacy in advance of those risks being realised, to signal those risks to the market and seek a response, and to allow AEMO to manage situations if adequate market responses are not forthcoming to ensure AEMO has multiple options to better manage the forecast threats for winter 2023.
To ensure transparency in AEMO's use of these new powers, the regulatory package imposes reporting requirements on AEMO. Practically, this will require AEMO to report to ministers on the use of its directions and trading powers over time. The reforms outlined in this consultation paper are proposed to complement other initiatives by government and industry to address forecast shortfalls in the east coast gas market. This includes the commonwealth government's actions to renegotiate the heads of agreement and amend the Australian Domestic Gas Security Mechanism.
Key elements in this bill include function and rule making, transparency, signalling, directions, powers, cost recovery and compensation. In regard to the function and rule making this legislation seeks to put in place, AEMO's new east coast gas system reliability and supply adequacy functions are proposed to encompass:
- monitoring trends in supply and demand across the system;
- identifying, communicating and publishing information about actual or potential threats to reliability and adequacy of gas supply within the east coast gas system;
- reporting to energy ministers on these matters;
- giving directions on trading in gas and associated services to maintain or improve the reliability and adequacy of gas supply in the east coast gas system; and
- other functions conferred on AEMO by the rules for the purposes of the new east coast gas system reliability and supply adequacy functions.
The bill also provides the head of power for the regulations to specify:
- the relationship between the operation of AEMO's east coast gas system reliability and supply adequacy functions, or a provision of these functions, and a law of a participating jurisdiction, in the event of an inconsistency;
- the extent to which a relevant ability is or is not required to comply with an east coast gas system direction in circumstances where the direction is inconsistent with a law of a participating jurisdiction; and
- the extent to which an east coast gas system direction is not valid in circumstances where the direction is inconsistent with a law of a participating jurisdiction.
In regard to transparency in the legislation, this is to ensure that AEMO has the necessary information to undertake this new function, the draft regulatory framework sets out additional disclosure obligations on certain industry participants over specific forecast periods.
In addition to those explicit additional disclosure requirements, the regulatory framework enhances AEMO's ability to seek specific information relevant to the exercise of its functions from a wide range of entities, including gas producers, pipeline operators, storage providers and large users.
In regard to signalling, the regulatory framework provides AEMO with significant flexibility in how it will undertake its monitoring and signalling functions. Generally, where an emerging risk or system threat is identified (both over the short or longer periods), the signalling framework would allow AEMO to notify the market and seek market responses to address the threat.
As to directions powers, where the market does not or cannot respond to AEMO's signalling and an actual or potential threat emerges, the framework provides for comprehensive directions powers. The proposed powers would allow AEMO to instruct a range of entities to take specific actions to maintain or improve the reliability and supply adequacy of natural gas across the east coast gas system. These powers have been made broad to ensure AEMO can take actions to manage the risk of gas supply shortfalls in winter 2023.
AEMO will be empowered to exercise a range of directions powers relating to reliability and supply adequacy, including:
- to maintain and improve the reliability of the supply of natural gas within the east coast gas system; and
- to maintain and improve the adequacy of supply within the east coast gas system.
AEMO directions may relate to the operation, maintenance or use of any equipment or installation, the control of the flow of natural gas, or any other matter that may affect the reliability or adequacy of gas supply within the east coast gas system.
AEMO must, before making an order relating to an east coast gas system reliability and supply adequacy function, consider the extent to which persons of the class to which the proposed order is addressed may make representations about the terms of the proposed order and invite those persons to make representations to the extent AEMO considers possible in the circumstances.
In regard to cost recovery and compensation, AEMO may already recover costs from all or a specific subset of market participants in relation to the exercise of its powers. The bill provides additional cost-recovery flexibility in relation to AEMO's directions powers.
In regard to the rules around this legislation, as is the case with most legislation that is derived from the Energy Ministers' Meeting, the bill will provide the Minister for Energy and Mining with the power to make an initial set of rules.
The bill will also enable the Minister for Energy and Mining to make further rules for a maximum period of six months from commencement of the bill subject to a further consultation process conducted by the Energy Ministers' Meeting. This will enable the Minister for Energy and Mining to make further changes to the rules if any issue arises in the first six months of the legislation coming into effect, and the head of power will lapse after six months.
Upon reaching out to various stakeholders, a common criticism of the bill is that the consultation time was quite short. Stakeholders had only two weeks to analyse and form an opinion on the proposed reforms. Another concern raised by stakeholders was the extent of the powers that AEMO will be given in the gas market, which at present is primarily a private market based on contracts. I think we need to remember that key point—a private market based on contracts. All of these things that have been discussed at a federal level and a state level here today interfere with that private market.
The stakeholders consulted include the Australian Gas Infrastructure Group, Australian Pipelines and Gas Association, Australian Gas Association, Australian Petroleum Production & Exploration Association, Australian Energy Market Operator, Epic Energy, Origin Energy, AGL Energy, and Santos. In relation to Santos, they have had recent media coverage with their carbon capture and storage project, and I wish them all the best moving that forward.
I believe the reason that this legislation has come forward is because of some flaws in legislation around the country. There have been issues in Victoria and New South Wales especially, as has been already mentioned. Victoria is pulling back on exploration activities, drilling activities. Bass Strait was, and still is, a large source of gas for the country. A friend who I worked with in the Cooper Basin 40 years ago still occasionally goes to jobs out there with Haliburton. I note the long-term project, the Narrabri project, that Santos have had onshore in New South Wales. It has been a long-running project to get up and going in consultation with local landholders.
There have been other issues right around the country, and offshore of Australia, with potential gas projects worth many billions of dollars. There is one off the west coast of Western Australia. It is a huge project worth many billions of dollars. People can rightly question how it works and what interferences it will have on the country and that kind of thing. But gas wells do not take up a lot of country, especially offshore wells, which are in a pod and the gas is piped ashore. Onshore, it is just a well. You visit them, say, somewhere like the Cooper Basin—a Christmas tree is what they call the wellhead sticking out of the ground—and that is connected to the satellite gas station and then the bigger plant like at Moomba or Ballera.
There have also been issues to the north of Australia. Bills like this come about because it has been made hard to get supply into the market. Some people do not like the idea of gas, but it will be a transition fuel for a long time as we transition to full, so-called, clean energy. We have plenty of clean energy in this state, whether it is solar or wind. There are hundreds of kilowatts of solar panels in my electorate, or they were in my electorate, especially at the big solar farm at Tailem Bend. The simple fact is, as we move forward over the next decade or so, at least five to seven coal plants are coming out of service. We will need gas to power not just our state but the country into the future.
The same friend of mine, David, who I mentioned worked offshore in Bass Strait, has also done a recent job up at Karratha, where he was involved in a major unconventional well. They did a 1,200 metre perforation, run by Inpex, a Japanese company, for gas contracted to Japan. We all understand there is a lot of offshore gas contracted out of Australia, whether it is out of ports like Gorgon in Western Australian, Darwin in the Northern Territory or Gladstone in Queensland. So we do need to make sure that we get adequate supply as we move into the future.
Certainly, here in South Australia when we were in government, we commissioned the interconnector through to New South Wales, which will assist this state in sending its renewable energy to the east and bringing coal-fired or even some gas-fired power back to South Australia when the sun is not shining and the wind is not blowing. It will certainly make good use of our renewable sources here.
Let's see how this legislation goes, but we must make sure that we do not have a situation such as we found in September 2016 when the lights went out in this state because people acted too fast, and the next thing everything fell over. I have never seen anything like it, and did not think I ever would. It was an interesting day. I think it was 23 September at about 4.20 in the afternoon that year.
In a difficult time—well, some people think it is a difficult time—around policy and what we need moving forward, and certainly in the transition phase, we need to make sure that we have the energy supplies so that we can transition into the future without hurting people who are on the end of the use of that power, whether it be through electricity or straight gas, and so that we do not hurt the cost of living. We need to make sure that we have adequate supplies of energy into the future. I commend the bill.