Jim McDonald has been one of the key figures in the development of the Australian gas pipeline industry as we now know it. Founding Managing Director of the Australian Pipeline Trust, founding Chairman of the Energy Pipelines Cooperative Research Centre and three-time APIA President, Jim has now turned his attention to a new technology which has the potential to revolutionise the way gas powers heavy duty trucks and machinery and is delivered to remote industrial locations.
Jim’s career in pipelines began in 1971, when he joined Esso Australia. After 15 years, Jim made the move to NT Gas, where he took up the CEO post. This led to roles within AGL, eventually managing the company’s pipeline division – which went on to become the Australian Pipeline Trust (now APA Group), of which he was the first CEO.
Retiring from APA in 2005, Jim went on to take up Non-Executive Directorships with a number of ASX-listed companies, all with a pipeline industry connection, and was also the foundation Chairman of the Energy Pipelines Cooperative Research Centre (EPCRC).
A pipeline professional of more than four decades, Jim has much to say when asked on his thoughts for the future of the pipeline industry, particularly as it moves from a phase of heady construction and into one of operation and maintenance.
“There are three major planks supporting a future pipeline industry,” said Jim. “Firstly, pipeline operations and maintenance is itself now a major industry, given the sheer size of the pipeline network, and, as capacity is absorbed, looping, compression and eventually refurbishment or replacement of ageing pipelines will add to the complexity of the work.
“Secondly, the continual addition of replacement production capacity and gathering systems for the coal seam methane LNG projects will see a continuum of work in Queensland for decades to come.
“Third, and most importantly, when the politicians wake up to the emerging energy security risk that our reliance on imported liquid fuel entails, when they understand that technology such as high density compressed natural gas (HDCNGTM) enables us to displace the billions of litres of diesel we presently import each year with our own natural gas, and when the public realises the nonsense in exporting energy as gas for $10 per GJ whist we import energy as refined product for $25 per GJ, at a cost to our balance of trade in excess of $20 billion a year, I am confident that we will turn our attention to the vast reserves of gas, including shale gas, that undoubtedly exist in this country, and ensure that Australia’s natural gas is available for our own industries.”
An evolving industry
It is these beliefs that have led Jim into a new phase of his career. He resigned all of his directorships over the past 12 months to focus on a job that has reignited his interest in pipelines and natural gas: as Chairman of the IntelliGas Group of companies (in which he also has a modest investment).
The founders of the business are Paul Whiteman and Derek Fekete, who were both with ASX-listed power technology business EDL since it was founded by Paul and Walter Pahor in 1989. IntelliGas also has a fourth investor, Ken Hall, who built Kalgoorlie Power Systems, a remote power generation business, which he sold to Pacific Energy Limited, an ASX-listed power specialist.
“IntelliGas is a natural gas technology business which has world patents pending for components and processes which enable HDCNG™ to be used as fuel in heavy duty vehicles such as highway trucks, locomotives and mining machinery. HDCNG is natural gas at pressures in excess of 350barg (5076psig), at which pressures it has twice the energy density of conventional CNG.
“The IntelliGas systems enable natural gas to be stored, dispensed and used as fuel while eliminating the problems that normally result from the heat of compression in conventional CNG systems. HDCNG enables the on-board fuel storage tanks to be filled with cool gas to name plate capacity every time, and a HDCNG equipped heavy duty B Double road train can travel in excess of 1,100km between fuel stops.
“It is very exciting technology with worldwide application.”
According to Jim, the IntelliGas system is practically commercial-ready, and the team has commissioned the world’s first HDCNG re-fuelling station at Crestmead in Brisbane. However a major obstacle has arisen to slow the application of the technology to heavy duty truck fleets with the withdrawal from sale of the Westport GX engine. The engine, which is a 500+HP diesel cycle engine, is ideally suited to Australian conditions. Its withdrawal means that an engine suited to Australian heavy duty conditions is presently not available. This will be resolved, but it may be a year or so before a suitable engine is on the market.
“At IntelliGas we are working with engine technology and truck manufacturers as they develop their own gas engines,” said Jim. “We have a prototype engine which develops almost 600HP running in one of our three Western Star trucks. We are also working with fleet owners of trucks up to around 400HP where spark ignition and dual fuel gas engines are now becoming available.”
According to Jim the key target market for HDCNG is heavy duty interstate highway fleets. “Other than re-fuelling systems which will be installed ‘behind the gate’ in fleet owners premises, we plan that this fleet will be re-fuelled at strategic locations on national highways, where the highway and transmission pipelines are adjacent. Examples of such sites on the Hume Highway are Barnawartha, just west of Wodonga, and Marulan, just north east of Goulburn. Rest assured there are sufficient points on the national highway system where pipelines either cross the highway or are adjacent to it to enable dedicated prime movers to re-fuel in sync with driver rest periods and vehicle range on HDCNG.
“The heavy duty highway fleet in eastern Australia consumes in excess of 120 PJ of energy each year, and individual trucks consume up to $250,000 in imported diesel fuel per annum: now that is an untapped market for natural gas,” Jim said.
The virtual pipeline
In addition to the road fleet market, IntelliGas has also developed the concept of a ‘virtual pipeline’ using HDCNG technology.
The virtual pipeline involves the transport of approximately 1,200 GJ on a B Triple Road Train – a significantly greater quantity that any conventional CNG delivery system can carry, other than a pipeline, and has enormous potential to be used to displace diesel at remote mine sites and towns a pipeline cannot economically reach.
Said Jim, “Of course, the first choice should always be a pipeline, but the capital for a pipeline has to be recovered over its contract life, and often this is not possible. The assets that comprise a virtual pipeline are fungible and therefore the capital can be recovered over the life of two or more contracts, or the component parts recovered and re-used in other projects. This option does not exist for a buried and welded pipeline.
“Virtual pipelines are therefore a viable option when pipeline economics do not work. As such, they will still have a positive impact on pipelines as the gas for the virtual pipeline will always be drawn from an existing pipeline: a virtual pipeline is therefore a practical and complementary extension of a pipeline system.
“The presence of a virtual pipeline load on a pipeline, assuming the virtual pipeline load is complementary to the pipeline load factor and storage capacity, will bring further efficiencies to the pipeline. Pipeline owners will be attracted to the technology and will certainly be attracted to having virtual pipeline take gas supply from their pipelines. They may even want to invest in this natural extension of their business.”
Mining machinery also in HDCNG sights
IntelliGas is also about to commence proof of concept trials for HDCNG to fuel mining equipment. While remote power generation is a potential market for natural gas and some sites are ideally suited to virtual pipelines for that purpose alone, the opportunity to displace diesel with HDCNG in mining machinery is immense.
“I can envisage a day when a virtual pipeline has enabled a mine to convert its generators to gas, and then commence conversion of the mining fleet, creating such gas demand that a pipeline becomes feasible,” said Jim.
It’s hard not to get excited about the potential for this technology, especially when an expert like Jim can see it invigorating the gas pipeline industry in years to come.
Reflections on a pipeline career
Jim’s earliest pipeline memory is from 1964, when he and his father drove along the Princes Highway to visit a spot just east of Traralgon, where Snam Progretti had cut the highway to install the Longford-Dandenong natural gas pipeline.
“I had no idea then that pipelines would play such an important role in my life,” recalled Jim. “That didn’t happen until 1971 when I joined Esso Australia, and went on to spend 15 contented years in oil and gas production in Bass Strait. Over that time we went from two platforms to thirteen, and from zero oil production to in excess of 500,000 barrels a day. They were heady and exciting times.”
A major turning point in Jim’s career came in 1986 when, faced with a change of jobs within Esso, he chose to leave and accept the position of CEO of NT Gas, a decision that began to define his career and marked the commencement of a steep learning curve.
Not long after this move, major change lay ahead for the gas and pipeline industries. In the early 1990s, Victorian Premier Jeff Kennett signed off on the privatisation of the state Gas and Fuel Corporation, which, according to Jim, sealed the fate of government ownership of gas pipelines and networks.
“A domino effect over the next several years saw all the major pipelines in private ownership, and the industry has never looked back,” said Jim.
“Privatisation also led to a major event in my career in 1994; the acquisition by AGL, Petronas and Nova of the Moomba to Sydney Pipeline and the creation of the East Australian Pipeline Company. This was the nucleus of the Pipeline Division within AGL, which in turn was the nucleus of the Australian Pipeline Trust, the subject of an IPO by AGL just six years later, listing in March 2000. I was fortunate to be the General Manager of AGL’s Pipeline Division in those growth years, and when this was spun into the Australian Pipeline Trust, now APA Group, I was offered the opportunity to be the company’s first Chief Executive Officer, and later Managing Director.
When asked to recall his favourite memory throughout his pipeline career, Jim was quick to name the Ballera to Mt Isa Pipeline project.
“On this project, we had a price to satisfy and a first gas date just 14 months away, with significant liquidated damages per diem for failure to deliver gas. The week we mobilised, the entire route suffered 100 year floods from cyclonic activity in the Gulf. Cooper’s Creek was 80 km wide within weeks as the floodwaters moved downstream; and Mt Isa itself was completely isolated with roads in all directions seriously damaged. Our pipe stock yard in western Queensland was under a metre or so of water, we had construction equipment stranded at Moomba, and were in serious trouble.
“We had planned to build from Moomba to Mt Isa, but were forced to turn the project upside down and regroup to build from north to south. I will not bore you with the details; suffice to say it was a daunting task with our project planning in total disarray. It was as bad as it gets in project work.
“Thanks to great work by Jeff Sheppard and Grant Bowley who were with our contractor McConnell Dowell at the time, John Bidwell who was my Project Manager, and some very serious and at times heated discussions about how a risk/reward sharing alliance project structure was supposed to work, we made it on time and on budget. From memory we set a record for construction speed, averaging something close to 8 km per day, even achieving 17 km on one day. At one time we had over 150 km of trench opened with explosives and rock saws through the hard rock country south of Mt Isa, and the welding crews almost caught up with the trenchers.
“It really was a great job.”
Jim’s retirement from corporate life in 2005, when he stepped down as Managing Director of the Australian Pipeline Trust, really became a semi-retirement, when over the next few years he was recruited to company director positions of some of Australia’s biggest and best-know ASX-listed companies.
“In the eight years since I left APA, I have been fortunate to have served as an Independent Non-Executive Director of ASX-listed Pearlstreet Ltd, WDS Limited and Vortex Pipes Ltd. I was also a Non-Executive Director of Hastings Funds Management, the responsible entity for a number of major funds including the ASX-listed Australian Infrastructure Fund and Hastings Diversified Utilities Fund.
“The businesses are diverse in size and scope, but they all have a pipeline industry connection, so I did not stray far from the well.”
When asked to contrast his time as a CEO and Managing Director with his later career as a Non-Executive Director, Jim noted that he could talk for hours about the contrast between the two roles.
“I was fortunate to learn about governance from Australian Institute of Company studies, as well as from being on the boards of NT Gas and EAPL whilst with AGL, and of course as Managing Director of what is now the APA Group. However I still had plenty to learn about being a director ‘on the job’, and have been fortunate to work with some great directors who guided and assisted me.
“I believe the role of Managing Director is fundamentally different to that of a Non-Executive Director. The MD must be across all the activities of their business on a daily basis and must focus on the performance of the business against budget and agreed objectives, some with quite short time frames, some strategic. The MD runs the management team, runs the business, and is accountable for performance.
“The NED, particularly in public companies, must understand the business, but not the daily detail. They have to focus on the strategic direction of the company over a longer time frame, on ensuring the business has the right management and skill sets to deliver success, and on controls and audits that will ensure financial clarity, discipline and accountability.
“The NED must also ensure compliance with the growing list of laws and regulations governing the business: they must ensure the protection of shareholders’ interests. Most importantly the NED, together with their fellow directors, must have the knowledge, the common purpose and the wisdom to steer the business by influencing, encouraging and guiding management, not by attempting to run the business.”
A voice for the industry
Throughout his career in pipelines, Jim has been a key player in growing the Australian Pipeline Industry Association (APIA) into the association it is today – one which commands respect and has political influence.
“I attended my first APIA conference in Adelaide in 1988 from memory and saw the possibility that it could represent the entire industry, not just the construction members.
“Others shared this opinion and we set about strengthening the association. It went from strength to strength, despite our being accused of hijacking it. By the turn of the century the transformation was complete, it was well funded and domiciled in Canberra, and recognised increasingly as a voice for that great fuel, natural gas.
“Through the work of APIA, the Australian pipeline industry has achieved worldwide recognition.”
Another role Jim took on following his retirement from APA was as the foundation Chairman of the Energy Pipelines Cooperative Research Centre Limited (EPCRC), the body established in 2010 to provide focused research and education to support and benefit the energy pipelines industry in Australia.
“I saw my job was to bed it down, get the research programs underway and get the governance in place to enable it to perform and report to the satisfaction of the funding providers, the pipeline industry and the Federal Government.
“There were several highlights from my time with the EPCRC. First, the team was successful in getting itself established due to the vision, dedication and sheer hard work of a number of members of the APIA Research and Standards committee. There is not space to name all involved; but I will give special mention to Leigh Fletcher who led the team. It would not have succeeded without his work.
“The second highlight was the appointment of Valerie Linton as CEO. I could not have wished for a better qualified and experienced person to run it. As a result, notwithstanding a bit of early wheel spin, the CRC programs were established, some issues with the university research centres were sorted, the researchers got down to their work, and we achieved a most satisfactory report from the Government at our first review.”
As Jim noted, the purpose of the EPCRC is to extend the life of existing pipelines, to maintain their impeccable safety record, and to enable the building of better, safer pipelines in the future. However, he also noted that the EPCRC cannot rely on Government funding being renewed when the present grant is exhausted in 2019 – particularly in light of recent cuts to the broader CRC program announced in the 2014 Federal Budget.
“The EPCRC has the major task of producing research of such quality, and with immediate commercial benefit from application, that the industry will have no choice but to support it beyond the present funding.
“I have no doubt that it will succeed.”