Achieving greater natural gas uptake in Australia will require an urgent revamp of upstream gas supply competition, and the adoption of more flexible regulatory approaches to encourage investment in gas distribution networks and pipelines, the Australian Gas Association (AGA) has told the Council of Australian Governments' (CoAG) Energy Market Review hearing in Canberra yesterday.

The AGA also urged the Review to recommend the Federal Government's release of the Productivity Commission's final report on its Review of the National Access Regime, the adoption of the Commission's key recommendations for improving the third party gas access regime, and the immediate commencement of the planned review of the National Gas Code.

"CoAG has already recognised the central role that natural gas will play in the forthcoming national energy policy, and the need to encourage its uptake, given its economic, environmental and regional benefits" said the Chief Executive of the AGA, Bill Nagle.

"The Energy Market Review is the first step in the policy development process, and we advised the Review panel today that this process must consider key impediments to the gas industry's future development.

"The most critical issue is the adverse effect of the current third party access regime on both investment in gas distribution networks and pipelines, and on gas market growth. This regime fails to appropriately recognise the long-term interests of consumers in having access to an expanding and reliable gas network.

"It also exposes regulated businesses to significant forms of regulatory risk, thus deterring investment in new and existing assets. These risks include regulators not allowing the recovery of investments made in new gas infrastructure assets, and disallowing the recovery of operating costs.

"An urgent renewal of greater upstream gas supply competition is also essential to delivering a competitive future energy market" Mr Nagle said. "To ensure the gains from downstream gas market reform are not lost by rising well-head (producer) gas prices and a lack of flexibility in gas supply options, this must be progressed.

"New gas supplies must be actively encouraged, and impediments to their development (and to investment in connecting pipelines) removed. The active ongoing development of mature fields is also vital for ensuring enough competitively-priced gas gets to the growing industrial, commercial, power generation and domestic markets around Australia.

"Additionally, it must be remembered that eastern Australia will need to draw on gas supplies from further afield-including from the Timor Sea and Papua New Guinea-as soon as 2005-06, as central Australian and Gippsland Basin gas becomes fully committed.

"The AGA urges CoAG to identify and recommend an active upstream gas reform agenda. In the first instance, however, the previously identified upstream reform agenda must be urgently re-activated.

"This would include ensuring that the joint marketing of gas is constrained (especially for gas coming from mature gas fields), and that formal arrangements are implemented to ensure that new producers in established gas fields have access to existing upstream production facilities on appropriate terms.

"The Energy Market Review must also consider specific incentives and conditions to encourage various sectors of the community to switch to gas, in areas such as hot water and heating systems, the transport sector, and electricity generation.

"As part of this, the inconsistency in electric-boosted solar hot water systems being subsidised ahead of direct gas hot water systems-and the inconsistency in such subsidies between the States-should be reviewed, with a view to having these subsidies based solely on emissions output. In many cases, this would see subsidies also made available for direct gas hot water systems, given their clean emissions characteristics.

"The States should also develop policies which require a minimum proportion of gas-fired power generation, such as with Queensland's Cleaner Energy Strategy and the Commonwealth's +2% renewables measure.

"Given its many benefits, natural gas must play a central role in Australia's future energy mix. This year's energy policy work must therefore continue to give natural gas the close consideration it deserves."