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

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.

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.

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.

gasTrading Spot Market - Volumes TJ/Month

0

100

200

300

400

500

600

700

800

Jul 0

9

Sep

09

No

v 09

Jan 10

Mar 10

May 10

Jul 10

Sep

10

No

v 10

Jan 11

Mar 11

May 11

Jul 11

Sep

11

No

v 11

Jan 12

Mar 12

May 12

Jul 12

Sep

12

No

v 12

Jan 13

Mar 13

May 13

Jul 13

Sep

13

No

v 13

Jan 14

TJ

/ M

th

Total Monthly Quantity

gasTrading Spot Market - Volumes TJ/Day

0

5

10

15

20

25

30

35

40

45

50

Jul 0

9

Sep

09

No

v 09

Jan 10

Mar 10

May 10

Jul 10

Sep

10

No

v 10

Jan 11

Mar 11

May 11

Jul 11

Sep

11

No

v 11

Jan 12

Mar 12

May 12

Jul 12

Sep

12

No

v 12

Jan 13

Mar 13

May 13

Jul 13

Sep

13

No

v 13

Jan 14

TJ

/ D

ay

Max Daily Quantity Ave Daily Quantity Min Daily Quantity

gasTrading Spot Market – Prices $/GJ

$0.00

$2.00

$4.00

$6.00

$8.00

$10.00

$12.00

Jul 0

9

Sep

09

No

v 09

Jan 10

Mar 10

May 10

Jul 10

Sep

10

No

v 10

Jan 11

Mar 11

May 11

Jul 11

Sep

11

No

v 11

Jan 12

Mar 12

May 12

Jul 12

Sep

12

No

v 12

Jan 13

Mar 13

May 13

Jul 13

Sep

13

No

v 13

Jan 14

AU

$/G

J

Max Price Ave Price Min Price

gasTrading Spot Market - March Bidding Round

Offers to Purchase

Total Quantity 531.02 TJAverage Price $3.39 /GJHighest Price $7.20 /GJLowest Price $1.51 /GJ

Scheduled for Sale

Total Quantity 258.74 TJAverage Price $4.05 /GJHighest Price $7.20 /GJLowest Price $3.35 /GJ

Bid Information and Scheduled Gas for March 2014

Spot Gas Market Spot Gas Market Spot Gas Market Spot Market

The

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

Oct 12

Dec 12

Feb

13

Ap

r 13

Jun

13

Au

g 13

Oct 13

Dec 13

Feb

14

TJ

/ M

on

th

AU

$ P

er

GJ

Actual Ave Price Scheduled Ave Price Actual Quantity Scheduled Quantity

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

GeneratorsManu-factor

MineralProcess

Pipeliners Producers

# of Sellers 3 1 0 16 0 4

0

2

4

6

8

10

12

14

16

18

Sellers

Retailer -Aggregator

GeneratorsManu-factor

MineralProcess

Pipeliners Producers

# of Buyers 6 2 4 16 2 2

02468

1012141618

Buyers

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.

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).

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.

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.

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?

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