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Mike Lauer, Gas Trading Australia - Evolution of the energy market in Western Australia

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Mike Lauer, Director, Gas Trading Australia delivered this presentation at the 8th Annual WA Power & Gas Conference 2014. …

Mike Lauer, Director, Gas Trading Australia delivered this presentation at the 8th Annual WA Power & Gas Conference 2014.

The conference represents a timely meeting for the industry to hear about the current changes affecting the WA energy and electricity market.

For more information, visit http://www.informa.com.au/wapowerconf14

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  • 1. Evolution of the Energy Market in Western Australia presented by Mike Lauer to the 8th WA Power & Gas Conference 11-12 March 2014 Hyatt Regency, Perth
  • 2. Market Overview  Western Australia is unique among Australian gas markets for its high density of “whole of supply chain” gas supply arrangements.  That has made this market ideally suited to the development of a spot market.  The spot market trades on the edge of the underlying “bilateral” market. It is not a substitute for that market.  The spot market is about optimisation and risk management.
  • 3. A tale of two markets  Three very different spot gas markets have developed in Australia.  Two on the east coast and one on the west coast.  The east coast markets are:  the STTM (incl. Vic), compulsory markets created and operated by AEMO around various major “hubs”; and  the Wallumbilla Hub, a voluntary market created and operated by AEMO.  The west coast market is a voluntary market, open to all comers and private sector operated.
  • 4. gasTrading Spot Market  The principal spot gas product on the west coast is a “monthly spot contract”, where gas buyers and sellers agree price, indicative volumes and the sale/purchase terms at the start of the month.  Volumes (sell and buy) can be adjusted daily.  The market is reset each day, one day ahead.  Each buyer pays its bid price and supply shortages are managed by supplying the highest priced sales first.  There are no take or pay obligations.
  • 5. gasTrading Spot Market - Volumes TJ/Month 0 100 200 300 400 500 600 700 800 Jul09 Sep09 Nov09 Jan10 Mar10 May10 Jul10 Sep10 Nov10 Jan11 Mar11 May11 Jul11 Sep11 Nov11 Jan12 Mar12 May12 Jul12 Sep12 Nov12 Jan13 Mar13 May13 Jul13 Sep13 Nov13 Jan14 TJ/Mth Total Monthly Quantity
  • 6. gasTrading Spot Market - Volumes TJ/Day 0 5 10 15 20 25 30 35 40 45 50 Jul09 Sep09 Nov09 Jan10 Mar10 May10 Jul10 Sep10 Nov10 Jan11 Mar11 May11 Jul11 Sep11 Nov11 Jan12 Mar12 May12 Jul12 Sep12 Nov12 Jan13 Mar13 May13 Jul13 Sep13 Nov13 Jan14 TJ/Day Max Daily Quantity Ave Daily Quantity Min Daily Quantity
  • 7. gasTrading Spot Market – Prices $/GJ $0.00 $2.00 $4.00 $6.00 $8.00 $10.00 $12.00 Jul09 Sep09 Nov09 Jan10 Mar10 May10 Jul10 Sep10 Nov10 Jan11 Mar11 May11 Jul11 Sep11 Nov11 Jan12 Mar12 May12 Jul12 Sep12 Nov12 Jan13 Mar13 May13 Jul13 Sep13 Nov13 Jan14 AU$/GJ Max Price Ave Price Min Price
  • 8. gasTrading Spot Market - March Bidding Round Offers to Purchase Total Quantity 531.02 TJ Average Price $3.39 /GJ Highest Price $7.20 /GJ Lowest Price $1.51 /GJ Scheduled for Sale Total Quantity 258.74 TJ Average Price $4.05 /GJ Highest Price $7.20 /GJ Lowest Price $3.35 /GJ Bid Information and Scheduled Gas for March 2014 SpotGas Market SpotGas Market Spot Gas Market Spot MarketThe
  • 9. gasTrading Spot Market - Reliability 0 100 200 300 400 500 600 700 $0.00 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 Oct12 Dec12 Feb13 Apr13 Jun13 Aug13 Oct13 Dec13 Feb14 TJ/Month AU$PerGJ Actual Ave Price Scheduled Ave Price Actual Quantity Scheduled Quantity
  • 10. Spot Market Participants  The gasTrading Spot Market is widely used by wholesale participants.  Typical month has 4-8 Sellers and 12-20 Buyers in a month.  Geraldton Brickworks is the only user of the ATCO Network active in the gasTrading Spot Market. Retailer - Aggregator Generators Manu- factor Mineral Process Pipeliners Producers # of Sellers 3 1 0 16 0 4 0 2 4 6 8 10 12 14 16 18 Sellers Retailer - Aggregator Generators Manu- factor Mineral Process Pipeliners Producers # of Buyers 6 2 4 16 2 2 0 2 4 6 8 10 12 14 16 18 Buyers
  • 11. Evolution to Self Contracting Users  Customers connected to the ATCO Network surrender control of their MIRN to their Retailer.  The Retailer thereafter controls the customer’s gas supply and access to the market.  A Self Contracting User (SCU):  re-captures control of its MIRN;  can use gasTrading to manage its market obligations as a SCU; and  will benefit from real gas-on-gas competition.
  • 12. ATCO Network - Gas Supply Chain  Gas is sourced from the North West of Western Australia.  Transported down the DBNGP to the South West.  Hauled through the ATCO Distribution Network.  Delivered to the Customer site (MIRN).
  • 13. Approach to gas supplies Traditional Supply Chain SCU Supply Chain  Retailer delivers gas to buyers MIRN in the distribution network.  Supply is fixed term, CPI indexed price, with MDQ and take or pay.  Gas above MDQ priced high.  Customer takes ownership of gas at MIRN.  Inflexible with limited risk management options.  SCU buys gas from anybody in the market.  SCU contracts delivered gas or transport on DBNGP.  SCU contracts directly for network service.  SCU is in control at all stages of gas supply.  Arrangements are as flexible as the SCU wants to make them.
  • 14. SCU model pros and cons Strengths Weaknesses  SCU controls supply chain.  Flexible contracting.  Access to cheaper gas.  Ability to limit take or pay.  Ability to lock in firm term supplies opportunistically.  Access to expert advice.  Ability to “batch” process. Increased need to manage gas supply. Reliance on market supply. Pricing subject to market conditions.
  • 15. Current market  Spot market is “price constrained” - plenty of buyers at low end prices with limited depth at higher prices.  Spot market is flush with gas at prices in the top two price quartiles.  Most recent developments ….  As the gasTrading Spot Market has grown retailers have started to compete by offering spot market prices and contract flexibility.  Are you being offered sub $6.00 per GJ gas with take or pay risk mitigation options?  If not, why not?
  • 16. Conclusions and questions  If you are not receiving such offers the solution is to engage with the SCU model and the spot market.  The market is evolving to now deliver real gas-on- gas competition to network users for the first time.  Be part of the evolutionary process. Thank you Questions