Distribution, Gas, Markets, Projects, Technology

STTM – a new wholesale gas market for Adelaide and Sydney

The short-term trading market (STTM) is a transparent wholesale spot market for the trading of natural gas. As a day-ahead market, it works in conjunction with existing industry contracts. Its objective is to create an environment that enables and encourages participants to explore the commercial opportunities that an open market makes possible, which in turn is expected to improve transparency, efficiency and competition across the natural gas sector.

Establishment of the STTM has required development of the market design, creation of a legislative framework, amendments to the existing retail market procedures and systems, and the implementation of wholesale market systems. The Australian Energy Market Operator (AEMO), governments, regulators and industry will need to be adequately prepared for operation under the STTM. It also requires changes to existing commercial arrangements and contracts of retailers and self-contracting users with network and pipeline operators. Training is well underway for industry participants.

The legislative framework for establishing the STTM includes additions to the National Gas Law, which came into effect on 1 January 2010. The National Gas Rules have also been augmented to provide the rules and governance of the market. These amendments have been approved by the Ministerial Council on Energy, and are scheduled to come into effect by 7 May 2010, in preparation for market commencement on 4 June 2010.

AEMO will operate and administer the STTM, while asset owners will continue to operate their physical pipeline or network assets. Companies involved in the market include AGL, Country Energy, Energy Australia, Origin Energy, and TRUenergy.

Market trial

To ensure a smooth start to the STTM, AEMO will conduct a 12-week “˜as real’ market trial, starting in March 2010 and running until market start in June 2010.

The market trial involves full-scale, industry-wide operation of STTM systems and processes, as though the market was already operational, except without financial consequences. It is intended to give both participants and AEMO the opportunity to bed down their operations prior to market start. AEMO’s STTM systems will be fully operational, with bidding, scheduling, prudential calculations and issuance of settlement statements all taking place, but with no funds changing hands. The trial will operate seven days a week, including public holidays.

On commencement, the market trial will incorporate limited scenarios to test market processes in extreme or unusual situations. This four-week scripted phase will trial 14 predefined scenarios that are not expected to occur under normal conditions during the trial, including insufficient security cover, under- and over-forecasting, reduced pipeline capacities, calling of contingency gas, and public holiday and “˜clock change’ behaviours. These scenarios will be accompanied by daily and weekly debriefing and planning sessions.

The final eight weeks of the trial will be unscripted, and allow participants to behave in a manner more akin to “˜real’ operations – providing participants with the operational experience and confidence necessary to refine processes and move into live operation. The unscripted phase of the trial will run through to the transition into the live market in the first week of June 2010.

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