New Gas Pipelines Access Arbitration Regime Commences

Australia's gas markets are changing rapidly and undergoing significant structural change. Australia is on the cusp of becoming the world's largest liquefied natural gas (LNG) exporter, having seen investment of more than $200 billion in the past decade. 

The East Coast gas markets are now interconnected and natural gas flows are more dynamic so gas can move across the network to where it is needed. The markets are also adjusting to emerging exposure to international gas prices as the export of gas from the East cCoast occurs for the first time.

In August 2016, the Council of Australian Governments Energy (COAG) Energy Council announced a comprehensive Gas Market Reform Package to drive the achievement of its Australian Gas Market Vision for a liquid wholesale gas market where an efficient reference price provides signals for investment and new gas supply.

In December 2016, the COAG Energy Council agreed to implement a new commercial arbitration framework for pipeline access disputes. The National Gas Rules govern access to natural gas pipeline services and elements of broader natural gas markets. The Rules have the force of law, and are made under the National Gas Law

The decision to implement a new commercial arbitration mechanism, effective 1 August 2017, followed an Examination of the Current Test for the Regulation of Gas Pipelines which highlighted the unequal levels of bargaining power and access to information that shippers face when seeking access to pipeline services. 

The design of the arbitration mechanism draws on both general commercial arbitration principles and negotiate-arbitrate infrastructure access regimes. The design is intended to provide greater certainty about the duration and the cost of arbitration, principally by requiring exchange of all information that might be relied on in arbitration during negotiations (including expert reports) and through short time frames for conduct of the arbitration. Arbitrators will be required to make a determination within 50 business days (with possible extension to 90 days). 

In making determinations, arbitrators will be required to have regard to guidelines and principles in the NGR. The overriding principle is that terms of access should be consistent with outcomes reasonably to be expected in a workably competitive market. The pricing principles require prices to be cost reflective. Arbitration is therefore likely to focus on these issues.

This new approach to focusing on negotiated outcomes between pipeline owners and shippers represents an alternative to the economic regulatory approach with which the gas industry is familiar.  Parties have the opportunity to reach a commercial outcome without the need for third party intervention. Where parties are unable to reach agreement a commercial arbitrator may be called upon. In short the approach aspires to promote commercial outcomes and resolve disputes in a commercial, timely and cost effective manner.