For a growing number of large energy consumers, consideration is turning to whether entering standard vanilla retail gas agreements deliver the most effective outcome. For consumers who are located within the bounds of the Sydney, Brisbane or Adelaide Short Term Trading Market (STTM) markets, many may not be aware that there is an alternative way to purchase gas. Below, we consider how the STTM works and what the benefits are of exploring this option.
What is the STTM
The STTM is essentially a market for the trading of natural gas at a wholesale level at defined hubs between pipelines and distribution systems. The STTM is a day-ahead gas market operated by the Australian Energy Market Operator (AEMO) with hubs located in Sydney, Adelaide and Brisbane. This means that gas is traded a day ahead of the actual gas day. The market settles daily with “shippers” delivering gas and “users” consuming gas. An organisation may sell gas as a shipper and purchase gas as a user through the same STTM, however, it would do so at the daily market price.
Source: “Overview of the STTM for Natural Gas”, AEMO, page 1
Market participants are incentivised to ship and consume volumes of gas nominated through a pricing mechanism, which aims to keep the gas supply system balanced. Organisations are able to sell excess gas to its requirements on the open market the next day, as well as bid to purchase extra gas as and when required. This system allows participants more flexibility and choice in purchasing gas supplies. Furthermore, the STTM’s price transparency ensures that the price set by the market daily truly reflects the current supply and demand situation.
Each of the STTM hub settles independently of the other, however each hub operates under the same rules outlined by AEMO.
For further operational details of the STTM, AEMO has provided an “Overview of the STTM for Natural Gas” (Link: https://www.aemo.com.au/media/Files/Other/STTM/1130-0679%20pdf.pdf).
Benefits of participating in the STTM
There are a range of drivers for some large gas consumers transitioning to purchasing and selling gas in the STTM. The main reasons are:
- The STTM is an historically lower commodity cost;
- Consumers can manage or avoid penalties under daily, monthly, and / or annual take or pay positions;
- There is increased flexibility for both sellers and consumers; and
- There are no long-term commitments.
These benefits can materially lower the cost of consuming gas. Depending on the nature of the organisation, there are a range of structures to access an STTM. Each structure requires varying levels of engagement from the consumer.
Engagement with Edge
To assist in transitioning your organisation to accessing the STTM, Edge are able to offer the following services:
- Daily nominations and trading;
- Monthly reconciliation;
- Facilitation of short and long-term Gas Supply Agreements; and
- Managing the STTM application.
Entering the STTM market is strategic decision for most organisations and can take anywhere between 3-12 months to transition. If you would like to know more, please contact us to understand if accessing the STTM market is the right decision for your organisation.
We note that there are also alternatives for consumers who are not within the STTM limits, however these options are not discussed for the purposes of this article. If you would like further information on your options, please contact your Manager Wholesale Clients or Edge on (07) 3905 9220.
