Overview of the Short Term Trading Market

Articles Written by Fiona Melville

The Short Term Trading Market (STTM) is a mandatory wholesale gas market which operates at various hubs,1 initially at the Sydney Hub and the Adelaide Hub. All gas transmitted through a hub must be sold to and bought from the STTM, including gas supplied under existing long term gas supply contracts. Each hub is scheduled and settled separately in accordance with the Gas Rules.2 An ex-ante price is determined the day before each gas day, at each hub, by the Australian Energy Market Operator (AEMO).

Victoria will not participate in the STTM, instead the Victorian Wholesale Gas Market will continue to operate as a 'net pool' settling quantities not covered by contractual arrangements.

An STTM market trial commenced at the Sydney and Adelaide Hubs on 1 March 2010 involving thirty or so participants. The trial involves 'dummy settlements' so that trading participants can see their potential exposure and develop strategies to limit that exposure. The STTM goes live on 4 June 2010.

Depiction of the STTM3

Legislative basis

The STTM is authorised by the National Gas Law4 which establishes the broad governance principles, functions of AEMO, and liabilities of market participants. The Gas Rules specify the operational aspects of the STTM and are supplemented by Market Procedures which are developed by AEMO to cover technical or procedural matters.

Who is involved?

The participants highlighted in the darker shade in the diagram are Trading Participants and are directly involved in the market. They are the ones bidding and exposed to the market. The same entities may sell gas into the STTM and buy gas from the STTM to reflect their contractual requirements and to meet their customers' demands.

Market Operator 

AEMO operates the STTM as a market settlement process. AEMO is not responsible for the gas quality or system security at the hub. AEMO does not take title to the gas.5 Title passes from STTM Shippers at 'notional' STTM receipt points to STTM Users at 'notional' delivery points. AEMO's market functions are to publish forecasts of prices and quantities of gas at the hub, set the daily gas price, credit the accounts of STTM Shippers (with the quantities of gas allocated or nominated by Allocation Agents), debit the accounts of STTM Users (with the quantities of gas allocated by AEMO (based on metered data provided by the STTM Distributor), issue invoices to STTM Shippers and STTM Users for the net amount owing across their accounts (in the case where an entity has registered as both an STTM Shipper and an STTM User), collect payments and only then make payments to STTM Shippers. The STTM is thus cash positive and STTM Shippers take the risk of non-payment by STTM Users. This risk is lessened by the fact that trading participants must satisfy ongoing prudential requirements and provide AEMO with bank guarantees for their net exposure.

STTM Shippers

In order to sell gas to the STTM an entity must register with AEMO as an STTM Shipper. Gas Rule 135ABA requires a party who has a transmission contract for the transmission of natural gas to or from the STTM hub, a party who has a contract with a producer or storage provider directly connected to a hub, a party holding rights subcontracted from such entities or producers or storage providers directly connected to a hub, to register as an STTM Shipper. This would appear to require the cooperation of various entities in a contracting chain. However we understand that AEMO will register any entity who requests registration as an STTM Shipper because, from a practical perspective, if an entity does not have trading rights (which are capacity rights under a transmission contract) then that entity will not be entitled to make offers in the STTM.

STTM Users 

In order to buy gas from the STTM to transmit across the gas distribution pipelines to customers, an entity must register with AEMO as an STTM User. Gas Rule 135ABA requires a user under a contract with a service provider for the distribution pipeline to register as an STTM User.

STTM Facility Operators 

The operators of STTM Facilities (transmission pipelines, production facilities and storage facilities supplying gas to the hub) must register with AEMO as STTM Facility Operators. Their primary market function is to accept nominations of quantities from STTM Shippers and schedule the delivery of gas into a pipeline (and onto the hub) in accordance with 'offmarket' contractual arrangements between the pipeline operator and the STTM Shippers, including the Gas Transportation Agreements and a Multi Shipper Sharing Agreement.

Allocation agents 

The STTM Facility Operators and STTM Shippers must appoint an Allocation Agent whose function is to provide AEMO with daily allocations of gas (taken from the STTM Facility Operators' schedules) to each STTM Shipper at each STTM receipt point. The Allocation Agent must register with AEMO in that capacity. From a practical perspective, whilst the Gas Rules6 imply that each Shipper can appoint an Allocation Agent, in practice we anticipate that it will be the STTM Facility Operator who makes the appointment (having obtained its Shippers' prior agreement). This follows, as the entity making the appointment is responsible for the Allocation Agent's compliance with the Gas Rules.7

STTM Distributor

The operator of the gas distribution network must register with AEMO as the STTM Distributor. Their primary market function is to collect and submit meter data to AEMO. AEMO allocates quantities of gas supplied through the hub to STTM Users based on metered data provided by the STTM Distributor.

Trading rights 

STTM Shippers and STTM Users must register their trading rights with AEMO. Trading rights are capacity entitlements on a transmission pipeline or the distribution pipeline. Trading rights can be transferred to other STTM Shippers or STTM Users. AEMO will only register allocations of quantities to Shippers and Users up to the registered capacity/trading rights.

Determination of the gas market price

STTM Shippers8 submit pricing bids for particular quantities in up to ten pricing bands and STTM Users9 submit offers to buy quantities. Bids and offers can be submitted up to 12 noon on the day before gas day (D-1). At 1pm on D-1 AEMO sets the daily ex-ante price for all gas bought and sold at the hub on the following gas day.

As indicated in the diagram below10 the price is determined by stacking and matching offers with bids in price order. If offers are tied, the offer from an STTM Shipper with firm capacity will be scheduled first. If offers have the same haulage priority, offers will be scheduled proportionate to the offered quantities.

It is not always physically possible or feasible to schedule lower priced gas than higher priced gas. When this occurs, the scheduled pipeline operator must pay a capacity payment to the pipeline operator which is not scheduled.

The Gas Rules restrict the price from falling below zero and will include a maximum price, an administered price cap, a cumulative price threshold and a MOS contract cap.

Market operations


On D-1:

  • AEMO publishes the ex-ante gas price for the following gas day and a schedule of gas flows;
  • STTM Shippers make nominations to pipeline operators in accordance with their contracts for their gas requirement on the following gas day;
  • a pipeline operator prepares a schedule for delivery of gas to all STTM Shippers based on the STTM Shippers' nominations and any Multi Shipper Sharing Agreement and forwards this to the Allocation Agent; and
  • the Allocation Agents submit the nominations of STTM Shippers' deliveries to AEMO.

On the gas day, AEMO credits STTM Shippers' accounts based on the nominations made by the Allocation Agent and debits STTM Users accounts based on the nominations AEMO makes in line with data provided by the STTM Distribution network operator.


On the gas day, STTM Shippers who become aware that their actual delivery will differ from that scheduled can, if allowed by their transmission contract, renominate a quantity to the pipeline operator. The pipeline operator may be able to schedule the adjusted quantity for transportation and adjust the market schedule by an intraday nomination and in which case a deviation charge will not arise.


If an STTM Shipper supplies more gas than it was scheduled to supply or an STTM User consumes less gas than it was scheduled to consume, a deviation payment will be credited to its account by AEMO. The deviation payment is lower than the ex-ante price to encourage better scheduling. If an STTM Shipper supplies less gas than it was scheduled to supply or an STTM User consumes more gas than it was scheduled to consume, a deviation charge will be debited to its account by AEMO. The deviation charge is higher than the ex ante price to encourage better scheduling. Deviation payments and charges are used to balance MOS costs (see below).

Market Scheduled Variations 

Where an STTM Shipper deviates from the ex ante market schedule a deviation charge will be payable or receivable unless the Shipper is able to submit a 'market schedule variation' to AEMO. A 'market schedule variation' must be matched by an opposite variation from another STTM Shipper or STTM User so that there is no impact on the net gas flow. Shipper-to user variations attract a variation charge on a sliding scale which is lower than the deviation charge. Shipper to Shipper variations are exempt.


The STTM balances any discrepancies between the scheduled quantities and the actual quantities by Market Operator Services (MOS). MOS can increase supply or reduce supply on a pipeline and AEMO contracts for these services by tender on a quarterly basis with the lower priced MOS being allocated first. Once contracted and put in place these services operate by default. Whenever there is a difference between scheduled and actual flows across the hub MOS is allocated according to the MOS stack by pipeline operators to MOS providers.

Contingency gas

The Gas Rules contain the ability for AEMO to call on contingency gas to balance physical supply and demand at a hub where MOS proves insufficient.

Ex post imbalance price

The ex post imbalance price is calculated the day after the gas day to determine a price which reflects the net impacts of deviations on the ex ante price.11


AEMO issues invoices on a monthly basis and a revised invoice taking into account actual metering data after nine months.

Next steps

Entities with gas contracts which involve transportation to or from the Sydney or Adelaide hub should consider whether:

  • they fall within the definitions of STTM Shippers or STTM Users and if so register with AEMO and take part in the market trial;
  • changes are required to their gas transportation contracts to bring the timing of nominations under the contract in line with the STTM requirements;
  • changes are required to any Multi Shipper Sharing Agreement to bring this in line with STTM requirements;
  • they are able to activate a change of law provision in their customer contracts in order to pass through the costs of participation in the STTM; and
  • they should make changes to customer contracts to pass through the costs of participation in the STTM.

Entities taking part in the STTM should consider whether their exposure to the gas price justifies entry into derivatives and if so whether they will need to obtain an Australian Financial Services Licence.


1 A hub is not a physical location but is a notional point associated with different distribution and transmission pipelines at specified custody transfer points.
2 National Gas (Short Term Trading Market) Amendments Rules 2001 Draft 12 January 2010.
3 Courtesy of AEMO.
4 National Gas (South Australia) Act 2008.
5 Gas Rule 418.
6 Gas Rule 387 and 388.
7 Gas Rule 387.
8 Gas Rule 407.
9 Gas Rule 408.
10 Courtesy of VENCorp prepared for the Victorian Market but the principles broadly apply here.

Important Disclaimer: The material contained in this article is comment of a general nature only and is not and nor is it intended to be advice on any specific professional matter. In that the effectiveness or accuracy of any professional advice depends upon the particular circumstances of each case, neither the firm nor any individual author accepts any responsibility whatsoever for any acts or omissions resulting from reliance upon the content of any articles. Before acting on the basis of any material contained in this publication, we recommend that you consult your professional adviser. Liability limited by a scheme approved under Professional Standards Legislation (Australia-wide except in Tasmania).

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