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Voluntary gas disclosure may not be effective - GIC

Thursday 14th March 2019

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A voluntary information disclosure regime for the gas industry may not be effective, given some parties have already signalled they won’t participate and others may be restricted by some existing supply agreements and tight controls in upstream joint-venture arrangements, the Gas Industry Company says.

While such a voluntary regime could be a relatively low-cost and “unobtrusive” way to improve information on the country’s wholesale gas market, the GIC said it may be difficult to achieve industry agreement on a “meaningful” level of disclosure. The GIC’s ability to police such an arrangement would also be limited.

“It could take a long time to get a framework in place,” the GIC says in an 81-page discussion document. “Furthermore, even supposing the above obstacles were overcome, a voluntary disclosure regime may not work in practice.

“Information disclosure could be uneven – between parties, events and over time. Incomplete or inconsistent information disclosure between parties could create uncertainty in the market. Voluntary arrangements could break down over time, requiring regulatory intervention.”

The gas industry regulator is testing options to improve information disclosure in the sector following a volley of complaints over the limited information Shell provided on two shutdowns at the Pohokura field last year.

Methanex - the country’s biggest gas user – was able to bring forward maintenance and voluntarily scale back production during the first. But it was less able to reduce demand during the second shutdown in September, which also coincided with declining hydro storage, reduced output from the Maui field, repair work on the Maui pipeline north of New Plymouth, and a planned shutdown at the Kupe gas field.

Power prices soared and national grid operator Transpower and the gas sector’s critical contingency operator – which manages the industry’s emergency response - both complained that they were not adequately briefed on the field outages.

Late last month, the Electricity Authority said that even large gas users like Contact Energy and Genesis Energy had not had materially better information on gas supplies than other electricity suppliers.

The GIC says quality information is important to the efficient operation of the gas market and longer term development of gas supplies. Gas-fired generation also remains important to secure electricity supplies, particularly during high winter demand or when hydro lakes are low.

But it notes that the supply side of the gas industry is highly concentrated and that long-term bilateral contracts are typical. Large users taking supplies from several players may have reasonable knowledge of the overall market, while others may have visibility only of the field they are supplied from.

Most of the country’s gas is also consumed by a handful of major users – including Methanex, Ballance Agri-Nutrients, Fonterra and New Zealand Steel – and an outage at any of their major plants can affect gas volumes and prices.

“Accordingly, it is important that major users share information, enabling information transparency in the market,” the GIC says. “Generally, information on major gas users’ outages is not disclosed publicly.”

The GIC canvassed a range of options based on other disclosure regimes in New Zealand and overseas.

Gas producers, pipeline operators and large users in Australia are required to post regular and specific updates on production, capacity, maintenance shuts and reserves through industry bulletin boards.

In Europe, the regime requires them to disclose any information not already public that could affect prices of wholesale energy products.

The GIC notes that that sort of continuous disclosure regime is similar to both the NZX stock exchange rules and the requirements of the electricity industry code. The electricity industry also has more specific rules around planned generator outages.

The GIC says all have advantages and disadvantages. Specific rules would be clear but could be subject to gaming and may need updating depending on how the industry evolves.

Principles-based disclosure rules may better cater for unanticipated events, but are less clear and could, as has been the case in the local electricity sector, require ongoing guidance from the regulator on compliance.

While in theory, they could be part of an industry-led voluntary regime, in practice they are more likely to require regulation.

The GIC is hosting a workshop on the options at the end of the month and is receiving submissions on them until April 17. The next steps will depend on the issues raised and could include additional analysis and further consultation, it says.


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