The Gas Code allows the ACCC to set a higher regulated rate of return for greenfield pipelines than for established pipelines, in recognition of the higher risks involved. Post-tax regulated rates of return, based on the weighed average cost of capital, have been around 12 to 13 percent in recent years for established gas pipelines, whereas a rate of 15.4 percent has been allowed for a greenfield pipeline. Nonetheless, industry has claimed that the regulatory regime is hampering investment in greenfield pipelines, and the government is planning to review the Gas Access Code to see if there are merits to the claims and how the code might be modified to address them.20
To judge by recent history, the incentives for construction of new transmission infrastructure appear to be very good. In just twelve years, the high-pressure pipeline grid almost doubled in length from 9,000 km in 1989. Over the four-year period from 1995-96 through 1999-2000, which immediately followed major gas market reforms, capital expenditure for transmission assets averaged Aus$330 million per year. This was roughly seven times the pace between 1989-90 and 1993-94, just prior to gas market reforms, when the average was just Aus$46 million annually.21
The quickened pace of transmission grid expansion has not only enhanced opportunities for competition among gas suppliers, as indicated by the price trends discussed above, but has also apparently improved supply security by increasing the transmission system’s flexibility. In 1998, Victoria’s main source of gas supply was cut off following an explosion at the Longford reprocessing plant. However, it was possible to continue supplying gas for hospitals and other essential services through a new pipeline interconnection that had just been completed.22
Investment decisions on extension of distribution networks are also made on a commercial basis in most cases. Most current extensions are being made in new suburban developments and are subject to approval by local planning authorities. The Victoria government has announced a policy to assist in the extension of the distribution grid to several new towns.
20 Department of Industry, Tourism and Resources (2002). 21 Australian Gas Association (2001) and previous issues. 22 Dimasi (2003), page 8.
GAS MA R K E T RE F O R M GAS MARKET SKETCHE S: BRUNEI DARUSSALAM
B R U N E I D A R U S S A L A M
GAS MARKET SETTING23
Brunei Darussalam is a significant gas producer and exporter, with domestic production satisfying all of the economy’s gas supply requirements.
n Total gas production is projected to increase from 9.5 Mtoe in 2000 to 15.1 Mtoe
in 2020, with the share of exports growing from 77 percent to 83 percent.
n Primary supply of gas to the domestic economy is projected to grow from 2.15
Mtoe in 2000 to 2.57 Mtoe in 2020, with average annual growth of just 1.1 percent in the decade from 2000 to 2010 and 0.7 percent in the decade from 2010 to 2020. Figure 24 Evolution of Natural Gas Use in Brunei Darussalam, 1980-2020
0.1 0.4 0.8 0.7 1.0 1.3 1.7 1.6 1.9 0.9 0.0 0.5 1.0 1.5 2.0 2.5 3.0 1980 1990 2000 2010 2020
Million Tons Oil Equivalent
Other
Electric
All of Brunei Darussalam’s natural gas use is devoted to production of oil, gas and electric power. There is virtually no use of natural gas in the downstream industrial, commercial or residential sectors.
n Use of gas in the electric power sector is expected to grow very modestly, from 0.8
Mtoe in 2000 (a 38 percent share) to 1.0 Mtoe in 2020 (a 37 percent share).24
23 Data from APERC (2002a) and more detailed internal energy balance tables. Historical data for 1980 and 1990 were compiled by the International Energy Agency (IEA). Projections for 2000, 2010 and 2020 were made by APERC.
24 Petroleum Unit (2002a) presents quite a different picture, in which total natural gas demand expands from 1.57 Mtoe in 2000 to 3.42 Mtoe in 2010 and 5.03 Mtoe in 2020, use of gas in the electric power sector grows to 1.52 Mtoe in 2010 (with a 44 percent share of demand) and 2.03 Mtoe in 2020 (with a 40 percent share), and downstream industrial use of gas grows from a negligible base in 2000 to 1.0 Mtoe in 2010 (29 percent share) and 2.1 Mtoe in 2020 (42 percent).
G A S M A R K E T S T R U C T U R E AND OPERATION GAS MARKET PLAYERS
About 90 percent of Brunei Darussalam’s gas is produced by Brunei Shell Petroleum, an equal joint venture of the Asiatic Petroleum Company in the Royal Dutch/Shell group and the government. The rest of the economy’s gas is produced by the Block B Joint Venture of Shell Deepwater Borneo in the Royal Dutch/Shell group, the government and Total.
The bulk of Brunei Darussalam’s gas is exported as LNG through terminals owned by Brunei LNG, a joint venture of the government (which has a 50 percent share) with Royal Dutch Shell and Mitsubishi (which each have 25 percent shares). About 88 percent of the economy’s LNG exports go to Japan, and the rest go mainly to Korea. A small amount of LNG was exported to Spain and the United States for the first time in history in 2002.25 Within Brunei Darussalam, gas not used in
oil and gas production is transported to electric power plants by Brunei Shell Petroleum.
There is little regulation of the gas industry as the state retains a key role in all phases of its operation. PetroleumBrunei, a state-owned firm set up in 2002 to manage production sharing contracts for exploration and production of oil and gas, also regulates the oil and gas industries. It assumed the regulatory role of the Brunei Oil and Gas Authority, which was abolished.26
UNBUNDLING AND THIRD PARTY ACCESS
The functions of Brunei Darussalam’s gas market are not unbundled to any significant extent. Brunei Shell Petroleum, which accounts for 90 percent of production, also controls the bulk of facilities for transmission and distribution of gas in the domestic market. Brunei LNG, which has all facilities for gas exports, has largely the same ownership as Brunei Shell Petroleum, since the government has a 50 percent stake in both firms and the Royal Dutch/Shell Group is also present in both. There are no legal or regulatory provisions in place that would require the two incumbent producer-transporters of gas to grant competing producers access to their pipelines.
25 Wybrew-Bond (2002), page 297. Petroleum Unit (2002a). 26 National Chamber of Commerce (2002).
PRINCIPAL PLAYERS IN BRUNEI DARUSSALAM’S GAS MARKET