Conduit bursts or leakages present an ongoing problem for hydraulic fluid transport grids, such as oil or water conduit networks. Better monitoring allows for easier identification of burst sites and faster response strategies but heavily relies on sufficient insight in the network’s dynamics, obtained from real-time flow and pressure sensor data. This paper presents a linearized state-space model of hydraulic networks suited for optimal sensor placement. Observability Gramians are used to identify the optimal sensor configuration by maximizing the output energy of network states. This approach does not rely on model simulation of hydraulic burst scenarios or on burst sensitivity matrices, but, instead, it determines optimal sensor placement solely from the model structure, taking into account the pressure dynamics and hydraulics of the network. For a good understanding of the method, it is illustrated by two small water distribution networks. The results show that the best sensor locations for these networks can be accurately determined and explained. A third example is added to demonstrate our method to a more realistic case.