6427.0.55.009 - Information Paper: Update on the Development of an Oil and Gas Extraction Producer Price Index, June 2016  
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PURPOSE AND USE OF THE INDEX

Submissions sought clarification of the purpose and use of the proposed price index for natural gas.

The AEMC approached the ABS to develop a price index for wholesale natural gas in the domestic market, covering the purchase of gas directly from producers primarily through bilateral contracts, and initially focussed on the east coast gas market. The approach aligned with a recommendation made by the AEMC in the East Coast Wholesale Gas Market and Pipeline Frameworks Review: Stage 1 Final Report..

The proposed price index meets the AEMC's main requirements. The index will measure the domestic gas price received by producers through bilateral contracts and other pricing mechanisms. An east coast index will be disseminated where ABS disclosure and provider confidentiality conditions are satisfied.

The proposed price index is also designed to fulfil the principle purpose of the PPI's to "support the compilation of National Accounts", as articulated in Information Paper: Outcome of the Review of the Producer and International Trade Price Indexes, 2012 (cat. no. 6427.0.55.004). The index aligns with ABS statistical frameworks for index design and compilation.

Feedback about the purpose and use of the index also raised broader issues within the industry, such as whether the proposed price index would improve overall market transparency. The index will improve transparency by providing a measurement of quarterly price changes received by gas producers for all domestic gas production. Prices will reflect the mix of pricing mechanisms, including contracts and spot sales. The index will be designed to capture evolving market dynamics.