Distribution, Gas, Markets, Technology

Networking natural gas

Australia’s natural gas distribution system supplies gas to 3.9 million customers, in an energy market that has 9.7 million electricity customers. Of this 9.7 million, 89 per cent are residential connections, accounting for around 30 per cent of total electricity consumption.

The national gas market is largely separated geographically by states, with each state sourcing its gas from different production areas.

Gas supplies in the producing basins such as the Carnarvon Basin in Western Australia, the Gippsland Basin off the coast of Victoria and the Cooper-Eromanga Basin located on the South Australian and Queensland border, are linked to markets via more than 20,000 kilometres of high pressure gas transmission pipelines and 76,000 km of gas distribution pipelines.

In recent years, changes to the providing basins have seen significant change to the gas supply system. The period to 2020 will see declining gas reserves in the Cooper Basin and existing Victorian resources as new fields are developed. Meanwhile, coal seam gas (CSG) in Queensland will ramp up with gas also available from the Timor Sea.

In addition, the distribution sector has experienced consolidation of ownership and transport infrastructure, as well as retail contestability. These shifts in the gas supply chain have also seen changes to the sector’s legislative framework.

So what is the current state of Australia’s natural gas distribution systems? Moreover, what are the challenges facing the sector in the near future?


Natural gas was first found by accident in Roma, Queensland in 1900, while men were drilling for underground water.

In 1961, natural gas was connected to the old Roma Power Station, marking the country’s entry into commercial natural gas projects. Following the completion of the Roma to Brisbane natural gas pipeline in 1969, the first natural gas in Australia was reticulated.

With a consumption of approximately 11 per cent of the national total, Queensland has a small but developing gas market. Consumption is dominated by the industrial sector where usage has more than doubled over the past ten years.

Australian Energy Regulator (AER) Chairman Steve Edwell says “Coal seam gas has emerged as a significant new source of gas and is increasing competition in the production sector. It already meets more than 60 per cent of Queensland’s total gas demand and is growing rapidly.”?

Growth in CSG and the state government’s mandatory gas-fired generation policy has seen a significant increase in gas-fired power generation.

The Queensland Government recently privatised the state’s gas distribution networks, selling the networks to APA Group, Origin Energy and AGL Energy. APA has since acquired Origin’s distribution networks.


Natural gas was introduced into Victoria in 1969, with more than one million appliances converted from town gas to natural gas.

Approximately 90 per cent of Victoria’s gas comes from the Esso/BHP production areas in the Gippsland Basin. The remainder comes from gas reserves in the Otway Basin, in western Victoria.

Operator of the Bass Strait gas fields, ExxonMobil says that a great amount of gas remains available in its fields with current reserves at 7 trillion cubic feet (Tcf) of gas.

South Australia

South Australia was the third state to reticulate natural gas in 1969. The reticulation led to a rapid expansion of gas sales, particularly to commercial customers, who were seeking cheaper and more efficient alternatives to oil.

Natural gas is distributed to 386,450 South Australian customers by Envestra through 7,709 km of mains.

The majority of natural gas produced in the state comes from the South Australian and Queensland sections of the Cooper Basin. The remainder of South Australia’s gas supply comes from the Victorian offshore Otway and Bass Strait basins.

Gas from the Cooper Basin is produced by a joint venture of which Santos, ExxonMobil and Origin are the major partners. Santos is the operator of the joint venture and the associated gas processing plant at Moomba.

Natural gas is used in many applications in South Australia, with 53 per cent being utilised for electricity generation in power stations and cogeneration plants.

New South Wales

Natural gas arrived in Sydney at the end of 1976 following the completion of construction on the Moomba to Sydney Pipeline, which transports gas from the Cooper-Eromanga Basin. In 2002, the Eastern Gas Pipeline began transporting gas from Victoria’s Gippsland Basin gas fields.

There are 24,210 km of reticulation mains serving 901,000 customers in the state’s major urban areas, and its large and small regional centres. Industrial and commercial customers account for 78.2 per cent of total gas sales in the state.

Australian Capital Territory

Approximately 97 per cent of the ACT’s population has access to natural gas, of which 3 per cent are industrial or commercial customers with the remaining 97 per cent being households.

The ACT natural gas distribution network was rolled out from the early 1980s as a brown field project and has continued over a period of some 20 years. Subsequent to the rollout project, infill projects and green field sites have been serviced in response to population growth.

ActewAGL Distribution, which owns and operates the gas network, says that a continuance of network expansion is expected in the future in response to the ACT population growth together with a continuing response to changes in appliance types, and in particular, new high-efficiency and high-peak appliances.

Northern Territory

Natural gas represents approximately half of one per cent of total electricity consumption in the Northern Territory. Of the reticulated gas sold in the Territory, approximately 50 per cent is supplied for commercial or industrial use, with the balance used by households.

All main Territory centre populations can access gas for domestic or industrial use. However, the demand, particularly for domestic use, is minimal. The Northern Territory Power Water Corporation says that this is essentially because there is no need for household heating in the state. Future domestic gas take-up is expected to remain relatively low.

Alice Springs is the centre with the greatest take-up of gas for domestic use in the Territory. However natural gas used for this market represents less than half of one per cent of the territory’s total gas consumption.

While gas-fired electricity demand has grown over the last 25 years due to the rapid increase in the cost of liquid fuels, the distribution network’s growth has been slow. Total demand is currently approximately 100 terajoules per annum.

Power Water expects that as more gas becomes available from the Blacktip Gas Field, located offshore Northern Territory in the Timor Sea, substantially more gas could be placed on the market, with future industrial applications likely to drive distribution network expansions, particularly in and around Darwin.

NT Gas Distribution reticulates gas in Darwin’s industrial area and says that it is currently looking to expand its reticulation system to other areas.


Tasmania was the last state to connect to Australia’s natural gas system, following the completion in 2002 of the Tasmanian Gas Pipeline, which traverses the Bass Strait.

The construction of Tasmania’s natural gas network was divided into two major stages. The first stage of the project, involved laying 100 km of gas pipe between the urban areas of Hobart, Launceston, Longford, Westbury, Bell Bay, Wynyard and Devonport. The second stage, which was completed in April 2007, involved laying a further 612 km of gas reticulation within Hobart, Launceston, Burnie and Devonport.

Powerco delivers natural gas to 38,500 Tasmanian homes and businesses.

Western Australia

Western Australia’s natural gas distribution system differs from other states. Because natural gas is not classed as an essential service in the state, gas reticulation is provided only in areas where it is economic to provide the service.

The state is traversed by the approximately 1,500 km Dampier to Bunbury Natural Gas Pipeline, which brings gas from the North West Shelf gas fields to the southwest regions of the state.

According to the Economic Regulation Authority (ERA) of Western Australia, in the three years to 30 June 2006, the number of connected properties grew by 5.8 per cent to 562,270 connected customers, of which 553,921 were residential.

Between 2004/05 and 2006/07, installed gas mains grew by 4.3 per cent to 13,157 km.

Alinta, through its subsidiaries AlintaGas Networks and Alinta Sales, is the dominant distributor in the Western Australian gas market with its business accounting for over 99 per cent of all residential gas connections as well as all gas sold to small use customers.

The Western Australian manufacturing sector consumes up to 40 per cent of the state’s annual gas supplies, and natural gas supplies approximately 60 per cent of this sector’s overall needs.

The next most prominent use of natural gas in the state is for electricity generation; accounting for approximately 30 per cent of the state’s total gas consumption.

While small in terms of overall demand, natural gas usage by Western Australian residences – around 3 per cent of the state’s annual gas supplies – has increased markedly in the past 20 years, with an average growth of 6.5 per cent per annum.

The Western Australian Office of Energy says that this figure reflects not only the growth in the wider population, but also the low cost of natural gas as an energy source.

The Western Australian domestic market is currently experiencing a tight gas supply situation as a result of increased international demand for liquefied natural gas (LNG).

Legislative changes

This year has seen a number of developments in regard to the organisation and policy affecting the energy sector, causing much speculation about how the natural gas distribution will be influenced.

The sector has undergone legislative reform that aims to shift the gas market from a state-based system to a national framework, through the development of a National Electricity Market (NEM). The market, which incorporates Queensland, NSW, the ACT, Victoria, South Australia and Tasmania, means that power can be supplied across state borders to meet customer demand in other jurisdictions.

In addition, a Short Term Trading Market (STTM) has been proposed to commence in the winter of 2010. The STTM is expected to facilitate daily trading by establishing mandatory price-based balancing mechanisms at defined gas hubs. This is intended to provide investment signals and promote efficient management and use of system resources.

The National Gas Law (NGL) was launched by the Australian Government in July. The NGL is consistent where possible with the National Electricity Law and allows for an enhanced transparency regarding gas availability and price; an integrated market operator function; and, an interconnected gas grid.

Under the NGL, the AER has taken over responsibility for transmission and distribution pipelines from the Australian Competition and Consumer Commission (ACCC) and state regulators respectively to achieve a consistent national approach to regulation, except in Western Australia.

A National Energy Market Operator is also expected to be introduced by June 2009, which will consolidate market operators into a single entity, becoming operator of the wholesale electricity and gas markets and responsible for national transmission planning.

A changing climate

The Australian Government has released its White Paper outlining the Carbon Pollution Reduction Scheme (CPRS).

At the heart of the CPRS is the Emissions Trading Scheme (ETS), which will set a limit on how much carbon pollution industry can produce. The Government plans to sell permits up to that limit, creating an incentive to look for cleaner energy options.

Energy Networks Australia (ENA) says that while the energy transmission and distribution networks have a lower direct role than other energy industry participants in carbon emission abatement, efficient and effective energy networks are “˜vital’ for the facilitation of a lower emissions economy.

“As the CPRS ramps up over time to meet emission targets, a robust energy transmission and distribution network will be necessary to accommodate the change in the mix and location of energy sources that feed the NEM and the resulting changes in the expected flows on these networks,”? ENA Chief Executive Andrew Blyth says.

The White Paper states that the National Greenhouse and Energy Reporting System will be the initial framework for monitoring, reporting and assurance of carbon emissions. Under this system, technical guidelines have been drawn up regarding the estimation of gas leakage from distribution pipelines.

Distributors will be able to choose between two default methodologies: the American Petroleum Institute Compendium of Emission Estimation Methodology or the DCC proposed 055 coefficient multiplied by the “˜unaccounted for gas’ option.

However, the White Paper states “Further investigation on the extent and reliability of gas composition analysis across Australia as it pertains to pipelines before higher order methodologies can be imposed.”?

ENA says that, where a company has superior information relating to its own gas transport infrastructure, it should have the option of using this as the basis of its gas leakage reporting.

Currently, the Australian Energy Market Commission is undertaking a review to test whether energy market frameworks should be amended to accommodate the CPRS and expanded RET efficiently into the existing gas markets.

The future for gas

The legislative framework and proposed climate change initiatives will provide an interesting and exciting configuration in which Australia’s natural gas distribution system can develop further.

Gas distribution companies will have to navigate their way through an increasingly carbon constrained world.

Envestra and SP AusNet cannot see the expansion of their networks slowing down in the near future. Envestra says that its networks in Victoria and South Australia are underpinned by the fastest growing housing corridors in Australia.

During the 2007/08 financial year, Envestra laid 333 km of new mains, including 19 km of transmission pressure mains to enhance the capacity of its networks.

An SP AusNet spokesperson says “SP AusNet is always interested in exploring opportunities to expand its natural gas network, either in the form of reticulation to new regional towns, new estates and subdivisions or through mains extensions.”?

Energy Supply Association of Australia Chief Executive Brad Page says that while the Federal Government establishes ETS targets, the whole of the gas supply chain in different states will have to ensure that they work together efficiently.

He says that it must be ensured that economic regulators do not take a narrow view in regards to the industry’s development. Mr Page says that a narrow view will constrain the development of the gas industry by blocking the investment needed for all elements in the gas supply chain at a time where Australia could be seeing more gas-fired power.

The recent and proposed legislative reforms such as the NGL, NEM and the new role of the AER will seek to aid the practical application of an efficient regulatory system to overcome the challenges and ensure its growth.

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