NATURAL GAS SUPPLY TO A SMALL MARKET: A DISTRIBUTOR'S PERSPECTIVE

Abstract

A decision to introduce natural gas supply to a small market requires a thorough examination of the economic and technical factors that a gas distributor will encounter in such a project. This paper identifies the important factors to be considered in the feasibility stage and in the construction and implementation phases of the project. The experience of the Gas and Fuel Corporation of Victoria supplying natural gas to the city of Warrnambool is described through all these stages.

A feasibility study for natural gas to a small market requires the preparation of a reliable forecast of end- user demand and an assessment of demand/price elasticities for major market sectors, such as household uses and large industrial uses. Where gas is to be supplied from new gas fields any assessment of proven gas reserves must be made. The assessed level of reserves can be measured against forecast demand to identify an expected project life over which the producer and distributor will need to earn a fair return.

A producer and a distributor have a common interest in the level of recoverable reserves, the price between producer and distributor, the market demand and the price payable by end- users. A price agreed between a producer and a distributor will be at a level where both parties are satisfied with the expected returns. A higher price would increase returns to the producer, but would deter the distributor from the project.

Natural gas supply to Warrnambool involved the planning and construction of a pipeline and an up­grading and expansion of the local reticulation system. In addition, conversion of nearly 13 000 household appliances was undertaken. This work was successfully completed at a cost of about $10 million. The planning and design of these facilities is a balance between short- term cost minimisation, and cost levels that will achieve long- term economies of scale.

To achieve a fast development of the end- use consumption, a strong marketing effort was undertaken to ensure connection of large- use industrial customers was achieved without delay. This quick development of load was essential to provide good cash inflows to the distributor and the producer at an early stage of project development.