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Feeding the Power Burn – Pipeline Capacity for Increasing Natural Gas Generation

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.

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