Table Of ContentMOOMBA TO ADELAIDE NATURAL GAS PIPELINE
(Moomba to Adelaide Pipeline System)
APPLICATION UNDER SECTIONS 1.24 AND 1.25 OF THE
NATIONAL THIRD PARTY ACCESS CODE FOR NATURAL
GAS PIPELINE SYSTEMS
FOR REVOCATION OF COVERAGE
March 2005
Epic Energy South Australia Pty Ltd
ACN 068 599 815
Level 8, 60 Collins Street
Melbourne Victoria 3000
CONTACT: Stephen Livens
TELEPHONE: (03) 8626 8414
MAPS APPLICATION FOR REVOCATION OF COVERAGE
FORMAL APPLICATION SUBMISSION
Table of Contents
1. FORMAL APPLICATION DETAILS.....................................................................................................2
2. BACKGROUND INFORMATION..........................................................................................................6
PIPELINE AND CONTRACTED CAPACITY – THE POSITION NOW AND IN THE FUTURE..........................................6
HISTORICAL DEVELOPMENT OF MAPS..............................................................................................................7
OWNERSHIP AND OPERATION OF MAPS...........................................................................................................9
3. MAJOR COMMERCIAL ISSUES........................................................................................................10
GAS SUPPLY ..............................................................................................................................................10
GAS DEMAND ..............................................................................................................................................10
GAS TRANSMISSION INFRASTRUCTURE...........................................................................................................11
SUPPLY AND DEMAND BALANCE......................................................................................................................12
ELECTRICITY MARKET IMPACTS ON GAS DEMAND...........................................................................................12
4. DEVELOPMENT AND INTRODUCTION OF THIRD PARTY ACCESS RIGHTS ON THE
MAPS......................................................................................................................................................14
OVERVIEW ..............................................................................................................................................14
COMMITMENT TO INDUSTRY CODE OF CONDUCT............................................................................................15
5. GROUNDS FOR REVOCATION – CRITERION (B)........................................................................18
DEFINITION OF SERVICES.................................................................................................................................18
RECENT MOVES TO BROADEN THE DEFINITION OF SERVICES..........................................................................19
RECOMMENDED APPLICATION OF REVISED DEFINITION...................................................................................22
MAPS LATERAL PIPELINES..............................................................................................................................24
CONCLUSIONS ON UNECONOMIC TO DUPLICATE..............................................................................................26
6. GROUNDS FOR REVOCATION - CRITERION (A).........................................................................28
APPROACH TO ASSESSING CRITERION (A).......................................................................................................28
MARKET DEFINITION - UPSTREAM MARKET(S)................................................................................................30
MARKET DEFINITION - DOWNSTREAM MARKET(S)...........................................................................................31
MARKET DEFINITION CONCLUSIONS................................................................................................................36
PROMOTION OF COMPETITION – APPROACH TO ASSESSING...........................................................................37
PROMOTION OF COMPETITION - THE UPSTREAM MARKET...............................................................................39
PROMOTION OF COMPETITION - THE DOWNSTREAM GAS SALES MARKET ALONG THE MAPS AND THE PORT
PIRIE/WHYALLA LATERAL.....................................................................................................40
PROMOTION OF COMPETITION - DOWNSTREAM GAS SALES MARKET IN SOUTH EAST AUSTRALIA.................42
PROMOTION OF COMPETITION - DOWNSTREAM ELECTRICITY SALES MARKET...............................................44
7. GROUNDS FOR REVOCATION - CRITERION (C).........................................................................46
8. GROUNDS FOR REVOCATION - CRITERION (D).........................................................................47
10. GLOSSARY............................................................................................................................................50
CONFIDENTIAL MAPS....................................................................................................................................53
ENERGY MARKET ANALYSIS......................................................................................................................55
APPLICATION OF THE HYPOTHETICAL NEW ENTRANT TEST..........................................................77
WORKABLE COMPETITION IN THE DUOPOLY AIRLINE MARKET....................................................84
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MAPS APPLICATION FOR REVOCATION OF COVERAGE
FORMAL APPLICATION SUBMISSION
1. Formal Application Details
1.1 Applicant’s name and contact details
Applicant’s name:
Epic Energy South Australia Pty Ltd (“Epic Energy”)
(ACN 068 599 815)
Contact details for Epic Energy:
Manager, Regulation Risk & Insurance
Epic Energy
Level 8, 60 Collins Street, Melbourne
Victoria 3000
Phone: (03) 8626 8414
Fax: (03) 8626 8454
1.2 Applicant’s address for the delivery of documents
Documents should be sent by mail and (where possible) e-mail to the following
addresses:
Mailing address:
Epic Energy
Level 8, 60 Collins Street, Melbourne
Victoria 3000
Email: [email protected]
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1.3 Description of the Covered Pipeline
The Covered Pipeline comprises the following parts of the Moomba to Adelaide
Pipeline System (the “MAPS”):
(a) the Covered Pipeline as described in Schedule A of the Code (reproduced
below) as follows:
Pipeline Location/Route Operator Length (km) Pipe Regulator
Licence diameter
(mm)
SA:PL1 Moomba to Adelaide Epic ACCC
Pipeline System Energy Pty
Ltd *
Moomba to Adelaide 781 559
Pipeline
Angaston Lateral 38.7 219
Taperoo Lateral 1.2 323
Dry Creek Lateral 1.3 323
Peterborough Lateral 1.9 89
Nurioopta Lateral 1.6 114
Burra Lateral 15 89
Port Pirie Lateral 77.8 168
Mintaro Lateral 0.3 219
Wasleys to Torrens 42 508
Island Loop
Whyalla Lateral 87.7 219
Port Bonython Lateral 5.5 114
Tarac 0.4 89
Port Douglas Lateral 11.5 114
Osborne Lateral 1.3 273
*Epic Energy Pty Ltd has never been the operator of the MAPS – the correct operator
was, and remains, Epic Energy Corporate Shared Services Pty Ltd (“EECSS”).
(b) the following enhancements to the pipeline system that have been carried out
since 11 November 1997:
− the upgrading of all of the Solar Centaur compressor units in 1998 to
Solar Taurus units; and
− the upgrading of the Alison compressor units in 1998 at CS2 (one unit)
and CS4 (both units).
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For the avoidance of doubt, the Covered Pipeline does not include the following
parts of the MAPS (“uncovered pipeline”)
• the New Facilities or expansion in capacity of the pipeline effected pursuant
to the Pelican Point Power Extension/Expansion which in 1999, 2000 and
2001 involved:
− the upgrade of the remaining Allison compressor units (at CS1, CS3,
CS5 and CS6);
− 34 kilometres of looping of the MAPS mainline at various locations
between CS1 and CS5;
− the construction of a 1.7km lateral from the mainline to the location of
the power station known as the Pelican Point Power Station together
with a meter station at the downstream end of the lateral; and
− the installation of an additional compressor unit at Wasleys to provide
additional pressure service to the mainline loop of the MAPS;
• the 10.2km x 4” Amcor lateral and meter station;
• the 0.12km x 6” Quarantine Power Station lateral and meter station; and
• the 0.72km x 8” Hallet Power Station lateral and meter station.
A confidential map showing the physical location of the MAPS is contained in
Attachment A. For security reasons, a copy of this map will only be made
available to bona fide access seekers, the NCC, its staff and the Minister.
1.4 Name of the Covered Pipeline operator and owner
The MAPS is owned by Epic Energy.
The MAPS is operated by EECSS under a services agreement with Epic Energy.
Epic Energy is the Service Provider under the Code.
1.5 Whether the applicant is seeking revocation of coverage of all or part of the
covered pipeline
Epic Energy is seeking revocation of coverage of the entire Covered Pipeline,
and any further extensions or expansions as might be described under sections
1.40 and 1.41 of the Code.
1.6 Reason for seeking revocation of coverage of the pipeline
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Epic Energy is seeking revocation of coverage because it submits that the NCC
and the Minister can not be satisfied of all of the matters set out in paragraphs
(a), (b) and (d) of section 1.9 of the Code.
A detailed substantiation is set out in the following sections of this application.
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2. Background information
2.1 This section of the submission briefly outlines Epic Energy’s reasons for making
the revocation application for the Covered Pipeline and provides supporting
background material.
2.2 The following background information is intended to provide a relevant context
for the consideration of each of the coverage criteria, which are individually
addressed in later sections of this submission.
Pipeline and contracted capacity – the position now and in the future
2.3 The MAPS was originally constructed in 1969 by the South Australian
Government and was operated by the Pipelines Authority of South Australia
(PASA) until 1995. Since then, its capacity has been enhanced in various stages
so that the maximum capacity of the MAPS is now 418 TJ/day. The maximum
capacity of the Covered Pipeline is, however, only 393 TJ/day.
2.4 Allowing for operational factors such as the impact of summer temperatures, the
firm capacity of the Covered Pipeline as configured in December 2004 is
323TJ/day and of the system including the uncovered portion is 348TJ/day.
2.5 More details as to how and when the capacity of the MAPS was expanded over
time are set out in paragraph 2.15 of this application.
2.6 These expansions were carried out in order to meet the required demand of
shippers1 which resulted in long term transportation contracts being signed by
shippers.
2.7 Until the commissioning of the SEA Gas pipeline linking Victoria and South
Australia in January 2004, the MAPS was the only transmission pipeline
transporting gas to the South Australian market. At that time the MAPS firm
capacity was fully contracted. However, the entry of the SEA Gas pipeline has
effectively doubled the gas transportation capacity into South Australia and the
share of gas transportation contracts held by the MAPS is forecast to decline
dramatically upon expiration of current contracts. Throughput on the MAPS has
already declined since commissioning of the SEA Gas pipeline.
2.8 The majority of these transportation contracts that supported the expansion of
the MAPS to its current capacity however, come to an end in 2005. At that time,
the Service Provider will have significant spare capacity on the MAPS.
2.9 While Epic Energy believes that it will be able to secure transportation contracts
for the period following 2005, Epic Energy’s own forecasts and that of
1 The most recent expansion of the pipeline system (known as the “Pelican Point Power Expansion” see paragraph 1.3)
carried out in 2000 and 2001, was done to meet the contractual obligations owed to one shipper. However, this is not
part of the Covered Pipeline.
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independent experts conclude that there will be a significant period following
2005 when the MAPS capacity will be significantly under utilised.
2.10 In Hastings’ Product Disclosure Statement for the Hastings Diversified Utilities
Fund, Hastings forecast that MAPS contracted volumes would decline from 418
TJ/d in 2005 to 194 TJ/d in 2006.2
2.11 There are a number of reasons for this. These will be outlined in more detail later
in this application. However, in summary they include:
(i) the commissioning of a second transmission pipeline (the SEA Gas
pipeline) into the main end-market served by the MAPS;
(ii) competing demand from various downstream markets for the remaining
Cooper Basin gas reserves;
(iii) increased competition from alternative energy sources such as electricity
interconnectors; and
(iv) the statutory regime that applied to the pipeline until 2003 and the impact
that this regime and its application had on the Service Provider’s ability to
clear a “bottleneck” in the allocation of capacity for the period following
2005. This bottleneck was created by shippers.
2.12 Epic Energy is therefore incentivised to offer innovative, market based price and
service offerings to customers in order to establish contracts to replace the
expected reduction in contracted capacity and throughput following 2005.
2.13 Accordingly, based on the submissions outlined in this and subsequent sections
of the application, Epic Energy submits that the NCC and the Minister could not
be satisfied of one or more of the matters set out in paragraphs (a), (b) and (d) of
Section 1.9 of the Code and, therefore, the NCC must recommend, and the
Minister must decide, that coverage of the Covered Pipeline be revoked to the
extent described in this application.
Historical development of MAPS
2.14 Initially, it is important to understand how the development of the capacity of the
MAPS has evolved over time.
2.15 A chronology of the development of the MAPS is set out in the table below:
2 Hastings Diversified Utilities Fund Product Disclosure Statement p4
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Date Description
1969 • the MAP was constructed and commissioned as a free flowing pipeline
from Moomba to Torrens Island
1977 • installation of Solar Centaur Compressors at CS1, 2, 3, 5 and 6
1979 • installation of Alison gas turbines at CS1, 2, 3, 4(2 off), CS5 and CS6
• installation of two Solar Centaur machines at CS7
1986 • construction of a 42km (20”) loop line between Wasleys and Torrens
Island
1990 • installation of a compressor unit at Whyte Yarcowie
1996 • construction of the 1.2km x 10” Osborne lateral and meter station (note
the last 0.2km has 8” diameter)
1998 • replacement of all of the original Solar Centaur units at CS1, CS2, CS3,
CS5 and CS6 to Solar Taurus units
• the upgrading of the power of the Alison engines at CS2, and both units
at CS4
1999 • construction of the 1.7km x 14” Pelican Point lateral and meter station
2000 • Upgrading the power of the Alisons units at CS1, CS3, CS5 and CS6
• construction of 34 kilometres of 24” loop in four sections downstream of
CS1, CS2, CS3 and CS4
• Installation of a reciprocating compressor unit at Wasleys to provide
additional pressure service to the loop.
2001 • construction of 10.2km x 4” Amcor lateral and meter station
• construction of 0.12km x 6” Quarantine Power Station lateral and meter
station
• construction of 0.72km x 8” Hallet Power Station lateral and meter
station
• upgrading of the power of one Solar Centaur unit at CS7
2.16 In 1977, the original free flowing MAPS from Moomba to Torrens Island Power
Station was compressed with the installation of Solar Centaur Compressors at
CS1, 2, 3, 5 and 6.
2.17 In 1979, the MAPS underwent a second enhancement with the installation of
Alison gas turbines at CS1, 2, 3, 4 (2 of), CS5 and CS6. In addition, CS7 was
also developed with the installation of 2 Solar Centaur machines.
2.18 The MAPS remained in this configuration until 1986 when a loop was constructed
between Wasleys and Torrens Island. The purpose of the loop was two-fold, one
to provide an alternative supply of gas from broad rural to metropolitan Adelaide
as the original pipeline section was de-rated to 60% and, secondly, to provide
higher pressure supply to the industrial areas and power generators being
constructed in Adelaide.
2.19 In 1998, with additional loads required on the MAPS, a third enhancement was
undertaken with the upgrading of all the original Solar Centaur machines to Solar
Taurus machines together with the upgrading of some of the Alison engines.
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2.20 In 2000, a further capacity enhancement was carried out with the upgrade of the
remaining Alison engines and looping of 34 kilometres of the MAPS between
CS1 and CS4. In addition a compressor was installed at Wasleys to provide
additional pressure service to the loop.
2.21 The MAPS, as currently configured, is a 1,185 km system of pipelines3 providing
a link within the integrated South East Australian energy market, including
servicing Moomba, Adelaide and regional centres throughout South Australia.
2.22 The MAPS is comprised of a 781 kilometre trunk line between Moomba and
Adelaide with a diameter of between 559 mm and 600 mm, two main lateral
pipelines (the Whyalla and Port Pirie lateral and the Angaston lateral) and a
series of customer specific laterals.
2.23 The maximum capacity of the covered elements of the MAPS (with compression
but excluding the Pelican Point Power Station uncovered expansion discussed in
paragraph 1.3) is 393TJ/day. Inclusion of the Pelican Point Power Station
expansion increases maximum capacity of the system to approximately 418
TJ/day. Allowing for operational factors such as the impact of summer
temperatures, the firm capacity of the Covered Pipeline as configured in
December 2004 is 323TJ/day and of the system including the uncovered portion
is 348TJ/day.
Ownership and Operation of MAPS
2.24 In August 1994, US company Tenneco Gas, a subsidiary of Tenneco Inc,
established Tenneco Gas Australia to invest in opportunities within the Australian
gas industry. In July 1995, Tenneco Gas Australia acquired the operations and
assets of PASA. In November 1995, the company changed its name to Tenneco
Energy Australia after Tenneco Gas in the US changed its name to Tenneco
Energy. In March 1996, Tenneco Inc announced its plan to sell off Tenneco
Energy. The sale took place in December 1996 with US company El Paso
Energy acquiring Tenneco Energy.
2.25 Epic Energy was created when El Paso Energy retained 30 percent of Tenneco
Energy's Australian operations with the remaining 70 percent acquired by CNG
International (30%); Allgas Energy (10%); AMP Investments (10%); Axiom Funds
Management (10%) and Hastings Funds Management Limited (“Hastings”)
(10%).
2.26 In June 2004 Hastings, through its subsidiary, HUT 3 Pty Ltd (now Epic Energy
Holdings Pty Ltd), acquired ownership of Epic Energy and its assets excluding
the Dampier to Bunbury Natural Gas Pipeline but including the MAPS and
various other pipelines.
2.27 The assets owned by Epic Energy Holdings Pty Ltd (including the MAPS), were
rolled into a fund called the Hastings Diversified Utilities Fund, and in December
2004 this Fund was listed on the ASX after a successful IPO.
3 Hastings Diversified Utilities Fund (HDUF), Product Disclosure Statement 2004, page 6.
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Description:parts of the MAPS (“uncovered pipeline”). • the New Facilities or expansion in capacity of the pipeline effected pursuant to the Pelican Point Power
