Application Martin No: gr9902 Jones Contents

Risk of (partial) stranding

The Commission is aware that since the release of the Draft Decision, the likelihood of an alternate gas pipeline into South Australia has increased. Since then the South Australian Government has given its support to a proposal by the South East Australia Gas (SEAGas) consortium comprising Origin, Australian National Power and SAMAG to build a pipeline from Victoria to Adelaide. The likelihood of this project proceeding may have been strengthened recently by reports that Origin Energy has made major gas discoveries (Thylacine and Geographe) in the Otway Basin.¹⁰⁰ However, recent press reports suggest that the SEAGas proposal is only one of several to build pipelines to South Australia.¹⁰¹

One of the alternatives is Epic’s own proposal to build a pipeline from Darwin to Moomba. This pipeline would transport gas from the Timor Sea to Moomba, and on to Adelaide via the MAPS. Epic has stated that the MAPS would receive a multimillion-dollar upgrade as part of Epic’s plan to transport gas into South Australia from the Timor Sea.¹⁰² Therefore, although it is unclear at this stage which project might proceed, it is clear that the origin of alternate gas supplies (that is, Victoria or Timor Sea) will have very different consequences for the future utilisation of the MAPS in the short to medium term.

While a pipeline from Victoria to South Australia is looking increasingly likely, the current access dispute under the SA Natural Gas Pipelines Access Act 1995 indicates that there is insufficient capacity on the MAPS to meet current requirements.¹⁰³ Moreover, it is apparent that demand for capacity on the MAPS from 2006 is in excess of total capacity. This is the case, even with the expiration of the existing haulage agreements that account for the vast majority of current throughput on the MAPS. In its submission in response to the Commission’s Draft Decision of 16 August 2000, TXU Trading states that;

… access proposals have been submitted for contracted capacity post 2006 which, in aggregate, far exceed the existing capacity of the MAPS pipeline. The approximate 380 TJ/d firm capacity of the pipeline (as estimated by Epic Energy) does not allow for the implementation of all proposals, which cumulatively request capacity in excess of 600 TJ/d.¹⁰⁴

The Commission has undertaken its own assessment of the risks facing the MAPS (set out in more detail in Annexure 2 (confidential)). The assortment of risks facing the MAPS extend from positive to negative, and are somewhat offsetting. A great deal of the risk facing the MAPS arises from a variety of infrastructure proposals as noted in Table 2..

Table 2.: Summary of New Infrastructure Investment Proposals in South Australia

Project	Probability	Impact on the MAPS (in isolation)
Electricity Interconnectors
Murraylink	Certain	Negative
Basslink	Likely	Negative
SNI	Uncertain	Negative
Victoria to SA Pipeline	Likely	Negative
SAMAG stage 1	Uncertain	Positive
SAMAG stage 1+2	Uncertain	Positive
Pelican Point 300MW Augmentation	Highly Likely	Positive
Timor Sea Gas Pipelines	Likely ^a	Positive

1. 
   in the medium term
   

After account is taken of all likely infrastructure developments (including possible pipeline(s) from Victoria to South Australia) the analysis concludes that 348 TJ per day is a fair estimate of likely demand for services on the MAPS in the 2001-2006 timeframe and beyond. While there is some probability that demand for services might be less than 348 TJ per day, the Commission is of the view that there is a corresponding probability that demand could exceed 348 TJ per day. Epic could take advantage of higher than expected demand through the sale of IT services and non-specified services that could include a capacity charge.

In the medium term, the Commission considers that the MAPS faces a very low risk of stranding, especially with the likely development of Timor Sea gas and the extra load this would bring to the MAPS.

Even if demand for gas supplies into South Australia is lower than expected in the future, it is not clear that demand for services on the MAPS would decline. The MAPS is a mature asset with significant accumulated depreciation. As such, tariffs on the MAPS should be significantly below tariffs on a new pipeline. Therefore, all other things being equal, the MAPS should attract demand in priority to a new pipeline.

Although the Commission considers that 348 TJ per day is appropriate in view of the future risk profile facing the MAPS, Epic is able to seek an early review of the access arrangement should it believe such a review is necessary (section 2.28 of the Code).

In addition to assessing the level of systematic risk facing the MAPS, the Commission has relied on a combination of empirical evidence and regulatory precedence in setting an asset beta of 0.50.