Expanding the national gas regulatory framework to hydrogen and renewable blends

The development of the hydrogen industry in Australia has been identified as a key priority of the Commonwealth Government.

The existing gas networks provide a means to store, transport and distribute hydrogen in Australia. With long term objectives of operating pure hydrogen gas networks, key natural gas infrastructure owners and operators have commenced or are planning pilot projects in South Australia, Victoria, Queensland, New South Wales and Western Australia to inject hydrogen into existing natural gas pipelines. There are also proposals to blend biogas and other renewable gases into gas distribution networks.

While this is not a new concept (in fact, prior to the conversion to natural gas in the late 1960s and early 1970s, Australia’s gas pipelines were used to carry “town gas” which comprised of approximately 50-60% hydrogen), the use of hydrogen and biogases in Australia’s gas networks was not contemplated when the national gas regime was implemented.

In order to ensure that Australia is in a position to leverage its potential as a producer, user and exporter of hydrogen, it is important that legislative frameworks facilitate the introduction of hydrogen into gas networks containing hydrogen. 

On 20 August 2021, the Energy Ministers agreed that the national gas regulatory framework should be reviewed and amended to bring hydrogen, biomethane and other renewable gas blends within its scope. The Energy Ministers allocated responsibility for various aspects of the review to the Australian Energy Market Commission (AEMC), the Australian Energy Market Operator (AEMO) and officials from the various State and Territory governments.

On 23 September 2021, the AEMC announced the commencement of its review into extending the energy market rules to hydrogen and renewable gas blends.

Consultation papers are expected to be released on 21 October 2021.

National gas regulatory framework

The National Gas Law (NGL) and National Gas Rules (NGR) (together, the National Gas Regime) provide the framework for economic regulation of gas distribution and supply in Australia.

This National Gas Regime governs access to natural gas pipeline services and elements of broader natural gas markets. It provides the legal framework for the wholesale gas market, short-term trading markets (STTM), the gas trading exchange, retail gas markets, third party access to gas pipeline services and the provision of information in relation to gas. These provisions aim to encourage efficient investment in gas infrastructure, producing benefits for various stakeholders.

The sale and supply of gas to retail customers in various Australian jurisdictions[1] is governed by the National Energy Retail Law (NERL), the National Energy Retail Regulations 2012 and the National Energy Retail Rules (NERR) (together, the National Energy Customer Framework or NECF). This regime provides protections to consumers of energy, including information rights and minimum contract terms.

Application to renewable blends

A review of the national gas regulatory framework, completed for the Commonwealth Department of Industry, Science, Energy and Resources as an action of the National Hydrogen Strategy in 2020-21, found that most elements of the current framework could apply to hydrogen, biomethane and other renewable gas blends in the same way they apply to natural gas.[2]

The National Gas Regime currently applies to “natural gas”, which is defined in the NGL as a substance that:

(a) is in a gaseous state at standard temperature and pressure; and

(b) consists of naturally occurring hydrocarbons, or a naturally occurring mixture of hydrocarbons and non-hydrocarbons, the principal constituent of which is methane; and

(c) is suitable for consumption.

Similarly, the protections given to customers in respect of the sale and purchase of gas under the NECF apply only to “natural gas”, as defined in the NGL.

While the definition of “natural gas” does not cover pure hydrogen (as hydrogen is not a “hydrocarbon”), blends of natural gas with hydrogen, biomethane and other renewable gases may be covered by the national gas regulatory framework provided they fall within the definition of “natural gas”, which turns on whether those blends: (1) contain at least 50% methane; and (2) consist of “naturally occurring hydrocarbons” or a “naturally occurring mixture of hydrocarbons and non-hydrocarbons”.

Given that the regime did not specifically contemplate hydrogen, biomethane and other renewable gas, there are obvious problems in how the gas regulatory framework applies when hydrogen, biomethane and other renewable gases are introduced.

Scope of the reforms

With a view to expedite the process of ensuring that the existing regime facilitates the development of the hydrogen industry in Australia, the Energy Ministers are commencing with reforms that focus on “hydrogen blends and renewable gases that can be used in existing natural gas appliances” [3] (referred to as “NG equivalents”).

The key objective of the reforms are to ensure that:

• regulatory barriers do not restrict proposed investments in projects; and
• existing regulatory arrangements and protections continue to work as intended where such NG equivalents are supplied.

The Energy Ministers have indicated that further reforms relating to the application of the national gas regime on a pure hydrogen network may be considered further in the future.

Officials from each State and Territory, the AEMC and AEMO have each been allocated responsibility for various aspects of the reforms, as set out in the table below:

Source: Information Sheet available at: https://energyministers.gov.au/publications/extending-national-gas-regulatory-framework-hydrogen-blends-and-renewable-gases

AEMC Review

On 23 September 2021, the AEMC announced the commencement of its new work program to support the ongoing decarbonisation of the energy sector, with the initiation of its review into extending the energy market rules to low-level hydrogen blends and renewable gases (together with a rule change request for the Victorian declared wholesale gas market (DWGM)).  

The AEMC has been tasked with identifying and developing the amendments to the NGR and NERR required to accommodate hydrogen and renewable gas blends. 

In its review, the AEMC has been requested by the Energy Ministers to consider:

• The economic regulatory framework, including: 
  • connection and access by facilities for the production, injection and blending of hydrogen, biogas and other renewable gases into distribution networks (and other facilities) to ensure that:
    • access is available on reasonable terms; and
    • hydrogen blending facilities only connect in parts of the network suitable for the injection of hydrogen; and 
  • ensuring that any maximum level of blending that may be set by a jurisdiction is implemented consistently in the regulatory framework. 
• The facilitated markets and regulated retail markets, including:
  • registration categories for the STTM, the DWGM and/or regulated retail markets; and 
  • responsibility for creation of the blend (as between distributors and retailers) and whether and how that should be accounted for in the regulatory framework. 
• The NERR and whether any additional consumer protections may be required, such as provision of information and any minimum contract terms or bill content requirements. 
• The regulatory sandbox provisions in the national gas and retail regulatory frameworks.
• Any other material aspects of the NGR and NERR necessary to support low-level gas blends under the regulatory framework.

A consultation paper is expected to be released by the AEMC on 21 October 2021. 

Key Dates

21 October 2021: Initial consultation papers published

Late October – December 2021: Stakeholder forums and engagement opportunities

Late March – May 2022: Consultation on draft reports and draft legislative amendments

Mid 2022: Draft legislative amendments presented to Energy Ministers for agreement

Late 2022: Consultation on proposed initial Rules, Procedures and other subordinate instruments

Public forum

A virtual public forum will be held by the Department of Industry, Science, Energy and Resources, AEMO and the AEMC from 1pm (AEST), Friday 22 October 2021. 

Those interested in attending can register their interest by email to: renewablegas@industry.gov.au. 

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).