The Audit has addressed gas transmission pipelines and distribution networks. Gas is an important fuel in both domestic and industrial applications. It makes up around 21 per cent of Australia's energy supply. Total gas production in 2011-12 was around 48.2 billion cubic metres.227
Gas consumption accounted for around 23 per cent of total primary energy consumption in Australia in 2012-13.228 The manufacturing sector was Australia's largest consumer of gas, followed by the electricity generation, mining, residential and commercial sectors.229
The domestic gas market can be divided into three customer segments:
■ gas-powered electricity generation;
■ the mass market, which includes residential and business customers; and
■ large industrial customers.
Like electricity, there are three distinct and separate geographic gas markets in operation230 in Australia:
■ the Eastern gas region (covering NSW, Victoria, Queensland, SA, Tasmania and the ACT);
■ the Western gas region (WA); and
■ the Northern gas region (NT).
Gas supply and demand are brought into balance by prices set on a commercial basis.
The Eastern gas market is undergoing profound change with the start of LNG exports. There are concerns that exposure to international prices may result in gas shortfalls in some regions and states, and/or rapid price adjustments in the near to medium-term.231
The Audit estimated the existing capacity, utilisation and DEC of gas services infrastructure in 2011 and found that:
■ total capacity of Australian natural gas transmission pipelines was 1,918 petajoules (PJ) per year;
■ total capacity in gas distribution networks was 344 PJ. This is lower than the total throughput of gas transmission pipelines because it represents gas supplied to residential, commercial and small industrial customers;
■ total throughput of Australian natural gas transmission pipelines was 1,334 PJ;
■ total DEC of gas transmission services was $1.1 billion; and
■ the DEC of gas distribution services was $1.2 billion .
The contract structure in the gas market is an important determinant of pipeline investment.
High pressure gas pipelines typically connect gas production with a demand centre, such as a gas distribution system in a city, large industrial users, gas fired power generation or other gas pipelines. Pipelines are capital intensive (costing up to $5 billion to construct), require ongoing maintenance and have long asset lives of over 40 years. All major recent investments were underpinned by bilateral long-term take-or-pay transportation contracts between pipeline owners/operators and gas shippers (the customers buying the gas). These contracts provide certainty for pipeline owners to commit to significant upfront investment.
All pipelines built recently have been constructed by the private sector. They have been developed rapidly to connect supply of gas to areas of demand. Two factors impact on the efficient development of these pipelines.
First, there is currently no incentive for pipeline owners to factor in uncontracted capacity when considering construction of a new pipeline. This can, and has, resulted in inefficiencies where completed pipelines are subsequently expanded through compression or looping (adding another pipeline in the same easement) to meet additional demand.
Second, the certainty of the financial returns from the long-term contracts, and the ability to recontract a pipeline, is critical to securing approval for any significant upfront investment. The majority of existing Australian gas pipelines were constructed, and operate, under a long-term contract carriage system - where a bilateral contract exist between owners and shippers covering daily gas quantity, term and pricing. A pipeline may have multiple overlapping contracts at any one point. Other regulatory models exist, such as where shippers enter into a contract to move their gas on a daily basis if capacity is available. Some in the industry are concerned that wider application of this model could undermine the willingness of the private sector to build new pipelines.
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227. Central Intelligence Agency (2014)
228. Department of Industry and Science (2014a)
229. Energy Supplier Association of Australia (2014)
230. Australian Energy Market Commission (2015)
231. Department of Industry and Science (2014c), p. 39