4 Sep 2013

Competition in gas spot market heats up

6:59 am on 4 September 2013

Two new spot gas markets are going head-to-head for the first time in New Zealand but the companies involved say it is too soon to say whether they will both survive.

NZX's spot gas market launched on Monday night, while Transpower's emTrade went live on Tuesday after a series of industry trials.

NZX launched its exchange immediately after it received the necessary operating approvals but says it will be several weeks before trading takes place.

State-owned power transmitter Transpower set up the market after it was approached more than a year ago by major gas industry players.

Transpower chief executive Patrick Strange said that, for the first time, the players have a central platform for buying or selling gas anonymously.

"Until we developed this with them, obviously they had to do bi-lateral deals (which was) very unsatisfactory," he said.

"Now they'll just be able to come into the market and offer to sell or to buy these ... and the market will clear to someone else."

Transpower's emTrade was a simple product, and time would tell whether there was room in the market for two, Mr Strange said.

"If the NZX is offering something that's a bit of a variation and a bit different, well that's all good.

"The most important thing is that at least one survives, so we get efficiency in these gas markets, and perhaps there's room for more than one."

Market will expand

NZX's head of energy Erich Livengood said the spot gas market was small compared with the larger equities market but it would expand over time.

The timing was right for a more competitive marketplace, and the consumer should benefit, he said.

"Having two players out here working with industry, talking to industry about what they want in a market, will lead to a competition of ideas.

"It'll change the dynamic for the industry quite substantially. Right now, it's not very clear what the actual price of gas is, to either the sellers or the buyers in the market, and, as a result, that makes certain types of decisions in long-term contract discussions somewhat difficult.

"Having a market that's adopted by the industry will provide that price information."