Debate resumed from 24 February 2010.

Mr GEORGE SOURIS (Upper Hunter) [10.30 a.m.]: On behalf of the Liberal-Nationals Coalition and the Hon. Duncan Gay, the shadow Minister and my parliamentary colleague in another place, I have pleasure in leading in debate on the National Gas (New South Wales) Amendment (Short Term Trading Market) Bill 2010. The bill proposes legislative amendments to the National Gas (New South Wales) Act 2008 so that certain sections of the national gas law [NGL] concerning the establishment and operation of the short-term trading market [STTM] can be applied in New South Wales. The STTM aims to help facilitate the development of more efficient gas markets through providing clear market and pricing signals to existing participants, potential entrants and consumers; encouraging better informed investment and risk management decisions; facilitating trade between shippers and users as well as for gas-fired power generators; facilitating the demand side response by users, in particular, at times of supply constraints; and enhancing market liquidity.

Once the bill is proclaimed the STTM will become the wholesale gas market in New South Wales for trading gas in the Sydney hub—which is the Sydney, Wollongong and Newcastle hub. The Australian Energy Market Operator [AEMO] will operate the STTM. All retailers and shippers will be required to trade gas through the STTM. Gas industry participants, including those not trading gas through the STTM, can be required to provide information to the AEMO to assist with the operation of the STTM and to provide appropriate information to the market. Expected benefits for gas consumers in New South Wales include more efficient pricing outcomes and an increased variety of gas products. For market participants the increased pricing transparency and improved information flows are expected to assist with managing gas flows and allocations on pipelines.

The Government maintains that the STTM has been designed specifically to operate in parallel with existing contract and access arrangements as well as existing retail market rules. During the development of the STTM public and industry consultation was undertaken, which was managed and coordinated by the Australian Energy Market Operator, or AEMO. The New South Wales Liberal-Nationals Coalition does not oppose the bill, but I highlight stakeholders concerns. The majority of stakeholders who were contacted stated that the bill is as expected and is seen by members as the mechanics of implementing the outcomes of previous consultation and announcement. Therefore, there is no strong opposition to the bill. Eastern Star Gas [ESG] supports the bill because it provides an option to sell surplus gas into the Sydney hub. However, ESG raised concerns that the STTM is complex in its design and is a risk for retailers.

While most people are unhappy with the design it is too late to change it. According to one market stakeholder, the New South Wales Government is not 100 per cent comfortable with the bill and is in the process of deciding whether to close down the existing New South Wales Gas Supply Continuity Scheme. The fact that the Government is not comfortable with the bill is alarming and we will be watching to ensure that consumers are not affected by any closing down of the New South Wales Gas Supply Continuity Scheme, which was introduced a few years go to protect consumers from shippers selling their Sydney customers gas interstate at higher prices. There will be a problem if the Government does not want to keep the New South Wales Gas Supply Continuity Scheme going once the STTM commences in June 2010 because it will compete with gas from the STTM. The New South Wales Liberal-Nationals Coalition will be watching closely to ensure that these changes do not cause an increase in costs for already struggling electricity consumers in New South Wales. With those few remarks, and on behalf of my colleague the Hon. Duncan Gay in another place, I commend the bill to the House.

Mr DAVID HARRIS (Wyong—Parliamentary Secretary) [10.34 a.m.]: I support the National Gas (New South Wales) Amendment (Short Term Trading Market) Bill 2010, which continues this Government's longstanding and active engagement in building a more competitive and responsive energy market. The short-term trading market is a key component of the National Energy Market Reform Program of the Ministerial Council on Energy. The bill, which is part of the Government's ongoing reform program, includes a commitment to build a better and stronger gas supply industry for Australian gas consumers, including those in New South Wales. The reform program has already yielded significant improvements to energy market governance and institutional arrangements. These improvements have been for the benefit of both customers and business.

Reductions in red tape, more efficient and transparent pricing, as well as better investment frameworks are among some of the longer-term improvements. The establishment of single regulatory rulemaking and market operations bodies under one national regulatory framework has streamlined the operation of the energy markets for businesses operating across a number of jurisdictions. A key focus of the reform process has been to bring common regulatory approaches to both electricity and gas, to reduce regulatory complexity, and to improve certainty and investment confidence amongst industry participants. The short-term trading market and the creation of the Australian Energy Market Operator [AEMO] are accompanied by two other important gas-specific reforms.

In December 2009 the inaugural Gas Statement of Opportunities was published. This event marked the publication of the first national statement of opportunities for the gas industry. For several years participants in the national electricity market, or NEM, have benefited from the annual production of an Electricity Statement of Opportunities. This statement has been the principal source of information for new and existing participants about the opportunities for expansion and new investment over the 10-year supply and demand outlook. The Gas Statement of Opportunities will provide the same facility for the gas industry. As the gas industry is widely expected to play a critical role in Australia's response to climate change, the Gas Statement of Opportunities will become a particularly important tool in the planning and development of Australia's gas infrastructure.

Under this legislation the additional requirements for information disclosure will further support these developments. One of the key benefits of the short-term trading market is the increase in transparency and accountability. The second initiative concerns the establishment of the National Gas Bulletin Board. This bulletin board provides a website on which the status of all major production centres and pipeline systems, including the interconnected south-east Australian systems, is reported in real time. The bulletin board commenced operation on 1 July 2008. The Australian Energy Market Operator also operates the bulletin board. The bulletin board represents the first step in the process of substantially increasing the level of transparent and readily available information to interested parties, including the general public, on the operational status of the gas supply system.

The short-term trading market builds on the bulletin board and takes the reform process in gas to the next step by providing a mechanism for setting spot gas prices and trading imbalances. Gas market reform, of which the short-term trading market is a key plank, is becoming increasingly important in the context of how Australia responds to climate change. A more efficient and transparent gas market will help to facilitate the increased role that natural gas will play in reducing the emissions intensity of the New South Wales energy sector. Over the past few years three new gas-fired power stations—Tallawarra, Uranquinty and Colongra—have expanded the State's generation capacity by almost 1,800 megawatts. Colongra, which is located on the Central Coast and which was opened only at the end of last year—it has four of the most impressive and biggest jet engines I have ever seen—cost half a billion dollars to build and requires only four people to operate it, an outstanding technological improvement.

Establishing a wholesale gas market in New South Wales is expected to support additional investment in our gas industry, strengthen gas supply security, encourage new entrants to the New South Wales gas market, and provide consumers with more efficient gas pricing. This complements other initiatives the Government has taken to reduce emissions from energy generation in New South Wales. These initiatives, which complement work through the Ministerial Council on Energy, include developing a demand-management framework for the State's electricity distributors—being adopted at a national level. This initiative has seen Integral Energy run more than 15 demand-management programs since 2003 across the commercial, industrial and residential sectors. These programs have achieved a reduction of more than 39,300 kilo volt amperes [kVA] of electricity drawn from the network. It also includes the establishment of a greenhouse emissions trading regime in New South Wales. The New South Wales Government's Greenhouse Gas Abatement Scheme is one of the world's first emissions trading schemes. This has saved or offset more than 90 million tonnes of greenhouse gases since starting in 2003.

Mr Michael Richardson: It's rubbish!

Mr DAVID HARRIS: Lots of people in the environment industry do not agree with that assessment.

Mr Michael Richardson: What, that it's rubbish?

Mr DAVID HARRIS: No, they did not. They saw it as being job creating. It further includes supporting renewable energy development by reducing the critical infrastructure threshold from 250 megawatts to 30 megawatts for proposals to build new renewable power stations, thereby enabling a streamlined approval process. The Ministerial Council on Energy is also taking early action to facilitate the connection of wind farms, particularly in remote locations. A number of those have been recently approved.

The Ministerial Council on Energy has requested the Australian Energy Market Commission to prepare a rule change to facilitate the efficient connection of clusters of renewable generation to networks. The central objective of the proposed rule change is to reduce network connections costs and investment risks for renewable generators such as wind or geothermal. Typically, sites for these types of generators are located remotely from the existing electricity grid. This rule change proposal is in direct response to the problems identified by renewable energy generators, particularly wind farms, with the current connection processes.

To further build on these initiatives, work was begun recently on the development of an overarching clean energy policy framework for New South Wales that will ensure that our State is in a position to meet the Commonwealth Government's renewable energy target of 20 per cent by 2020. The framework includes consideration of gas development options and measures to encourage the further development and adoption of renewable energy sources. The successful integration of renewable technologies such as wind-powered generation is likely to depend upon other power generation technologies capable of responding quickly to the variability of wind-powered generation.

Given the ability of gas-fired generation to respond quickly, there is likely to be an increased dependence on gas-fired generation and additional demand for natural gas. The short-term trading market will assist in meeting this challenge by providing an effective, transparent and responsive wholesale gas market. Importantly, it will incentivise the further development of gas infrastructure by providing a market-based signal for new investment in gas transmission pipeline capacity. Given all these developments, the short-term trading market fits within and advances a clean energy policy framework for New South Wales.

An interesting fact about the Colongra gas plant is that if the whole New South Wales grid were to go down—those four big jet engines—the grid could be restarted by the large diesel tanks located on site. That is an important development, which in the case of a disaster would be absolutely essential. It is money well spent. I support the bill.

Mr MICHAEL RICHARDSON (Castle Hill) [10.44 a.m.]: We hope the whole New South Wales grid does not go down but, frankly, the way the State is being run by this Government it is always on the cards. The National Gas (New South Wales) Amendment (Short Term Trading Market) Bill 2010 is designed to establish a short-term trading market for natural gas in New South Wales. It is an extraordinarily short bill, comprising 12 lines only, which is as to be expected given that most of the hard work is being done by the Australian Energy Market Operator and the gas market leaders group, not by the New South Wales Government. But the bill is notable also for what it does not do. It does not go anywhere near assisting to provide what is really needed in this State: a reliable, long-term local supply of gas. The Parliamentary Secretary said in her agreement in principle speech:

New South Wales is unique among the mainland States of Australia as it imports the majority of its gas supplies from other States.

Why is it so? Because this Government, instead of helping companies explore for and exploit our very significant reserves of coal seam methane, has put obstacles in the way of developing those reserves. In 2005 the Government locked up some of the most promising areas for gas exploration in this State when it turned the Pilliga into a very large community conservation area. Ostensibly, it is possible to explore for and produce gas and minerals from zones three and four of this community conservation area, as it is from the State conservation areas created in 2001. However, under the Petroleum (Onshore) Act 1991 the Minister for the Environment has to give his concurrence to any approval by the Minister for Mineral Resources for gas or petroleum exploration in one of those zones or a State conservation area, and the 17-page regulations are so onerous I understand they are yet to be used.

So the Parliamentary Secretary can pay lip-service to the need to produce more home-grown gas—and I agree with her—but the reality is her Government is doing precious little to achieve that outcome. Natural gas is not a clean fuel. It is still a fossil fuel and when it is burnt it creates a significant amount of carbon dioxide. But its emissions are only half of those created from burning coal, and that is why increasingly governments around the world are turning to it as a transition fuel to help wean us off coal and on to renewables. The Parliamentary Secretary also said:

Over the past 18 months, the proportion of gas-fired capacity as a percentage of total installed generating capacity in NSW has increased from approximately 1 per cent to approximately 15 per cent.

That might well be true, but what she did not say is that the amount of electricity being produced from burning gas is quite small. Most of those new power stations are open-cycle gas turbine plants, suitable for producing peak-load power. The reason is simple: It costs more to produce electricity from gas even through a combined-cycle gas turbine power station. The cost of producing electricity from an open-cycle gas turbine power station is 2½ times that of producing it from black coal.

As members would be very keenly aware, we have very large reserves of black coal in the Hunter Valley. Indeed, the port of Newcastle is the world's largest coal exporting port. Yet we are dependent for our gas supplies on South Australia and Victoria, and the reserves are running out in both States. Queensland has large reserves of coal seam methane but it would take a massive investment in a new pipeline to bring it to the Hunter Valley and Sydney. The Government has recently approved concept plans for two enormous new 2,000 megawatt power stations at Mount Piper and Bayswater. Does the Parliamentary Secretary, orMinister McKay, the Minister at the table, want to tell me that if they are ever built—which, given the track record of this Government is most unlikely—they will be gas fired? That although they will be built right next to two gigantic existing coal-fired power stations, and in the middle of coal fields, they will be using gas from South Australia, or Victoria or Queensland?

These two new baseload power stations will increase greenhouse gas emissions from power stations in this State by one-third, according to the Nature Conservation Council. Perhaps the Parliamentary Secretary, or the Minister at the table, can explain how this bill will impact on that situation. How will it drive gas exploration and production in this State, which we sorely need? The Parliamentary Secretary said further in her agreement in principle speech:

the short-term trading market will not replace bilaterally negotiated long-term contracts, which will continue to form the basis of gas markets and have underpinned development of the gas transmission pipeline system in New South Wales.

She certainly got that right. What company in its right mind would finance the construction of a billion dollar gas pipeline without long-term contracts in place? There is currently insufficient gas to support the construction and operation of large gas-fired baseload power stations. I use as my authority for this assertion Professor Anthony Owens, who commissioned consultants Wood McKenzie to evaluate the current supply situation, and I quote from his report:

Wood McKenzie has examined existing pipeline capacities and has estimated the timing of new pipelines and augmentations. Wood Mackenzie's development scenario includes the following estimated development dates:

. Ballera to Moomba Interconnect – 2009—

which I understand has now been commissioned—

. Queensland to Hunter Pipeline – 2013

. Wallumbilla to Bulla Park Pipeline – 2014

The potential to expand the capacity of the Eastern Gas Pipeline by compression in around 2013 is also noted by Wood Mackenzie.

With the above upgrades, Wood Mackenzie estimates that there will be adequate gas transmission capacity to support the following gas baseload generation in New South Wales over and above existing committed generation:

. Two 400MW CCGT baseload developments on the Eastern Gas Pipeline
. Two 400MW CCGT baseload developments on the Moomba – Sydney Gas Pipeline
. Two 400MW CCGT baseload developments on the Queensland to Hunter Gas Pipeline

Of course, that is yet to be built. One is fairly limited when using an existing pipeline system to develop baseload gas-fired power. The additional baseload generating capacity about which Wood McKenzie talked is only until 2020, by which time any new power station would barely be commissioned. Clearly, this points to the need for New South Wales to develop its own gas supply. A particular problem with gas supply, quite apart from the lack of a local resource, is pricing. When the Owen report was written in 2007 it was estimated that eastern Australian gas would cost around $4 per gigajoule—half the price of Western Australian gas, of which most is exported. However, Professor Owen noted that the price of gas in eastern Australia could rise rapidly to parallel north-west shelf prices. The exploration and production of gas in this State would be far more attractive if we exported it but, paradoxically, that would lessen demand for it and certainly would make gas-fired electricity more expensive.

As the Parliamentary Secretary said, the short-term trading market for gas may create a market for the trading of natural gas at the wholesale level and set an observable spot price for gas. That may benefit consumers in the margins. However, the bill ignores the key issue in this area, that is, that from an environmental and economic perspective, New South Wales must become both a supplier and consumer of natural gas. That is borne out by a paper written in 2004 by Ahmed El Hachemi Mazighi entitled "Some risks related to the short-term trading of natural gas". I am sure the Minister and certainly the Parliamentary Secretary who made the agreement in principle speech are familiar with Dr El Hachemi Mazighi's work. Dr El Hachemi Mazighi observed that the key to gas spot trading was "the existence of uncommitted quantities of natural gas". I have demonstrated already that this State does not have large quantities of natural gas. Dr El Hachemi Mazighi went on to say that replacing long-term contracts with spot trading can reduce financiers' appetites for financing gas infrastructure projects—a point I made earlier in my contribution.

As the Parliamentary Secretary noted, introducing a short-term trading market may provide price incentives to manage gas flows within the network, but I maintain that this sort of operation is best suited to those major gas-producing States rather than simply to consumers. It is true that the expected benefits for New South Wales gas consumers include more efficient pricing outcomes and possibly an increased variety of gas products. For market participants increased pricing transparency and improved information flows are expected to assist in managing pipeline gas flows and allocations. However, the fact is that you still have to have the product to sell. This State does not produce sufficient gas. I call on the Government to take measures immediately to ensure that we have a reliable supply for home-produced gas in New South Wales.

Mr KERRY HICKEY (Cessnock) [10.53 a.m.]: I support the National Gas (New South Wales) Amendment (Short Term Trading Market) Bill 2010. The Short Term Trading Market [STTM] has been designed with strong mechanisms to support gas supply security in New South Wales. Under the new arrangements mechanisms known as the Market Operator Service and Contingency Gas address variations in gas supply and demand that may occur when gas suppliers or users alter their requirements at short notice. To ensure the daily physical demand and supply on each pipeline remains balanced, these mechanisms either will inject gas into the gas network system or withdraw gas as required. These arrangements are significantly different from the current wholesale gas market framework.

Currently, gas is traded through contractual arrangements between gas producers, wholesalers and retailers. Any imbalances in gas supplies, that is, gas shortfalls or excess gas, are addressed through various balancing mechanisms contained in the various contracts and retail market arrangements. These mechanisms inform gas shippers about the amount of gas they are required to inject into the gas system to maintain supply security. However, there is limited information provided on gas prices and quantities to allow users to respond to gas prices and undertake demand management. The short-term trading market will provide greater transparency and information on the gas flows within the system as well as price incentives to better manage those flows in the gas network. The new market will also create incentives for those participants to contract for firm supply and firm transportation of their gas as a way of managing risk when capacity or supply becomes scarce.

These initiatives will create market base drivers for long-term contracting that will support future investment in infrastructure. These drivers will assist in strengthening the physical infrastructure that supplies gas to and within New South Wales. Implications for regional areas trading arrangements will not change. Areas outside the hub will not trade gas through the hub. However, they have the option of participating in the hub and purchasing gas from the hub. Although not directly participating in the STTM, regional customers can use the price signals and information flows to better inform their gas purchasing and consumption decisions. The security of gas supplies in New South Wales is of utmost importance, especially as demand for gas from households, business and power stations continues to grow. Therefore, it is important that we support this bill.

Mr GEOFF PROVEST (Tweed) [10.57 a.m.]: The National Gas (New South Wales) Amendment (Short Term Trading Market) Bill 2010 proposes legislative changes to the National Gas (New South Wales) Act 2008 so that certain sections of the natural gas law [NGL] concerning the establishment and operation of the short-term trading market [STTM] can be applied in New South Wales. The background of the STTM is to provide clear market and pricing signals to existing participants, potential entrants and consumers; encourage better informed investment and risk management decision; facilitate trading between shippers and users as well as for gas-fired power generators; facilitate demand-side response by users, particularly at times of supply constraints; and enhance market liquidity.

Once the bill is proclaimed the STTM will become the wholesale gas market in New South Wales for trading gas in the Sydney hub—Sydney, Wollongong and Newcastle; the Australian Energy Market Operator [AEMO] will operate the STTM; all retailers and shippers will be required to trade gas through the STTM; and gas industry participants, including those not trading gas through the STTM, can be required to provide information to the AEMO to assist with the operation of the STTM and provide appropriate information to the market. I will refer to a few of the many arguments previous speakers have highlighted. The major one of particular interest to me is the expected benefits for New South Wales gas consumers, including more efficient pricing and outcomes, and an increased variety of gas products. For market participants the increased pricing transparency and improved information flows are expected to assist with managing gas flows and allocations on pipelines.

A number of years ago before I entered this place I served as one of two northern New South Wales representatives on a community consultation committee with Energex Ltd, a large energy supplier in Queensland that currently supplies gas to northern New South Wales. One of my roles as a member of the community consultation committee was to examine printed material, information and documentation, in relation to the revision of prices and contracts in the retail gas sector. That information was very beneficial to me and our direct and positive feedback made the energy supplier's life a lot easier. I compliment Energex on that initiative. It was a good consultation process. I understand that the initiative was part of the initial legislation to supply gas to particularly northern New South Wales. In my electorate of Tweed more and more natural gas is being rolled out from Queensland to both the residential and the industry sectors. I hope with the implementation of this legislation we see further examples of that type of initiative.

A number of operators in the industry have raised concerns. I have been advised that Eastern Star Gas supports the bill because it provides an opportunity to sell surplus gas into the city hub and could benefit both ERM Gas and Eastern Star Gas in the future. However, it raises concerns about design complexity and the risk for retailers. Too often in this place we pass legislation that involves a great deal of complexity, which then adds costs for those who operate in the market. Unfortunately, those costs are passed on to the consumer, the working mums and dads. I hope the concerns of Eastern Star Gas are unfounded and that it is not too complex and will not result in higher administrative costs. I understand there will be greater transparency in relation to the cost price. But if the administration design is complex many energy suppliers ultimately will pass on the extra cost. Although I have highlighted stakeholders' concerns, I do not oppose the bill.

Mr NINOS KHOSHABA (Smithfield) [11.02 a.m.]: I support the National Gas (New South Wales) Amendment (Short Term Trading Market) Bill 2010. This bill, which is part of the Government's ongoing energy reform program, includes a commitment to build a better and stronger gas supply industry for Australian gas consumers, including those in New South Wales. The reform program has already yielded significant improvements in energy market governance and institutional arrangements. The aim of the reform is to improve energy market institutional arrangements and governance. The short-term trading market involves creating a single regulatory body as part of a national framework. This bill cuts red tape and provides transparency and accessibility for retailers and consumers.

This legislation will establish the Australian Energy Market Operator as the operator of the short-term trading market in New South Wales. The Australian Energy Market Operator and its predecessors have a strong track record in operating gas and electricity markets. It is a single energy market operator that brings control of both the electricity market and the gas market under one roof. The Australian Energy Market Operator, which commenced operations on 1 July 2009, brings together a number of previously separate national and State-specific electricity and gas market operators. It replaces the individual gas and electricity market operators, including the former Gas Market Company, which administered the competitive New South Wales gas retail market from 2002.

The integration of both gas and electricity market operators into one body significantly advances the convergence between the gas and electricity market frameworks. It also increases the level of expertise that can be applied across and between gas and electricity markets. This process of convergence is designed to reduce the regulatory burden for energy industry participants and lower costs for consumers. The importance of providing clear and accurate pricing information to the developers of our gas resources and to retailers and large consumers cannot be overstated.

The short-term trading market will provide transparent pricing, a market that can easily engage with suppliers, and important information about gas supply and availability. Of course, participants will still be able to contract for long-term supply, but they will be able to do so with the knowledge of a spot price provided daily by the short-term trading market. Risk management will be easier and more transparent and future expansion of the market will be facilitated. Gas is an important fuel for our transition to a lower carbon economy and developments such as the short-term trading market are part of the framework to make this transition a reality. This is a good move for New South Wales. I commend the bill to the House.

Mr THOMAS GEORGE (Lismore) [11.07 a.m.]: I speak on the National Gas (New South Wales) Amendment (Short Term Trading Market) Bill 2010. The bill proposes legislative amendments to the National Gas New South Wales Act 2008 so that certain sections of the national gas law concerning the establishment and operation of the short-term trading market can be applied in New South Wales. The short-term trading market aims to facilitate the development of more efficient gas markets by providing clear market and pricing signals to existing participants, potential entrants and consumers; encouraging better-informed investment and risk management decisions; facilitating trading between shippers and users as well as for gas-fired power generators; facilitating demand-side response by users, particularly at times of supply constraints; and enhancing market liquidity.

I want to raise an issue about Metgasco, which has its offices in Casino. I am sure the member for Clarence will speak on this issue in more detail. Metgasco has successfully owned and run operations in the Northern Rivers for many years. I am concerned about the problems faced by Metgasco and the hoops it has to jump through to establish its operations in the Northern Rivers. Metgasco is considering the development of a pipeline to provide gas to southeast Queensland, but it is concerned about the lack of support it receives to provide services to the Northern Rivers area. Why is the Government letting this happen? For example, at a recent meeting with Metgasco the member for Clarence and I were told that when the company applied for a licence it was informed by the Department of Primary Industries that the department had an interest in a part of the licence. The process with the department took nine months.

Although Metgasco had indicated that it did not believe the Department of Primary Industries had an interest, it took the department nine months to admit that the company was correct. That is the type of support we are offering an organisation such as Metgasco! It is a disgrace if that is the sort of impediment we place on an industry that is the future of this State. For a government organisation to indicate that it had an interest and then to take nine months to decide it did not have an interest is a disgrace. That is the type of impediment we are placing in front of organisations that are trying to make use of the gas supply and trying to expand that in the interests of this State and the Northern Rivers in particular.

We have had considerable discussion in the area about TransGrid, which is trying to upgrade the line from Dumaresq down to Lismore, but Metgasco has indicated that it would be able to provide gas to support the electricity supply in the Northern Rivers area. We would be able to upgrade the electricity supply by the use of gas. Yet Metgasco cannot get through the door to talk to this Government about the need to explore alternatives such as gas and to support this organisation in providing it. It may be argued that that has not much to do with this bill, but I want to place on record—and I am sure the member for Clarence will have a lot more to say about this—that Metgasco is doing a wonderful job, and I congratulate Metgasco on what it is doing in the Northern Rivers. The eyes of Australia are on what is happening in the Northern Rivers area with Metgasco's operations and I call on the Government to look at what the organisation is doing and provide support rather than impediments.

Mr STEVE CANSDELL (Clarence) [11.11 a.m.]: I support the National Gas (New South Wales) Amendment (Short Term Trading Market) Bill 2010. The bill proposes legislative amendments to the National Gas (New South Wales) Act 2008 so that certain sections of the national gas law concerning the establishment and operation of the short-term trading market [STTM] can be applied in New South Wales. The short-term trading market aims to help facilitate the development of more efficient gas markets through providing clear market and pricing signals to existing participants, potential entrants and consumers; encouraging better informed investment and risk management decisions; facilitating trading between shippers and users as well as for gas-fired power generators; and the list goes on.

As mentioned by the member for Lismore, Metgasco—the company that has been exploring gas fields in the Northern Rivers—has just made the largest gas find in New South Wales history. That provides fantastic opportunities for the Northern Rivers, the Casino area and the Clarence electorate, which I represent, as Metgasco is planning, firstly, to put in a gas-fired power generator, which would encourage a considerable amount of industry and would power up to 30,000 homes initially, expanding to more than 50,000. As also mentioned by the member for Lismore, Metgasco has had one brick wall after another put in front of it. At one stage the Department of Primary Industries held up approvals for more than nine months because it said it needed proof of the fuel that would be available through this find.

Initially the Department of Primary Industries held up approval by the Department of Planning for a generator in the area. It was only in the last month or so that the Department of Primary Industries put up its hands and said it had no authority whatsoever to hold up approval. I hope that now the Department of Planning will fast-track Metgasco's application and get this project happening, because the gas fields are there. Even though there were gas finds in the area many years ago the technology to extract the gas did not exist. However, we now have the technology to extract the gas, which will have great financial benefits as well as ecological benefits in reducing the release of gases into the atmosphere.

Once the bill is passed the short-term trading market will become the wholesale gas market in New South Wales for trading gas in the Sydney hub—Sydney, Wollongong and Newcastle. The Australian Energy Market Operator [AEMO] will operate the short-term trading market. All retailers and shippers will be required to trade gas through the short-term trading market. Also, the gas industry participants, including those not trading gas through the short-term trading market, can be required to provide information to the Australian Energy Market Operator to assist with the operation of the short-term trading market and to provide appropriate information to the market.

The main object of the bill is to amend the National Gas (New South Wales) Act 2008. The National Gas Law that applies in New South Wales and other Australian jurisdictions is set out in the schedule to the South Australian National Gas (South Australia) Act 2008. Provisions relating to the establishment of a national short-term trading market in natural gas were inserted into the schedule to the South Australian Act by the National Gas (South Australia) (Short Term Trading Market) Amendment Act 2009 and the amendment made by clause 3 of the proposed Act applies to those provisions as part of the law of New South Wales. The expected benefits for New South Wales gas consumers include more efficient pricing outcomes and increased variety of gas products. For market participants the increased pricing transparency and improved information flows are expected to assist with managing gas flows and allocations on pipelines.

The short-term trading market has been specifically designed to operate in parallel with existing contract and access arrangements, as well as existing retail market rules. While trading arrangements will not change in regional New South Wales, as areas outside the hub will not trade gas through the hub, the benefits to regional New South Wales customers are expected to be similar as they can use the price signals and information flows to better inform their gas purchasing and consumption decisions. During the development of the short-term trading market extensive public and industry consultation was undertaken, which was managed and coordinated by the Australian Energy Market Operator. Competition is always good, and improving the way that competition is distributed and accessed is also important. Approval ratings and decisions by the Department of Planning will definitely help Metgasco get its gas power generator off the ground and improve opportunities for employment and industry in the Northern Rivers.

Ms LYLEA McMAHON (Shellharbour—Parliamentary Secretary) [11.18 a.m.], in reply: I thank all members for their contributions to this debate. Specifically in response to the points raised by the member for Upper Hunter, concerns have been raised about the early design of the scheme. The New South Wales Government has raised concerns also. The Government takes very seriously its role to ensure the design of the market is right. We raised these concerns with the market operator and I am pleased to report to the House that these concerns have been addressed. However, we will continue to monitor the operation of the market very carefully to ensure that it operates effectively, efficiently and appropriately.

In response to the issues raised by the member for Castle Hill I state that the New South Wales Government has been actively engaged with the national process to create the model legislation to which the New South Wales legislation refers. The provision of a spot price by the short-term trading market will assist with gas development as it will provide vital information on which to base investment decisions. It may interest the member to know that the Tallawarra plant, which was opened last year, is a combined-cycle plant—the most efficient gas plant available. The Government is also actively developing our gas fields. New South Wales fields tend to be the newer coal seam methane gas fields. The technology available to commercialise these fields is relatively recent in comparison to more traditional gas reserves. Once these fields come on line New South Wales will have significant reserves, and the Government is engaged with industry to make this a reality.

It also important to note that this bill does not replace long-term contracts. Similar to the electricity market, it will allow long-term contracts, such as power-purchase agreements, to operate within the short-term markets. Market frameworks are important for supporting long-term investment in the development of gas resources. This is but one in a number of steps that this Government is taking to expand gas resources in New South Wales.

In response to the comments made by the member for Lismore I state that the Government has actively sought to assist Metgasco to develop its reserves. The Minister and Government representatives have met with Metgasco on many occasions and are working hard to help it to commercialise both the conventional and the coal seam gas reserves it has identified. In relation to the TransGrid line, the Metgasco proposal was fully considered by the national regulator in the study undertaken by TransGrid and the project was deemed not sufficiently advanced or of sufficient size to negate the need for the Lismore to Dumaresq line.

This debate on the short-term trading market has provided an important opportunity to highlight to members the importance of the short-term trading market in a broader context and the significance of the gas sector and gas market reforms to New South Wales. The reform program, of which this initiative is a key element, has been undertaken specifically to build a better and stronger gas supply industry for domestic Australian gas consumers, including those in New South Wales. Since 2003 the Ministerial Council on Energy has been pursuing a detailed and comprehensive energy market reform work plan, which in recent years has yielded some significant governance and institutional reform achievements. Prominent amongst these has been the establishment of new independent and specialist market institutions to manage the development of rules for the electricity and gas markets and to regulate and enforce those rules.

A key focus of the reform process has been to bring common regulatory approaches to both electricity and gas, to reduce regulatory complexity and to improve certainty and investment confidence amongst industry participants. The Australian Energy Market Operator, which this legislation will establish as the short-term trading market operator, and its predecessors have a strong track record in operating gas and electricity markets. In its most recent market governance reform through the establishment of the Australian Energy Market Operator the Ministerial Council on Energy has completed the step of creating a single energy market operator, which brings control of both the electricity market and the gas market under one roof.

The Australian Energy Market Operator commenced operations on 1 July 2009. The operator brings together a number of previously separate national and state-specific electricity and gas market operators, including the former Gas Market Company Limited, which administered the competitive New South Wales gas retail market from 2002. The integration of these functions into the Australian Energy Market Operator will provide a significant impetus to the electricity and gas market operations convergence process and increase the level of expertise that can be applied across and between the electricity and gas markets. This process is designed to reduce the regulatory burden for energy industry participants and to lower costs for consumers. Establishing the Australian Energy Market Operator as the short-term trading market operator is another important step in that process.

The short-term trading market and the creation of the Australian Energy Market Operator are accompanied by two other important gas-specific reforms recently implemented through the Ministerial Council on Energy market reform process. In December 2009 the Australian Energy Market Operator published the inaugural Gas Statement of Opportunities. This publication is the first national statement of opportunities for the gas industry. For several years participants in the national electricity market have benefited from the annual production by the market operator of an electricity statement of opportunities. This statement has been the principal source of information for new and existing participants about the opportunities for expansion and new investment over the 10-year supply and demand outlook.

The Gas Statement of Opportunities will provide the same facility for the gas industry. Because the gas industry is widely expected to play a critical role in Australia's response to climate change, the Gas Statement of Opportunities will become a particularly important tool in the planning and development of Australia's gas supply infrastructure. The additional requirements for information disclosure in this legislation will further support these developments. One of the key benefits of the short-term trading market is the increase in transparency and accountability.

The second initiative concerns the establishment of a national gas bulletin board. This bulletin board provides a website on which the status of all major production centres and pipeline systems, including the interconnected south-east Australian system, is reported in real time. The bulletin board commenced operation on 1 July 2008 and is also operated by the Australian Energy Market Operator. The establishment of the bulletin board represents the first step in the process of substantially increasing the level of transparent and readily available information to interested parties, including the general public, on the operational status of the gas supply system. The short-term trading market builds on the bulletin board and takes the gas reform process to the next step by providing a mechanism for setting spot gas prices and trading imbalances.

The New South Wales Government has actively supported and contributed financially to the work of the Ministerial Council on Energy in the drafting all of these important reforms and will continue to do so. It does this because it has recognised for a long time that a well-functioning, efficient and responsive energy sector is critical to the interests of New South Wales energy end users. Once again I thank members for their contributions to this debate.

Question—That this bill be now agreed to in principle—put and resolved in the affirmative.

Motion agreed to.

Bill agreed to in principle.

Bill declared passed and transmitted to the Legislative Council with a message seeking its concurrence in the bill.