1969

VICTORIA

REPORT

OF THE

VICTORIAN PIPELINES COMMISSION

FOR YEAR ENDING 30TH JUNE, 1969

PRESENTED TO BOTH HOUSES OF PARLIAMENT PURSUANT TO ACT No. 7477. S. 12141.

Ordered by the Legislative Assembly to be printed, 11th November, 1969.

By Authority:

A, C. BROOKS, GOVERNMENT PRINTER, MELBOURNE.

No. 9.-10359/69.-PRICE 25 cents

VICTORIAN PIPELINES COMMISSION

THIRD ANNUAL REPORT

FOR YEAR ENDED 30th JUNE, 1969

COMMISSIONERS

A F. Ronalds, M.C.E., F.I.E.Aust., Chairman

E. W. McCann. O.B.E.

Sir Charles McGrath, 0. B.E.

A B. Melior. C.B.E.

W. J. Price. I.S.O.

SENIOR OFFICERS

R. G. Webster, B.A, B.C.E.. M.P.A(Harv.). F.I.E.Aust., Chief Engineer

S. C. Archer. B.Com .. F.AS.A. AC.I.S .. Secretary

Metering and testing station at Dutso n.

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VICTORIAN PIPELINES COMMISSION

THIRD ANNUAL REPORT

FOR YEAR ENDED 30th JUNE. 1969

100 Exhibition Street.

Melbourne. 3000.

8th October, 1969.

The Hon. J. C. M. Balfour. M.L A..

Minister for Fuel and Power.

MELBOURNE.

Sir.

We have pleasure in submitting to you the Third Annual Report of the Commission. for the year ended 30th June, 1969, together with the audited Profit and Loss Account and Balance Sheet as at 30th June, 1969. in conformity with Section 12 (3) of the Victorian Pipelines Commission Act 1966 (Act No. 7477).

1. INTRODUCTION

The object of the Commission, as set out in the Act, is to provide such pipelines for natural gas in Victoria as in the opinion of the Commission are desirable.

During the year under review the main activities were:

-the completion of the 30-inch diameter pip:!linc from Dutson to Dandenong, and the associated regulating and metering stations.

-the creation of an organisation for the operation and maintenance of these works.

-continued negotiations with the distributors and producers to finalise tariffs for gas trans­mission and for metering and testing.

-investigation of further possible pipelines.

During this p~riod. the other sectors of the natural gas industry-the gas producers and gas distributors-continued their preparations for the introduction of natural gas.

The gas producers. Hematite Petroleum Pty. Ltd. (a wholly owned subsidiary of Broken Hill Proprietary Company Ltd.) and Esso Exploration and Production Australia. Inc.-usually

5

referred to as Hematite-Esso - completed a programme for prod uction of gas from three wells from the Barracouta platform, for its transport by a 31-mile, 18-inch submarine and land pipelin ~ to Longford . near Dutson. and for treatment of the gas at their Longford gas processing plant. These works were completed in time for natural gas to be delivered to the Commission at Dutson for conveyance to the Melbourne distributors in March, 1969. The Longford plant was ollicially opened on 29th April by Sir Arthur Rylah. then Acting Premier of Victoria.

During the year Hematite-Esso continued development work on the Marlin field and carried out further exploration in the Gippsland basin. This resulted in further discoveries of hydro­carbons. The ofticial figure for recoverable gas reserves remains at 5.6 trillion cubic feet but the producers announced that the Snapp~r field contains gas which is not included in this reserve. but would be developed as required by the market for gas. To date. the only agreements for sale ;;TC:;ippsland ~,;as are to Victorian distribution utilities.

Thirty- inch diameter pipeline, encased in concrete t(l prevent it from ll oa ting, ready

for launch in g across the Bunyip RiYcr.

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The Gas and Fuel Corporation of Victoria and The Colonial Gas Association Ltd. (the two Melbourne gas distributors) continued their extensive preparations for the introduction of natural gas-including pre-working of appliances and the construction of additional mains. The final operation of converting appliances was commenced when natural gas was first reticulated to their consumers on 14th April and 5th May, respectively.

2. CONSTRUCTION

Dutson-Dandenong Pipeline

Completion of the 108-mile Dutson-Dandenong pipeline took longer than had been expected. However, gas was admitted to the pipeline, as planned, on 16th March, 1969, two years after the signing of the "Letter of Intent" between producers and distributors on 15th March. 1967.

Before being commissioned, this main transmission pipeline was subjected to pressure testing with water up to 1620 pounds per square inch. The purpose of testing to such a high pressure is to locate any weak points and to relieve residual stresses caused during construction. Three failures occurred during testing. These pipe sections were replaced and the line retested.

After the completion of hydrostatic testing the pipeline was dewatered, dried and dusted, using natural gas, after which the gas pressure was built up gradually to the initial operating level.

Natural gas first reached Dandenong on 23rd March, 1969. On 31st March the Minister for Fuel and Power, the Hon. J. C. M. Balfour, M.L.A., officially turned the gas into the Gas and Fuel Corporation's main at Dandenong.

The pressure in the pipeline reached 250 pounds per square inch by 31st March, 1969, and was progressively raised to 502 pounds per square inch by 30th June. 1969.

Cathodic protection equipment was installed and tested, and the whole pipeline is now protected against corrosion. Electronic equipment was used to check the coating of the pipeline as finally laid, and all coating deficiencies are being repaired.

Most of the route of the pipeline is through private farmlands and negotiations with the owners for settlement of compensation continued throughout the year. The Commission also assisted in settling claims against the pipeline contractor for damage done outside the easement. As at 30th June, 1969, final settlement had been reached with 103 owners out of a total of 244 affected by the pipeline. Negotiations were in progress with most of the remainder. Some landholders have not yet lodged their claims.

Construction difficulties have resulted in a substantial disagreement between the Commission and the construction contractor, Snam Progetti Australia Pty. Ltd.

Efforts made by the Commission and the Gas and Fuel Corporation, acting as consultants for the Commission, to solve this disagreement have not been successful, and at the date of this report the contractor has called for the dispute to be referred to Arbitration.

Testing, Regulating and Metering Stations

During the year contracts were let for the construction of a gas testing and measurement station at Dutson, for a measurement and pressure-control station at Dandenong, and for measure­ment stations at Ringwood and Footscray. These stations were substantially completed during the year.

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The Dutson station has full facilities for testing the physical and chemical properties of the gas and for measuring the volume delivered into the pipeline. At Dandenong the gas is again measured, and the pressure reduced to suit the metropolitan distribution mains, while at Ringwood and Footscray gas is metered and delivered to The Colonial Gas Association.

Dandenong Control Centre

During the year a control centre was built on the Commission's land at Dandenong. By 30th June. 1969. it was almost ready for occupation.

3. OPERATION

As at June 1969 the Commission was carrying out the following operational functions:

Dutson

Gas is received from the Hematite-Esso treatment plant and its quality tested to ensure compliance with the quality specifications. The volume delivered by the producers is metered through Orifice meters and this measurement is used to determine the total amount to be paid to Hematite-Esso for gas supplied.

Gas is then conveyed along the 108-mile, 30-inch diameter pipeline to Dandenong, where it is delivered to the metropolitan distribution system.

Dandenong

Two separate regulating and metering stations are under construction at Dandenong. The smaller station, known as the Gippsland station, will in due course be used to supply the Gipps­land towns, via the existing Lurgi line. This station was used to supply Melbourne in the first few months of natural gas supply. For the month of June 1969 the average volume supplied was 10 million cubic feet per day.

The larger Melbourne station, only partly completed by June 1969. eventually will be used to supply the main Melbourne market.

The purpose of both stations is to reduce the gas pressure from the very high pressure in the 30-inch pipeline-up to 1000 pounds per square inch-to a level acceptable in the distribution system. i.e .. 400 pounds per square inch in the Melbourne distribution system.

The Gippsland station is designed to pass 50 million cubic feet of gas per day, and the Melbourne station to pass 700 million cubic feet per day. Rotary meters have been provided to measure the volumes of gas delivered to each system.

Ringwood

The Colonial Gas Association has a distribution franchise over two areas of Melbourne, the eastern area covering Ringwood and Balwyn to Oakleigh, and the western area covering Footscray and adjacent suburbs.

The Commission delivers gas to the eastern area through its metering station at Ringwood. and has arranged with the Gas and Fuel Corporation to use surplus capacity in the Corporation's 18-inch ring main to convey gas from Dandenong to Ringwood. Natural gas was first delivered to The Colonial Gas Association at Ringwood on 4th May. By 30th June the Association's

8

conversion programme in the eastern area was well advanced, and 1{ million cubic feet per day were being delivered at Ringwood.

Footscray

A similar arrangement has been planned at Footscray for delivery to the Association's western area, where conversion has not yet commenced.

Control Centre

At the control centre at Dandenong a 24-hour watch is maintained over the natural gas system.

Estimated daily requirements of gas are each day given by the distributors to the Com­mission which, after considering the amount held in storage in the pipeline. orders the required volumes from the producers.

The Commission records the volumes passing to each distributor and this information is used by the producers in preparing their monthly accounts for gas sold.

Air and Ground Patrol

A weekly aerial patrol of the 30-inch pipeline was inaugurated as a check on possible washaways or construction activities adjacent to the line. which might create operational or maintenance problems.

Regular ground inspection is carried out from the Commission's Moe depot.

Operating Personnel

During the year operations staff was recruited and trained for gas testing, measuring. dispatching, cathodic protection and maintenance.

Strict rules have been drawn up to ensure safe working at all times, and every effort has been made to ensure that staff have every assistance for carrying out the responsible task of safely delivering Melbourne's gas supply.

4. TARIFFS

In a natural gas transmission system the greatest cost is the capital expenditure necessary for the initial construction. For any particular pipeline the largest annual cost is the interest charge on money borrowed for capital works.

The cost of operating a pipeline is also relatively inflexible and is largely independent of the amount of gas transported. ln the case of the Melbourne supply, only a very small propor­tion of the pipeline's capacity will be required in the first few years. In point of fact, the 30-inch pipeline would be capable of supplying a gas market about twelve times as great as the 1968 Melbourne market.

If costs had to be covered by revenue each year, then in the early years the unit trans­mission charge-whether expressed per thousand cubic feet or per therm-would be relatively high.

The Commission. in keeping with general industry practice for such a new undertaking, plans that its financial structure will include very substantial short-term borrowing to help in tiding over the developmental period. Liabilities so incurred in these early years would be dis­charged in the later years as gas sales increase. This will allow the Commission to plan its

9

151

initial tariffs at a level considerably lower than would otherwise be the case and thus assist the distribution authorities in the initial years. However, even with this provision the Commis­sion has been unable to reach agreement with its customers on its transmission charges, and it appears to the Commission that this matter may need to be resolved at Government level.

5. FORWARD PLANNING

The Commission received the report "Natural Gas in the Energy Market in Victoria", by Kinnaird Hill de Rohan and Young, in conjunction with the Battelle Memorial Institute of U.S.A and Stephen A Bergman of U.S.A This report contains much basic information which will be of value in planning future works.

Serious consideration was given to the planning of a pipeline from Brooklyn to Geelong, where there are industries which have a large potential demand for gas. The costs and possible trans­mission charges for supply to Geelong were studied in some detail, and negotiations were commenced with The Geelong Gas Company Limited and the producers.

Preliminary consideration was given to piping gas to Ballarat and Bendigo. also from Brooklyn.

At the request of the Government, the Commission arranged a full scale study to establish the most appropriate route, from a State standpoint and a national standpoint, for a trunk pipeline from Dutson to serve Sydney and the W ollongong region. Messrs. Gutteridge. Haskins and Davey were commissioned to undertake this important task. Their report, with the Com­mission's comments, is under examination by the Ministry of Fuel and Power. The Study necessarily extends to the economics of serving inland towns in Victoria and New South Wales.

Other matters which were investigated were:

-A connection from the 30-inch Dutson-Dandenong pipeline to the existing Lurgi line.

-The use of existing mains operated by the Gas and Fuel Corporation and The Colonial Gas Association to convey gas across the metropolitan area for ultimate delivery to Geelong. This might be an alternative to a pipeline across Port Phillip Bay, but further study is required.

-A regulating and metering station for a supply to Sale and Maffra by the Gas and Fuel Corporation.

6. GENERAL ADMINISTRATION

At 30th June. 1969, the Commission's staff comprised thirty-two officers.

It is with profound regret that the Commission records the death of its first Chief Engineer. Mr. J. B. Mulvany, B.C.E., F.l.E.Aust., on 8th November, 1968. Mr. Mulvany, in the short period of the Commission's existence, had worked devotedly through the difficult initial period of construction of the Dutson-Dandenong pipeline. His term with the Commission closed a career of distinguished engineering and administrative service to the State of Victoria over 44 years.

Mr. R. G. Webster, B.A, B.C.E., M.P.A(Harv.), F.I.E.Aust., was appointed to succeed Mr. Mulvany, and commenced duty on 7th January, 1969. Mr. Webster was formerly Investi­gating Engineer with the State Rivers and Water Supply Commission.

The Commission's documentary film on the construction of the Dutson-Dandenong pipeline. "Operating Under Pressure", was completed during the year, and had its first screening during August 1969.

The Commission's works have been insured against damage under operating conditions.

to

Consultants

Gas transmission authorities throughout the world find that their construction activities are usually of an intermittent nature. For this reason, and also because of the rapid progress currently being made in pipeline technology. extensive use is being made of consultants. in preference to engaging a large technical staff.

The Commission engaged the Gas and Fuel Corporation to act as consultants for the 30-inch pipeline and the regulating and metering stations and this arrangement was continued throughout the year.

The Commission also engaged Mr. D. B. Sprow. a former Vice-President of Florida Gas Transmission Company. to advise on commissioning and operating the pipeline. H. Zinder and Associates. Inc., of Washington, D.C., who were represented by their Executive Vice-President. Mr. F. P. Saponaro, continued to advise on tariffs.

Mr. T. J. Ferris of Defence Standards Laboratories and Professor H. Worner of Melbourne University gave very valuable assistance on metallurgical matters.

As already noted, Gutteridge. Haskins and Davey. in conjunction with Shawinigan-Pryde Flavin Company Limited. of Canada. were engaged by the Commission to carry out various detailed investigations and design work.

Finance

The Commission was authorised to borrow $5.400,000 during 1968-69, and loans totalling that amount were arranged. All are at an interest rate of 5.875%. At 30th June. 1969, the loan liability of the Commission was $17.750.000.

Transactions of a profit and loss nature are shown as from IIth April. 1969, the date on which the Commission began operating commercially. All Commission expenditure during the period of construction of the Dutson-Dandenong pipeline (i.e .. up to I Oth April. 1969) has been capitalised.

The p~riod 11th April to 30th June resulted in a loss of $342.131.45.

Key Dates

Last 30-inch pip~ laid Testing 30-inch pipe completed Gas admitted to pipeline at Dutson Commissioning of pipeline completed and gas available at Dandenong Gas delivered to Gas and Fuel Corporation First deliveries to consumers by the Gas and Fuel Corporation Gas delivered to The Colonial Gas Association .... First deliveries to consumers by The Colonial Gas Association

S. C. Archer. Secretary

A. F. Ronalds, Chairman E. W. McCann, Commissioner C. G. McGrath. Commissioner A. B. Melior. Commissioner W. J. Price. Commissioner

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15/1/69 29/1/69 16/3/69 23/3/69 31/3/69 14/4/69 4/5/69 5/5/69

158

OPERATING EXPENSES

Measurement

Cathodic Protection

Right of Way and Pipeline

MANAGEMENT EXPENSES

Administration

Interest

VICTORIAN

PROFIT AND

FOR THE PERIOD

$

16,731.30

4,384.54

108,208.33

46,398.76

209,970.86

$

129,324.17

256.369.62

$385,693.79

NOTE: The Commission began commercial operations on IIth April. 1969.

A. J. A. Gardner, Auditor-General

22nd October, 1969

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PIPELINES COMMISSION

LOSS ACCOUNT

11th APRIL 1969 to 30th JUNE 1969

REVENUE

Transmission Tariffs

Sundry Income

Loss for the Period ....

13

A. F. Ronalds, Chairman

$

43,500.00

62.34

43,562.34

342,131.45

$385,693.79

E. W. McCann. Commissioner A B. Melior, Commissioner

22nd October, 1969.

155

CURRENT LIABILITIES

Bank Overdraft

Tender and Security Deposits

Sundry Creditors and Accruals

DEFERRED LIABILITIES

Provision for Long Service Leave ....

FIXED LIABILITIES

Loans

NOTES:

$

29,364.58

36,287.00

2,416,378.71

VICTORIAN

BALANCE SHEET

1969 1968

$ $

45,148.69

26,608.00

3,172,666.26

2.482,030.29

12.208.00

17,750,000.00 7,000,000.00

$20,244,238.29 $10,244,422.95

1. Contingent liabilities, represented by commitments under contracts for capital expenditure. approximated $177,619.

2. Certain of the pipes manufactured overseas for the Dutson-Dandenong pipeline were found. on delivery, to be not in accordance with specification requirements, resulting in additional cost in the construction of the pipeline. Negotiations with the contractor for a settlement of the contract for the construction of the pipeline have proved unsuccessful and the matter is to be submitted to arbitration in accordance with the relevant condition of contract. The determination of the extent of the liability of the pipe manufacturer for the additional cost awaits settlement of this matter.

Pursuant to the provisions of Section 12(3)(a) of the Victorian Pipelines Commission Act 1966. we certify that the above Balance Sheet as at 30th June, 1969, and the accompanying Profit and Loss Account for the period 11th April to 30th June, 1969, are correct.

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A. F. Ronalds, Chairman E. W. McCann, Commissioner A. B. Melior, Commissioner

2:!nd October, 1969.

PIPELINES COMMISSION

AS AT 30th JUNE 1969

1969 1968

$ $ $ CURRENT ASSETS

Cash on Hand 181.60 102.94 Bank Account-Deposits Held 36,287.00 26,608.00 Short Term Investments .... 950,000.00 230,000.00 Sundry Debtors and Accruals 50,141.06 50,932.37 Stocks 136,439.51 250,683.00 Deposits 5,390.00

1,178,439.17

FIXED ASSETS At Cost less Depreciation

Plant .... 11,024.23 149.50 Furniture and Fittings 15,721.38 26,012.80 Office Machines 9,010.29 4,144.85 Motor Vehicles 19,676.30 7,208.45 Pipeline and Ancillary Works 15.682,918.47 8,910,960.26 Basements 151,620.81 53,013.66 Freehold Land and Capital Improvements 138,800.19 72,687.85 Other 7.019.75

16,035,791.42 INTANGIBLE ASSETS

Preliminary Expenses 2,687,876.25 611,919.27 Loss on Operations .... 342,131.45

3,030,007.70

$20,244,238.29 $10.244,422.95

The books and accounts of the Victorian Pipelines Commission for the year ended 30th June, 1969, have been audited by an officer acting under my direction. The Commission began com­mercial operations on 11th April, 1969, all expenditure prior to that date being capitalised.

In my opinion, the above Balance Sheet, read in conjunction with the Notes thereto, is properly drawn up so as to show a true and fair view of the affairs of the Commission as at 30th June, 1969, and the accompanying Profit and Loss Account properly summarises the finan­cial operations for the period 11th April to 30th June, 1969.

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A. J. A. Gardner, Auditor-General

22nd October, 1969

157

Main lin e va lve asse mbly o n 30-inch di a met er pipeline , >ho wing 24- inch hra nches for future looping. I 0-i nch hy-pa ss and hlow-ofls .

J(,