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Supply Chain Components of Natural Gas Cost – III
June 27, 2008
Today’s guest blogger is Peter Franolic, who heads the Energy practice at Greybeard Advisors LLC. Pete is the former Director of Energy Affairs for one of the largest energy users in North America, where he managed all aspects of energy, including energy procurement, risk management and hedging, conservation, and regulatory matters, before joining Greybeard. Pete can be reached at: Franolic@GreybeardAdvisors.com
This is the third in a multi-part series.
In the prior segments of this review we introduced the components of the natural gas chain and we also stated that the total cost of natural gas has only one component that behaves like a “commodity” while the other components are fixed or regulated. We described what occurs in the exploration and development, gathering and processing portions of the supply chain.
In this segment we will discuss the role of the interstate pipelines and the local distribution systems.
Source: Energy Solutions Associates, LLC
As shown in the diagram, once the natural gas leaves the processing plants, it is pipeline quality and enters the “market.”
Pipeline Transportation
The interstate natural gas pipeline network transports processed natural gas from processing plants in producing regions to those areas with high natural gas requirements, particularly large, populated urban areas. The pipeline network extends across the entire country.
Interstate pipelines are the "highways" of natural gas transmission. Natural gas that is transported through interstate pipelines travels at high pressure in the pipeline, at pressures anywhere from 200 to 1,500 pounds per square inch (psi). This reduces the volume of the natural gas being transported (by up to 600 times), as well as providing propellant force to move the natural gas through the pipeline.
Marketers and larger end users can contract for capacity on the more than 300,000 miles of pipeline to move their gas to desired destinations. Where many marketers and/or end users trade gas, market hubs exist that have become points of purchase and sale for the financial market as well. There are about 30 major market hubs with many more minor ones. Markets hubs exist where several pipelines intersect and exchange volumes. The most well known market hub and the one where the NYMEX futures contract is traded is the Henry Hub in Louisiana.
More in the next posting.
Posted by Robert A. Rudzki on June 27, 2008 | Comments (0)