2132 Transportation

Natural gas in the United States is transported almost exclusively by pipeline. From the time the natural gas leaves the wellhead, whatever route it takes in getting to the burner tip, it is through a pipe! Short or long distance, regardless, natural gas is transported in pipe. Only exceptions are the few times compressed natural gas is transported by truck for short distances. And, in some locations where gas is liquefied (LNG) for storage for use during peak demand times, the LNG is moved by truck also. Movement of gas through these two means is insignificant in the overall picture of transporting natural gas.

When talking of transporting natural gas through pipelines, there are three main groups of pipelines to be considered:

Gathering System: These are the pipelines in the field for collecting the gas from the individual wells and bringing it to either a central point for pick up by the long-haul pipeline or to a central treating and/or processing facility.

Long-haul transportation: This is the pipeline picking up the gas at the gathering point, or if a highly productive well near a pipeline, from the well itself and moving the gas to a city-gate for delivery to the distribution company or to a sales point for a large user where the gas is delivered directly to the consumer. The long-haul pipeline can be either an interstate pipeline that crosses from one state into another or an intrastate pipeline where the transportation is only within the state where the gas was produced. The interstate pipelines are economically controlled by the Federal Energy Regulatory Commission (FERC). The operating regulations fall under the Department of Transportation (DOT). The Environmental Regulatory Agency has jurisdiction regardless of the type of pipeline in regard to environmental matters. The interstate pipelines are still economically regulated by the Federal Energy Regulatory Commission (FERC) since these are utilities engaged in interstate commerce.

Intrastate pipelines are economically regulated by state agencies. Utilities are granted a license to operate in certain areas and are allowed to make a rate of return on their invested capital. This is different from the non-regulated businesses where they compete to make profits from the operations. As utilities, the rates for transportation are set through regulatory procedures. The pipeline makes a rate case for presentation to the FERC for authorization to charge the rates shown in the case. The pipeline is allowed to recover all of its costs for transporting the gas and make a return on the invested capital of the pipeline. Natural gas pipelines offer essentially two basic types of rates for transporting natural gas: firm and interrupt-ible. With firm transportation, the transportation buyer is guaranteed a certain volume capacity daily for the gas it wants transported. The buyer is obligated to pay a portion of the transportation charge regardless whether its uses the volume or not on a daily basis. This is called a "demand charge" and is a part of the transportation tariff. The second part of the tariff is the commodity charge and is a variable charge depending on how much gas is transported by the pipeline.

Pipelines also offer an "interruptible" tariff where space is on a "first come-first served" basis. Interruptible transportation carries no guarantee to the party buying the transportation that space in the pipeline will be available when needed. The tariff here is usually very close to the commodity rate under the firm transportation.

The methodology of the ratemaking procedure used to recover the pipeline's costs and rate of return is such that when a pipeline sells all of its firm transportation, it will make its allowed rate of return. A pipeline can legally exceed its accepted rate of return based on its handling of the firm and interruptible transportation. Typically, the pipeline has about 80% of its volume contracted in firm transportation. When a firm transporter does not use its full capacity, the pipeline can mitigate the costs to that pipeline by selling its firm transportation to another transporter as interruptible transportation.

Many of the transportation contracts for firm transportation are terminating in the 2000 period. With the changes in the marketing system and the shift in the merchant role, some pipelines may have difficulty in filling their firm transportation sufficiently, This may bring some reduction in transportation costs which the gas buyer may be able to exploit. Further, the gas buyer at times can use what is called "back hauling" to get a lower rate for gas transportation. An example of this might be gas coming from Canada through the North Central U.S. area such as Chicago. A buyer for this gas might be located in the Southwest, say in Texas. Rather than ship gas from Chicago to Texas and have to pay the full tariff, a shipper might exchange gas in Texas for the gas to come from Chicago to Texas. In turn, the gas coming from Canada would be sold in the Chicago area as "Texas" gas. Here the shipper would pay the much lower fee for the "paper transportation" of the gas volumes. This would be a back haul arrangement.

The interstate pipeline community is relatively small. Many of the pipelines have merged or were acquired by other utilities since the regulatory changes in the industry took the merchant function from them and made them strictly transporters. There are 25 major interstate pipelines moving gas from the production areas of the country to the consumer. These are owned or controlled by only 13 companies. Table 21.1, U.S. Interstate Natural Gas Pipelines, lists the major U.S. interstate pipelines, and the parent company having ownership. In all likelihood, even more mergers and acquisitions will occur to bring the number of separate companies even lower.

Intrastate pipeline companies are within the state where the gas is produced. Many of these have miles of pipeline comparable to the interstate systems but, do not cross state lines. Within the state, these pipelines serve the same mission as the interstate pipelines; bringing the gas from the field whether the well or gathering point to the city gate for distribution by the local distributor or directly to a large consumer. Some of the larger ones for the gas producing states are listed in Table 21.2. While the pipelines themselves are no longer sellers of natural gas, the buyer should review the pipelines' systems to see if there is a close connection possible so a direct supply might be made from the pipeline to the consumer. In cases where a pipeline is close to a plant or other large user, a marketer or the buyer itself can make arrangements for the short-

haul pipeline to bring gas from the transporting pipeline to the facility.

Pipeline transportation might include more than one pipeline to complete the shipment from well to burner tip. Who pays for the transportation at each step is open to negotiation between the gas supplier and the buyer. Usually, the producers are responsible for the gathering and field costs of getting the gas to the transportation pipeline's inlet, which may be on the pipeline or at a terminal point, sometimes designated as a "hub." Many times when the transporting pipeline goes through a producing field, the producer will only be responsible for gathering charges to get the gas from the wellhead to the field's central point for discharge into the pipeline's inlet. The gathering and field charges along with the transportation to the transporting pipeline inlet is what makes the difference between wellhead gas prices and "into pipe" gas prices.

Table 21.1 U.S. Major Interstate Natural Gas Pipelines
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