Gas Market in Australia: Structure, Domestic Market, Supply, Players, and Sustainable Procurement Practices of AGL

This article provides an overview of the gas market in Australia, including its structure, domestic market, supply, players, and sustainable procurement practices of AGL. It also discusses the impact of new technologies on end customers and gas producers, and provides insights into developing a project integration management plan emphasizing procurement.

Running head: PROJECT MANAGEMENT
Project Management
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Description of the gas market in Australia:-
The structure of the Australian gas industry is quite complex as near about 150 gas
companies are operating there. It can be classified on the basis of gas types, operational
segments, deposit basins or groups of players can be grouped into three main types:
 International Majors (multinational companies)
 Australian Majors (domestic companies with market capitalisation)
 Juniors (small cap companies with little market or production share).
Though most of the gas players are junior, still the industry is dominated by major companies in
every segment (Qiu et al.,2015).
Domestic gas market:- Based on gas basin and pipelines that supply them, the domestic gas
market in divided into three separate regions:-
 Eastern Gas Region:-The gas basins supplier of this market contain about one third of
Australia’s gas reserves.
 Western Gas Region:-The gas basins supplier of this market contain aboutone-half of
Australia’s gas reserves. This market focuses on exports as well as supplies domestic
consumption.
 Northern Gas Region:-This market is Australia’s smallest producer and its basin provide
gas for export as well as domestic consumption in Northern Territory.
The gas markets in Australia are changing rapidly and there must be a balance between
the supply and demand to ensure that Australian consumers and industry can access affordable
gas anytime and anywhere. At present, the east coast gas markets are integrated and natural gas
flows become more active to move the gas across the network to where it is needed (Cassidy &
Kosev, 2015).

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Gas Supply:- There are genuine impacts on the business and consumers in domestic markets due
to the increasing gas demand pressure on both gas supply and prices. The key elements of gas
supply industry are gas producers that generate gas, gas retailers that buy as well as sell gas and
gas distributors that carry and bring gas to the end users through management of distribution
networks. The industry growth is mainly due to increasing gas prices and as use by major
markets.Companies retail gas to consumers and businesses. Companies also distribute natural
gas, manufactured town gas, Liquefied Petroleum Gas (LPG), Liquefied Natural Gas (LNG),
Coal Seam Gas (CSG),Underground Goal Gasification (UCG) to end users through gas
distribution main. The industry excludes the operation of gas transmission pipelines, which
transport gas from gas production facilities to gas distribution mains (Austvik, 2016).
One major player in gas retailing is AGL Energy Limited (AGL). AGL Energy Limited
(AGL) is one of the leading integrated energy company in Australia, which generates and sells
both gas and electricity for residential as well as commercial use (Corones, 2014).
Gas for private consumers:-
Gas is an efficient and low emission energy source for Australian customers. In their
energy choices, consumers consider factors such as cost-effectiveness, appliances, home,
lifestyle, environmental performance. Compared to other energy service, gas remains price
competitive and is delivered to Australian homes at a cost which can be up to 80% lower than
mains electricity on an equivalent energy basis. The cost of gas to a customer reflects wholesale,
network and retail costs. There have been increases to the wholesale cost of gas on the East
Coast which reflects a combination of regulatory restrictions on gas production, increases in
production costs and linkages to international markets. Nevertheless, the wholesale cost only
represents about 20 to 25 % of the total costs to typical residential customers (Higgins, Dibden,

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& Cocklin, 2015). A customer’s gas bill will be more heavily influenced by network costs, which
contribute around half of the average residential bill. Australian network operators are working
hard to reduce network charges. In New South Wales over the next five years, Jemena’s network
customers will see an average saving of $118 per year due to a 34% reduction in network
charges. As a result of stable or falling distribution network costs and increased retail
competition, the outlook for residential gas prices remains competitive, even with rising
wholesale prices (Simshauser & Nelson, 2015).
Gas for business customer:-
Australia’s distribution gas networks provide approximately 133,000 commercial and industrial
customers with an essential input to growth, job creation and environmental performance. A
quarter of Australia’s energy used comes from gas. The domestic gas sector was estimated to
contribute almost $3 billion to value added GDP in 2013. Natural gas is widely used in
commercial premises as an efficient source of heating and cooling. Gas is also a critical input to
industrial operations including the manufacturing sector which employs about one million
Australians. It is commonly used to generate electricity, heat and steam for production including
alumina refining, food manufacturing, beverage and grocery production. Gas is irreplaceable in
the production of most fertilisers, cleaners, polymers and refrigerants, making it a crucial
feedstock for industry (Haghkhah, 2016). Significant innovation in gas uses and technology are
driving efficiency, economic growth and lower greenhouse gas intensity in industrial production.
Sustainable procurement practices for AGL:-
Sustainable procurement is a solution to integrate environmental and social
considerations in all steps of procurement process, in order to reduce impacts on human health,
environment, and human rights (Roman, 2017). The inclusion of sustainability considerations

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will strengthen the company’s long-term profitability as well as allow the company to contribute
positively to the communities and the environment in which the company operate. A sustainable
procurement program will minimize the subjection of AGL’s reputational risk from involving in
business with the suppliers. However, the company needs to change the traditional sourcing
approach to implant such considerations in the company strategy (Strand, 2013).The policy for
sustainable development rests on four main goals: (i) social progress that recognizes the needs of
all; (ii) effective environmental protection; (iii) prudent use of natural resources; and (iv)
maintenance of high and stable levels of economic growth and employment levels (Pires,.,
Fidélis & Ramos, 2014).
AGL has implemented sustainable strategy to identify, manage, monitor and report on the
material risks. AGL sustainability implies thinking about the responsibilities to the company’s
stake holders such as employees, customers, investors and the community as well as to
environment where all work and live.The provision of training to key procurement staff will
enable AGL’s procurement professionals to understand the benefits associated with embedding
sustainability principles as part of procurement processes. The training will provide the
procurement team with adequate knowledge and tools to include sustainability considerations as
part of sourcing activities.
The implementation of the company’s sustainable procurement program is divided into
several phases. First phase aims to build the fundamental for sustainable procurement practice
including expansion of necessary tools and processes to consider the social and environmental
impacts of AGL’s purchases. In the financial year 2013, AGL created a sustainable procurement
strategy to translate company wide sustainability targets into objectives for the procurement
function. AGL has commenced the development of the AGL Supplier Code of Conduct and the

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AGL Sustainable Sourcing Policy. The AGL Sustainable Sourcing Policy will formalise AGL’s
sustainable procurement vision and objectives as well as the organisational approach to meeting
such objectives (AGL Lapinskaite, & Radikaite, 2015). AGL’s Supplier Code of Conduct will
establish the minimum sustainability requirements suppliers must meet as a pre-requisite to
conduct business with (Klettner, Clarke & Boersma, 2014).
 In the financial year 2014, AGL has performed a supply based risk analysis for the purpose
of high risk suppliers identification.
 In financial year 2017, AGL has implemented the ‘procure to pay’ policy that provides the
guiding rules of company’s procurement activities.
Impact of new technologies on the end customers:-
New energy technologies such as digital meters, distributed generation, electric vehicles
and battery storage (along with the products and services that are enabled by these technologies)
have the potential to unlock benefits in Australia’s energy markets such as reducing customers’
energy bills, increasing energy efficiency, and improving the utilisation and productivity of
existing energy infrastructure. Additionally, these technologies can give customers more control
over their energy use and increase market participation and demand response through access to
accurate real-time information (Chapman, McLellan & Tezuka, 2016).
AGL supports a customer-led approach to distributed resources where households and
businesses are able to capture personal value from devices (e.g. for managing in-home comfort
and energy spend), as well as offer services to networks or in the wholesale market. In this way,
customers are able to share in the benefit delivered to the energy supply chain.

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Impact of new technologies on the gas producers:-
Technology has crept into supply chain management (SCM) in a gradual and progressive
manner, commencing with actions like electronic invoicing, computerised tracking and shipping
and automated notifications and moving on to diverse and numerous other applications. Such
incorporation of new technologies is being driven by diverse forces, like increasing customer
expectations, intensification of competition, increasing fuel costs and greater demand for
inventory control and Just in Time (JIT) management. Each and every link in a supply chain can
be simultaneously monitored and automated notification systems can be used for sending
messages to diverse players through different channels (Intermec Technologies Corporation,
2007). Some of the top trends and technologies impacting supply chain operations, spanning
production, distribution, retailing and remote servicing include (1) comprehensive connectivity,
(2) voice and GPS communication integrated to rugged computers, (3) speech recognition, (4)
digital imaging, (5) portable printing, (6) bar-coding advances, (7) remote management and (8)
wireless and device security. Taking up the case of voice and GPS communication, leading
cellular carriers have certified the utility of rugged hand held computers, which facilitate voice
communication, data connection and cell phone functionality through one device (Fleming &
Measham, 2015).
Developing a project integration management plan emphasizing on
procurement:-
Project management integration is a set of processes that are required to ensure that various
projects elements are properly coordinated. Project integration is very vital in all project work
and helps in all aspect of the project, when properly performed, it ensure that all project
processes run smoothly and will produce a series of deliverables such as project charter, scope

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management, project plan (Hornstein, 2015). Nowadays, large projects in gas industry face
similarly challenging as they become increasingly complex and technologically demanding.
Recent studies indicate that the traditional scheduling method used on oil and gas mega projects
has critical limitations regarding resource scarcity, calculation of activity duration, and dealing
with uncertainties. To overcome these limitations, the Theory of Constraints-based CCPM was
proposed and implemented to provide schedule buffers management.
A procurement strategy that’s successfully integrated and implemented within the Project’s
cascade of objectives and performance measures is recognisable by the following five
characteristics (Memon et al., 2014).
 Clear “buy-in” from Project senior and broader stakeholders to the benefits from embracing
an agreed role and purpose for the procurement process and how people need to interact to
ensure that outcomes are achieved in a satisfactory manner.
 Competent professional commercial people playing a key role in the process, at the right
interaction points, to ensure delivery of clear solutions from supply markets that meet Project
needs.
 Key suppliers and contractors who treat the Project as genuine “preferred customers”.
 Processes, systems, measures and enabling structures that support delivery capability along
the entire procurement process cycle.
 Capacity and capability that’s available at the right pressure points.
Setting out the Objectives, Goals and Guiding Principles
Strategy documents need to outline two key facets — the objectives of the strategy, and the
goals which are necessary to achieve these objectives.

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The goals describe what will actually happen and objectives describe what will be achieved as a
result. The guiding principles reflect the core values on which the strategy is based, and which
will inform all the actions which are planned as a result.
Procurement will:
 be transparent;
 be driven by desired results;
 create the most economically advantageous balance of quality and cost;
 reduce the burden on administrative and monitoring resources;
 lead to simplified or routine transactions;
 encourage open and fair competition; and
 follow all appropriate regulations and legislation.
These values in turn translate into key performance indicators that can be used to assess the
quality of results.
References:-

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Austvik, O. G. (2016). The Energy Union and security-of-gas supply. Energy Policy, 96, 372-
382.
Cassidy, N., & Kosev, M. (2015). Australia and the global LNG market. Reserve Bank of
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