ASX Plans Renewable Energy, Gas, Coal, Carbon Futures

By Angela Macdonald-Smith

Aug. 5 (Bloomberg) -- The Australian Securities Exchange, owned by ASX Ltd., plans to introduce futures contracts for renewable energy credits, natural gas and coal in advance of starting carbon futures trading in the third quarter of 2009.

The contracts will complement the exchange's existing electricity futures market and will enable energy and financial companies to better manage their exposure to fluctuating prices and carbon costs, Anthony Collins, general manager emerging markets at Sydney-based ASX, said today.

The Australian government last month outlined plans for an emissions-trading system, to start July 1, 2010, to help tackle greenhouse gas emissions blamed for global warming. Legislation for the system will be introduced in the third quarter of 2009, allowing ASX to start up a carbon futures market.

``We know that all these energy and environmental product markets are interrelated and there are clearly synergies for a market user to be trading them all through a market and the one clearing house to offset their positions,'' Collins said in an interview. ``Once you've got emissions trading you'll see people switching from coal to gas, so people will want to manage their relative exposures between coal, gas and emissions.''

The exchange expects to start offering futures contracts in renewable energy certificates within the next four or five months, Collins said. Futures contracts for natural gas in Victoria state, for electricity in New Zealand and for power- station coal exports out of Newcastle will all be started by March or April next year, he said.

`Largest Market'

Trading in the Newcastle coal futures contracts could rival trading in West Texas Intermediate, the U.S. benchmark oil variety, on the New York Mercantile Exchange within a decade, Collins said. Japanese power utilities, trading houses and some investment banks are particularly interested in the Newcastle coal futures, which will be monthly contracts based on Japanese coal import specifications, he said.

``Within five to 10 years coal Asia-Pacific prices on Newcastle could be of WTI proportions, it could be one of the largest energy markets in the world,'' Collins said. Newcastle, in New South Wales state, is the world's biggest coal-export harbor.

The futures contracts for renewable energy certificates will encourage more financial companies and funds into that market, which is currently dominated by the renewable energy generators and the electricity retailers that have obligations under the government's regulations, Collins said. They will be annual contracts, expiring in January, he said.

Winter Supply

The natural gas futures contract will be quarterly and settled against 6 a.m. prices provided by the Victorian Energy Networks Corp. and averaged over the three months, Collins said. The New Zealand electricity contract will help companies manage risks in the market given shortages of winter supply and the need to invest in new renewable energy projects, he said.

The carbon futures contract will provide a standardized emissions allowance contract and provide a boost to emissions trading in advance of the start-up of the national system, Collins said. Initial over-the-counter trading of Australian carbon pollution permits started in May, with an initial trade at A$19 per metric ton of carbon dioxide between AGL Energy Ltd., the nation's biggest electricity and gas retailer, and Westpac Banking Corp.

``We've seen a few trades go through, but nobody's going to write the big checks until you know for sure what the scheme looks like, its design, the trajectories'' for emissions reductions, Collins said. ``We're ready to list a futures contract on the carbon pollution permits at the earliest opportunity, which won't be until there's legislative certainty.''

To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net