an introduction to natural gas

8/7/2019 An Introduction to Natural Gas

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An Introduction to

Natural Gas


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NYMEX settlement prices since 1995

Natural Gas began trading on the NYMEX on April 3,1990

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FERC Order 636

Order 636 (April 8, 1992), required pipelines to "un-bundle" theirservices and to offer and price these services separately. Order 636ended the pipelines' traditional middleman role as a buyer and aseller. It converted them to transportation companies. This enabledall natural gas producers to compete directly for buyers on an equalfooting.

Pipelines were instructed to implement a capacity release program foruse by the FT customers

Intended evolution of full competition in the natural gas industry --allowing all natural gas suppliers, including the pipeline as merchant,to compete for gas purchasers on equal footing.

Promotion of competition among gas suppliers seen as benefit to all

gas consumers and the nation by ensuring adequate and reliablesupply at the lowest reasonable price


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MARKETER

A company or individual that sells gas,transportation, storage services, or anycombination of these services. Generally,

the term is used to identify a company thatsells gas to an end user or LDC. Marketingcompanies affiliated with regulatedcompanies, such as pipelines, are called

Marketing Affiliates or Affiliated Marketers.


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Broker

An individual or company engaged in bringingtogether buyers and sellers of gas at thewellhead. Brokers generally do not buy or sell

gas for their own account, but act as agents forthe buyer and/or seller.


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FIRM Service

Service (sales/transportation/storage) offered on aguaranteed basis. Seller warrants service will be availableevery day of the contract unless prevented by ForceMajeure.

Buyer will generally pay a demand fee (or reservationcharge) and a commodity charge for firm service. The totalcharge is generally higher than for interruptible services.

Firm services have higher priority than interruptibleservices. Firm service contracts generally have a minimumone year term. Many firm service contracts are for as longas 15 years.


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Force Majeure

A contractual clause that allows forsuspension of a partys obligation toperform under contractual terms if

certain acts of God, naturaldisasters, or certain acts of manprohibit normal performance of theservice. Examples include: freeze-

offs, strikes, hurricanes,earthquakes, blow outs, etc.


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Interruptible Service

Service (sales/transportation/storage) that is notguaranteed. Seller can generally cease serviceperformance with short or no notice. Seller will interrupt ifthe service is required to serve a higher priority customer.

Buyer will generally pay only a commodity charge whenservice is utilized. The total cost is usually less than firmservice. Interruptible service is less reliable by definition.

Interruptible services have lower priority than firm services.Interruptible service contracts can have a term as short as

several days to one month.


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Storage Field

A place to store natural gas supplies foruse at a later time. Can be an old gasfield, developed salt dome or liquefied

natural gas tank. Advantages includinghaving gas closer to end-use markets,ability to offset supply disruptions duringcold weather, and avoidance of pipeline

bottlenecks during peak usage.


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LDC

Local Distribution Company. A company engagedin the sale and distribution of natural gas forultimate consumption. The LDC generally servesresidential, commercial and industrial marketsthrough a network of distribution pipelines.

In te rs ta t e P ipe l ine

City Gate 1 City Gate 2

Loca l D is t r ibu t ion

Company


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End User

The ultimate consumer of natural gas,such as a home, industrial plant, electricgenerating plant, office building,

university, etc.


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Burner Tip

Refers to the ultimate usage of gas.Originally referred to residential orcommercial usage where special flamedispersing heads were attached to the gasburning appliance to make the flame suitablefor lighting, cooking or industrial uses.

Today the term is more generic and refers toany final usage of gas by an end user.


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MCF

The volume of natural gas which occupies1,000 cubic feet when such gas is at atemperature of 60 degrees Fahrenheit and at astandard pressure of approximately 15 poundsper square inch.


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BTU

British Thermal Unit. The amount of heatrequired to raise the temperature of one poundof water one degree Fahrenheit.


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MMBTU

A measurement of gas based on a standard heatvalue or stored energy. A million British ThermalUnits, where a BTU is the amount of heatnecessary to raise one pound of water one

degr ee Fahrenheit .


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Dekatherm

Equivalent to an MMBtu. Literally, it means 10therms. A therm is defined as 100,000 BTUs.

1 MMBTU = = 1 Dekatherm


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BCF

One billion cubic feet.

Equivalent to 1,000,000 Mcf or 1,000 MMcf.

1,000 Mc f = 1 MMc f = .001 Bc f

1,000,000 Mc f = 1,000 MMc f = 1 Bc f


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Equivalent Values

Energy Conversion:

1 CCF = 100 CF = 1 Therm

1 CF (Cubic Feet) = 1,000 BTU's

1 Therm = 100 CF = 0.1 MCF

10 Therms = 1 MCF = 1 DT = 1 MMBTU

1 MCF = 1.000 CF = 10 CCF


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Degree Day

A measure of weather coldness experienced,based on extent to which daily mean temperature(average of high and low readings) falls below areference temperature of 65 degrees Fahrenheit.

50F + 30F = 40F

2

65F - 40F = 25 degree days


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Peak Day

The day on which the maximum load is consumedor produced in a stated period of time.

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Base Load

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MMBTU/Day

The lowest daily amount of gas taken orconsumed over a given period of time.

Base Load


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Swing Load

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Swing Load

The daily volume of gas taken orconsumed above the base load quantityof gas.


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MDQ

Maximum Daily Quantity- The maximumquantity of gas a customer cantake/request under a contract on any one

day. MDQs may vary by month orseason. It is not unusual for the MDQ tobe higher during the winter (as comparedto summer).


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Demand Charge

The dollars that a buyer pays for aservice that are directly linked tothe right to use the service.

These costs will be incurredwhether the service is used ornot. Charges are generally basedon $/Dth of MDQ or TQ.


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Commodity Charge

The dollars that a buyer pays for aservice that are directly linked toutilization of the service. Buyer pays thecommodity charges only when service isused. Commodity charges are usuallypaid on a per unit basis ($/MMBtu).


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Load Factor

Average capacity utilization by a customerrelative to total or maximum availablecapacity (peak utilization). Expressed as apercentage of average to maximum.

Customers with a 100% load factor usetheir maximum capacity every day. Acustomer with a 50% load factor uses theircapacity only half of the time.


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Fuel/Shrinkage

The mechanical compression of naturalgas along the interstate pipeline results ina volume loss called shrinkage or fuelcost. Each pipeline has a defined rate

regulated by FERC that determines thespecific shrinkage percentage betweendelivery points along their pipeline.

Fuel cost is calculated as a percentage ofthe commodity cost.


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Fuel/Shrinkage Calculation

Volumetric calculation

Example: 1000 Dths @ wellhead

X .9655 Transco Z 3-5 fuel percentage

965.5 Dths @ city gate

Monetary calculation

Example: $6.00 per Dth price @ wellhead

/ .9655 Transco A 3-5 fuel percentage

$ 6.2144 per Dth price @ city gate

$ 0.2144 per Dth is the actual fuel cost


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Operational Flow Order

Orders which are issued by a pipeline to protect the

operational integrity of the system. The orders may eitherrestrict service or require actions by shippers to correct the

problem.


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Curtailment

A curtailment is issued by an LDC to protect the operational

integrity of the system and ensure delivery to their firmtransportation holders. The curtailment will restrict service

to customers that have Interruptible Transportation (IT)contracts only. Residential customers, small general service

rate customers and other end users holding firm

transportation contracts will not be curtailed. Interruptible

customers will be curtailed in order of priority to ensure firm

deliveries are met first.

an introduction to natural gas

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