Natural gas prices remain at near-record lows, but with so much production being driven by still-favorable crude oil economics there’s a distinct possibility — especially given the warm winter we’re in — that gas inventories may test storage capacity this year, perhaps as early as Labor Day. Of course, there are many market factors that might prevent this outcome, including lower production, a scorching-hot summer, and gas-to-coal fuel switching. But it could happen. And whenever we approach the limitations of natural gas infrastructure, we’ve seen time and again the disruptions and dislocations the market must deal with. The most obvious market signals are prices. But when it comes to gas flows another important barometer is the use of operational flow orders (OFOs). In today’s blog, we update one of RBN’s Greatest Hits and take a deep dive into the world of OFOs and what they can reveal about the state of the gas market.
OFOs — notices issued by gas-storage operators, pipelines and local distribution companies (LDCs), key elements of the natural gas distribution network — have been around for decades, but really came into their own when natural gas transportation and sales were unbundled in the late 1980s and early 1990s (see Different Strokes for that history). Operational alerts and OFOs can be declared for all sorts of reasons: ruptures, pigging operations and other maintenance, compressor outages, freeze-offs, and other force majeure situations. They can also be issued if the pipeline does not have enough gas and pressures have dropped close to operational minimums, or the pipeline has too much gas and pressures are reaching operational maximums.
Natural Gas Infrastructure. Source: American Gas Association
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