The sale of the DBNGP in October 2004 to a consortium of Diversified Utility and Energy Trust (DUET), Alinta and Alcoa represented a major turning point in the development of Australia’s largest pipeline asset. Prior to the sale of the DBNGP, the business had been placed in receivership by the banks which had financed the purchase of the pipeline by Epic Energy in 1998 and West Australian gas consumers were unable to secure transmission capacity for growth requirements. Expansion of the pipeline was long overdue and a commitment to spend at least $400 million within five years was made to the West Australian Government in return for the conversion of an $88 million stamp duty obligation into a conditional loan arrangement. Dampier Bunbury Pipeline (DBP) is the trading name for the group of companies which now own the pipeline and is responsible for the operation and expansion of the DBNGP (see box page 25.) As part of the new ownership arrangements a new executive team was formed to manage the business and the expansion program.

Expanding the pipeline

Once the sale of the DBNGP was finalised the new owners immediately took on the massive task of coordinating the expansion of the pipeline. An expansion plan was set into place which would see the task carried out in progressive stages, with the first of these, Stage 4A, targeting a completion date of 1 April 2006. Subsequent negotiations with Western Power saw this completion date advanced to 1 January 2006 – an extremely challenging target for DBP and the expansion Project Manager, Alinta Asset Management - to meet the peak demands of the 2006 summer season.

The recently completed Stage 4A involved the installation of two new compressors at existing Compressor Stations 3 and 9. CS 3 and 9 were the most critical points along the pipeline prior to the Stage 4A works. DBP and its contractors were able to meet the new deadline of January 1 2006 for CS3, with CS9 following shortly afterwards.

In total seven new 10 MW compressors, and one 7 MW compressor will be installed at existing compressor stations along the pipeline as part of the overall Stage 4 expansion. Stage 4 will also involve the construction of 217 km of pipeline loops which will relieve existing bottlenecks at high pressure points along the pipeline. In each of the ten looped sections, the looping will begin at a compressor station and extend for distances varying from a few kilometres to 50 km.

The first stage of the expansion focused on compression as this was the quickest and most cost effective way to bring immediate capacity benefits to the operation of the pipeline and to provide a more steady and reliable supply of gas through the pipeline.

Challenging timeframe

According to Mr Hohnen, the big challenge for this project was time. “The new owners took over the asset in October 2004 and were faced immediately with a major expansion,” he said. “This required an enormous amount of effort during the transitional period of the sale of the pipeline and the achievement of financial close. It was a real achievement to have the expansion plans completed and approved by the DBP Board in May 2005.

“Work commenced soon after acquisition and early commitments were made for purchase of compressors and pipework, so ultimately it was a progressive decision making process…we had to hit the ground running.

“One of the big challenges with the expansion project is that we are still operating a pipeline that is being pushed to its limits. The DBNGP has never worked harder than it is at the moment, with all shippers pushing their entitlements to the limit as a result of the capacity shortage.

“This has been complicated by a reduction in the quality of the gas due to a significant reduction in LPG levels. A lowering of gas quality means that more gas has to go through the pipeline to deliver the same amount of energy. The capacity of the pipeline to deliver energy has therefore dropped while demand has increased.”

Expansion works relating to both compression and looping inevitably impact on the operation of the DBNGP. Scheduling of compressor tie-in and commissioning work, as well as hot taps for each of the loops is therefore done with some difficulty. While contractually DBP has the right to curtail for major works, the overriding aim is to reduce the impact of the commissioning process on shippers. Commissioning therefore tends to be scheduled on weekends, overnight and in other periods of lower demand. According to Mr Hohnen, “We put an enormous amount of effort into reducing the impact on our customers by working with them to coordinate, as much as possible, works at times manageable for both parties.”

With Stage 4A now completed and other compressor work well advanced, the looping component of the Stage 4 expansion has now commenced. Pipelaying is underway on the southern loop south of Kwinana Junction, representing a major milestone in the DBNGP expansion program. Work on the northern loops will be well advanced by the time of publication.

Latest expansion plans

In February, DBP announced that a further expansion program – Stage 5 – was under serious investigation in response to increased demand from existing and prospective customers. This would increase capacity by more than 300 TJ/d, from the capacity of 735 TJ/d at the completion of Stage 4. Mr Hohnen said that this massive increase in demand – which has come some ten years ahead of initial projections – can be attributed to the strong growth in the State’s economy, in particular the resources and power generation sectors.

He added that while this increase in demand is above what had initially been projected when the DBNGP was purchased, the pipeline owners have responded positively and are working towards meeting this significant new challenge over the expansion period from 2007 - 2009.

DBP is planning the construction of an additional 1,150 km of new pipeline loops and the installation of a further four 10 MW and one 7 MW compressors, at an estimated cost of approximately $1.5 billion. In total, Stages 4 and 5 will effectively duplicate approximately 90 per cent of the length of the DBNGP.

As with Stage 4, Stage 5 will be project managed by Alinta Asset Management.

Stage 5 will be progressively completed between late 2007 and early 2009. Mr Hohnen felt it unlikely that there would be any significant overlap between these works and the construction of the proposed PNG-Queensland Pipeline.

Once Stage 5 is approved DBP will move forward very rapidly through the various stages of the project. Mr Hohnen says DBP’s recent construction experience on Stage 4 would stand it in very good stead in progressing procurement and contracting arrangements for Stage 5.

“To date, we’ve progressed extraordinarily well. DBP and Alinta Asset Management have delivered the project on time and to budget. We’re confident we can continue this success through Stage 5,” Mr Hohnen said.

DBP has recently submitted an application seeking the Economic Regulation Authority’s (ERA) pre-approval of the capital costs of the Stage 5 expansion - an important step in securing a final commitment to the financing of the Stage 5 expansion. Mr Hohnen said that “DBP needs to secure all the necessary regulatory, finance and internal approvals before the expansion can proceed. These approvals will be required by the middle of 2006 to be able to expand the pipeline in time to meet the first requests for extra capacity in late 2007.”

DBP has begun the process of negotiating with shippers on amendments to the Standard Shipper Contracts (SSCs) which are also necessary to enable the Stage 5 expansion to proceed.

DBP is hoping to secure all necessary approvals in time for a final Board commitment to proceed with the Stage 5 expansion by the middle of this year. Work would then immediately begin on long lead time procurement.

The pipe and coating for the Stage 4 looping have been sourced offshore - through Metal One in Japan, and Bredero Shaw in Malaysia. Overseas purchase of pipe and coating will continue to be the case for Stage 5, with compressors and other specialty equipment also having to be sourced offshore. On the basis of current planning, all of the pipe in Stage 5 will be 26 inches – the same as Stage 4.

In terms of DBP’s obligation to meeting ongoing expansion requests, DBP has a general commitment to the West Australian Government and the Australian Competition and Consumer Commission (ACCC) to expand the pipeline to the value of $A400 million and at least 100 TJ/d additional capacity within five years of purchase. DBP is already delivering in excess of this through the Stage 4 expansion. If Stage 5 proceeds, DBP will ultimately deliver an expansion which far exceeds its obligations.

Stage 5 will be funded through a combination of equity and debt from DUET, Alinta and Alcoa, with each contributing proportionately to their stake in the DBNGP.

Managing the logistics

Logistics are a fundamental issue in an expansion project of the nature of Stage 4 or Stage 5. In particular, overseeing the construction of ten separate loops in a relatively tight timeframe is a challenging task which is ultimately achieved through effective management of the expansion project as a whole.

For the looping, the most effective method of project management and execution is for each section of looping to be conducted in sequence, with a core project team moving along the line, completing each section as they go.

The new compressors were also installed in sequence, although preparatory work is required to be undertaken at a number of sites at the same time.

Compression vs. looping

The choice of compression vs. looping in a given situation is ultimately dictated by complex engineering and financial models. At certain points in the expansion of a particular pipeline compression is the most cost-effective means for adding capacity, then looping becomes more effective up to a certain point, from which further compression of the looping takes over. There is also ultimately a trade off between capital costs and operating costs. Each option comes with its own advantages and disadvantages which must be taken into consideration.

For Stage 4, compression of the DBNGP was undertaken ahead of looping, given the faster delivery of extra capacity. On the other hand, with looping, the extra capacity is not created until all of the looping is completed – therefore in Stage 4, all ten loops amounting to 217 km need to be completed and ready for operation before the capacity of the DBNGP as a whole increases.

Mr Hohnen said “Stage 4 rounds out most of the compression opportunities for the pipeline and for this reason Stage 5 will be primarily looping, amounting to over 1,100 km of new pipeline. There will be a need for some more compression and compressor reconfiguration, but the bulk of the work will be looping, extending the length of Stage 4 loops.”

Conclusion

West Australian businesses and residents have been calling for the expansion of the DBNGP for a number of years now, and the new owners of the pipeline are moving to rapidly address the needs of gas users in the state. The expansion program is set to continue for a number of years and will ultimately ensure that the pipeline remains a world-class piece of infrastructure capable of supplying the rapidly growing energy needs of the booming West Australian economy.