Here, Mr Johnston speaks with The Australian Pipeliner on the expansion opportunities that lie ahead for the Dampier to Bunbury Natural Gas Pipeline (DBNGP), the privatisation of WA’s pipeline industry, and consolidating a healthy domestic gas supply within the country.
What has been your background in the gas and pipeline industries?
Before joining DBP in 2010, I spent 20 years with Royal Dutch Shell in a number of roles.
My first job was as a pipeline engineer in the United States, where I had the opportunity to spend four years working on pipeline systems and infrastructure across the country. From there I moved to work as a project engineer on the Brent field in the North Sea during the 1990s, before moving to Australia for the first time in 2000.
I spent two years in Melbourne in a role that gave me exposure to gas and electricity retailing, power generation and gas trading before moving back into the upstream business in Perth looking after the early stage development of some of Shell’s LNG projects. I moved again to the Shell headquarters located in The Netherlands, where I held a number of positions in strategy and planning, which in the latter stages included being the Vice President – Strategy & Planning for the Upstream International Division.
Overall, I have been lucky to have opportunities that have provided exposure to most parts of the gas value chain both here and internationally, and hopefully that experience will help DBP remain an important and growing infrastructure provider in WA.
Gunson Resources recently signed a FEED study agreement with DBP involving a 110 km lateral to the proposed Coburn Power Station in WA. If this receives FID, what will be the benefits for the DBNGP?
DBP is extremely pleased to be working with Gunson Resources on a FEED study for its Mineral Sands Project near Coburn, and the company has since seen the project announce a number of positive developments over the past few months.
DBP’s belief is that gas supply via a lateral pipeline from the DBNGP will offer a competitive solution for WA’s energy needs. Should Gunson proceed on the basis of using gas for its power generation, DBP believes it would be a positive sign for other resource project developers; particularly in the mid-west of WA.
Are there any other expansion opportunities for the DBNGP in the future?
DBP has established a separate service company to work with project proponents that are interested in gas supply from the DBNGP. DBP has substantial experience and in-house capabilities for pipeline design and construction and obviously the ability to manage and maintain lateral pipelines when they come into operation.
In terms of the main-line business, DBP has invested $1.7 billion over the last five years and has expanded capacity by 60 per cent in three major expansion projects. Those three expansions were delivered on budget and in advance of customer requirements, so I think the company has established a good track record.
Whilst DBP doesn’t anticipate another major expansion in the short term, the company is ready to invest again in order to meet customer needs. In short, the company is very much open for business.
How does DBP ensure that its pipeline is operating at the highest efficiency?
I believe that the DBNGP operates at its highest efficiency because it has a highly structured asset management plan, which takes into account the operational needs of the pipeline and its customers.
The pipeline is operated remotely from the central control room which is manned 24 hours a day, and is supported by rostered field maintenance officers who work across the entire length of the pipeline 365 days a year. DBP also conducts extensive pipeline surveillance. This requires road patrols of built up areas and flight patrols of built up areas, which occurs three times a week in metro areas and fortnightly in rural/semi-rural areas.
Additionally, DBP has recently completed the intelligent pigging of the whole main-line system and happily found no material defects, which shows how well the cathodic protection has been performing and how well the coating system selected in the early 1980s has performed. The current intelligent pigging program is both driven by DBP’s regulatory process for the new loops but also by the company’s own asset management plan to inspect the pipeline and laterals after almost 28 years of continuous in-service performance.
DBP is also assisted by the design of the pipeline to ensure it has adequate contingencies for supply continuity. For example, if there was an incident, each of the ten compressor stations are designed so that they can be safely bypassed without interrupting the main flow of gas; since 2005 they’ve had greater than 99 per cent availability and reliability.
DBP is also continuously investing in maintenance, with over 100,000 hours per annum and capital improvement projects in the range of $20-30 million developed every year.
How has DBP’s operations changed over the last ten years? What innovations have been made to aid operations?
The DBNGP has developed from being a long transmission pipeline with two major producers at the top end and most of its customers at the bottom end.
The pipeline now has major customers in the Pilbara, the mid-west and the growing south-west of WA. Changes in operations have also been made to accommodate the shifting phases with multiple producers at the top quarter of the pipeline and the developing mid-west to ensure that both full capacity, and part capacity are complimentary in their demand and impact on operations.
In addition, the DBNGP has been able to support the improvement of gas quality in WA to enable the entry of gas sourced from the Macedon Gas Project and others in the future. This is made possible with the use of decent gas quality monitoring equipment and changes made to designs of inlet facilities.
The DBNGP has been able to blend gas within the transmission system, meaning that the monitoring of gas quality movements as it travels down the pipeline is critical to ensuring gas is metered accurately to those using the pipeline to transport their gas.
All these changes are being made cognisant of the long-term integrity of the DBNGP to continue operating for many decades to come.
In what ways has the privatisation of industry infrastructure in WA benefitted the pipeline industry?
Since the mid-1990s, the Western Australian Government has been keen to transfer much of the risk of developing infrastructure away from taxpayers to the private sector. Many state-owned monopoly assets were privatised, but on the basis that a form of economic regulation would apply to ensure access could be achieved by customers on fair and reasonable terms, and that the owners of these assets would be incentivised to continue to invest.
Broadly I think this has benefited everyone:
- Private sector infrastructure operators are generally better equipped to manage the risks, particularly the significant financing risks in projects that are their bread and butter;
- Government infrastructure providers are being benchmarked against their private sector counterparts, which has led to lower costs of service provision; and,
- Governments have been able to apply their financial resources to areas of community infrastructure, such as schools and hospitals.
I believe these factors have led to lower overall increases in the costs of infrastructure provision than what would have been the case had the “˜public-sector-provides-everything’ model of the 1960s and 1970s continued.
What is needed to encourage continued private investment in pipeline infrastructure?
Based on the premise that there is a desire to see a continued public/private partnership combined with an appropriate level of regulatory oversight, I’d highlight five points with regard to incentivising investment in pipeline infrastructure:
- A clear rule set with an expectation that it is broadly fixed for the long term is essential to being able to raise capital and attract investment.
- A high degree of certainty is also essential to being able to allow prudent capital expenditure and operating costs in the calculation of regulatory tariffs. Appropriate expenditure on maintenance to preserve asset integrity is not an area where it’s in anyone’s interest to cut corners.
- Equally important is the need to avoid frameworks that require regulators to focus solely on theories of economic efficiency. This means that owners should have the opportunity to earn a return that is commensurate with the prevailing conditions in the market for funds. This applies for debt and equity, as well as being commensurate with the risks that are inherent in operating an asset and providing services to customers.
- From a government viewpoint, there should be sufficient interest and appetite from the private sector to ensure a sufficient number of companies pursuing every new project which will create competition and will lead to the efficient allocation of resources.
- Finally from a public viewpoint, transparency and accountability are extremely important in terms of where their money is going, both to avoid politicisation of the debate and to generate a greater understanding of the costs and benefits of infrastructure development.
What do you see as the main challenges for the WA pipeline sector?
In addition to the aforementioned points regarding incentive-based regulation, I will add that the WA pipeline industry has many of the same pressures other industries have in terms of cost inflation and availability of skills.
Also on DBP’s radar is the continued expansion of residential areas into the fringes of WA’s formerly rural or semi-rural cities, which presents challenges to maintain the integrity of pipelines.
The pipelines were built to comply with the requirements for integrity and public safety for the land use at the time. As land use changes, pipelines and land planning agencies need to work closely together to ensure that appropriate separation is maintained between pipelines and houses, business and other developments to ensure that neither the integrity of the pipeline or the safety of the community is compromised.
How do you see the WA energy mix being comprised in the next 20 years?
WA gas consumption has grown at an approximate rate of 5.5 per cent per annum since 1990 and the state is in the very fortunate position of having sufficient reserves to meet domestic needs for many decades to come, despite having already been in operation for almost 28 years.
In fact in the medium term there will be a number of additional sources of gas supply – beyond the two the state already has – that will be tied into the DBNGP.
The first is the Devil Creek Development Project, which has a current capacity of 106 TJ/d, and has the potential to expand to 212 TJ/d. Other sources of gas supply include the Pluto LNG Development, the Gorgon Project, the Macedon Gas Project, the Wheatstone Project, as well as numerous other developments which will also be able to supply gas to the domestic market.
Today, over 50 per cent of all energy produced in WA is derived from gas, and I hope that this will be maintained, or even increased, over the coming years.
Any final notes you would like to add as to the outlook for the Australian pipeline industry?
DBP is very optimistic about the overall outlook in Western Australia, and it acknowledges the role it has to play in continuing to meet the state’s energy needs.
The pipeline has operated safely and reliably for 28 years. In many ways, with the pipeline insofar operating incident-free, and holding strong, positive stakeholder relationships means that DBP is very much a quiet achiever. More than 70 per cent of all gas flows through the DBNGP to get to its intended market. That’s quite a task and quite a track record in achieving it.
