The generation of power from natural gas will be the most important growth sector for the gas industry for the foreseeable future – certainly for producers, but also for the pipelines that provide the transportation service to deliver the gas to power generators. Handling the infrastructure and service challenges that come with increased power burn is therefore a priority. This is true for the nation as a whole, but was specifically raised this year by the Midwest Independent System Operator (MISO) in the heart of coal country - where coal-to-gas switching was most significant during 2012. We covered the MISO reports detailing their infrastructure concerns previously (see Hooking Up the Next Generation). This blog post is a review of challenges that the industry must address on both the regional and national level.
Defining Pipeline Capacity
Generators seeking additional capacity via existing pipelines first need to define the level of gas transportation service and the points between which capacity is required. These criteria identify the limitations and ultimately the cost of the capacity. Not all pipeline capacity is created equal. Capacity on a given pipeline system is typically stated between Point A and Point B. It cannot be generalized. For example, while the long haul capacity between two points may be unavailable; there could be short haul capacity available on the same segment upstream or downstream of the constraint. For example, it may not be possible to get gas to Michigan from the Gulf Coast but it might be possible if the shipper sourced the gas from northern Louisiana or from Pennsylvania – due to the configuration of the pipeline system and location of pipeline capacity constraints.
The nature of the transportation service needed can also make a big difference. Natural gas pipeline service is tiered according to priority. Primary Firm Transportation is the top priority, and is ‘guaranteed’ to flow unless there is a force majeure situation on the pipeline. Secondary Firm flows unless it is preempted by Firm Transportation. In that case, the scheduled quantities are curtailed, or ‘allocated’. Interruptible service is the bottom of the priority stack, and only flows if the Primary and Secondary firm shipper schedules have been fully satisfied.Primary Firm Transportation is the premium service but that is often unavailable because legacy shippers, often Local Distribution Companies (LDCs), hold on tightly to this service to meet their ‘Obligation to Serve’ mandates from Public Utility Commissions. That means that some power generators must live with Secondary Firm or Interruptible Service. In some circumstances the lower service levels can work, as we’ll describe below.
Comments
Hi Bob,
Very useful post. Thank you. I have two questions:
1) Are the contracts in the Index of Customers all "firm" contracted capacity?
2) Is it possible to back into the total non-contracted capacity of a natural gas pipeline through the index of customers list? I crunching some numbers on a particular FERC regulated pipeline and while I have been able to approximate what annual contracted revenue will be from the current customer list, I am not sure how to determine what additional revenue could be generated through capacity that is not currently contracted.
Best,
Matt
The contracts listed in the Index of Purchasers list are firm transportation contracts. Regarding your question about estimating additional revenues, it is diffiicult to do that for many reasons but there is usually upside potential. First, Interruptible Transportation for capacity that is already contracted is possible, but another key potential is backhauls and pockets of capacity. Contractual flow is different from physical flow. For example, with the growth of Marcellus production, production in excess of the local market is contracted to flow in what used to be upstream on major systems such as TETCO or Tennessee, although the gas may not physically move that way..Pipes can contract for transportation service in both directions on the same section of pipe. In some cases pIpes have had to modify their systems to allow reversal of direction by re-piping compressor stations. Pipe websites allow users to see available capacity between two points entered by the users. Pockets are sometimes available on a shorter segement of a long haul depending on what points are selected. Capacity could be available for much of the distance by selecting different receipt or delivery points. I hope this helps.