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The U.S. Natural Gas Markets and Industry. Energy Information Administration 13 May 2003 Barbara Mariner-Volpe, [email protected] William Trapmann, [email protected] Presentation Coverage. Background on U.S. gas market Regulations Market Restructuring

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the u s natural gas markets and industry

The U.S. Natural Gas Markets and Industry

Energy Information Administration

13 May 2003

Barbara Mariner-Volpe, [email protected]

William Trapmann, [email protected]

presentation coverage
Presentation Coverage
  • Background on U.S. gas market
  • Regulations
  • Market Restructuring
  • Competition
  • Infrastructure
  • Storage
major natural gas producing basins and pipeline transportation corridors to market areas
Major Natural Gas Producing Basins and Pipeline Transportation Corridors to Market Areas

Source: Energy Information Administration, GasTran Gas Transportation Information System

regulations laws affect the production supply segment
Regulations/Laws Affect the Production/Supply Segment
  • State
    • Conservation Laws - well spacing, mineral rights, environmental impact, production rates, draining
  • Federal
    • Environmental Protection Agency (EPA) - emissions
    • U.S. Department of Energy - authorizes import/exports, Strategic Petroleum Reserve
    • Bureau of Land Management, Minerals Management Service - leasing
  • Other
    • U.S. Coast Guard, U.S Dept. of Transportation, Natural Gas Act, Energy Policy Act, Laws affecting access to wilderness areas and offshore
regulations laws affect natural gas pipeline companies
Regulations/Laws Affect Natural Gas Pipeline Companies
  • State
    • Regulate intrastate pipeline companies
  • Federal
    • Federal Energy Regulatory Commission (FERC) regulates interstate pipeline rates, construction and certain operations
    • U.S. Department of Transportation - pipeline safety, inspections
    • EPA - emissions
    • Treasury Department
regulations laws affect local distribution companies
Regulations/Laws Affect Local Distribution Companies
  • State
    • Regulate local utility rates, certain operations, siting, construction, emissions
  • Federal
    • Environmental regulations - emissions, ground water impact
  • Local Jurisdictions
    • Regulate municipal utilities rates and operations
overarching goal of federal energy regulators in the u s
Overarching Goal of Federal Energy Regulators in the U.S.
  • Maximize consumer and economic benefits
  • Minimize the need for future regulatory intervention
regulatory developments
Regulatory Developments
  • Federal
    • Encourage competitive markets, remove barriers, streamline processes, encourage responsible infrastructure development
  • State
    • Unbundling programs stalled in some areas
    • Evaluating programs and impacts
    • Issues: reliability, consumer prices, standards
the paradigm for the gas market changed in the 1990s
The Paradigm for the Gas Market Changed in the 1990s
  • Pre Restructuring Paradigm:
    • heavy regulation
    • efficiency not rewarded
  • Post Restructuring Paradigm:
    • principles of competition and choice, while recognizing a continuing, although greatly reduced role for regulation
u s gas market changes over the last decade
U.S. Gas Market Changes over the Last Decade
  • Physical Changes:
    • increase in pipeline capacity
    • development of high-deliverability storage
    • new pipeline routes, more interconnections
    • technology advances
    • Development of market centers
  • Structural Changes:
    • regulations -- encourage competition, protect environment
    • role of pipelines -- transporters only
    • open access to suppliers
    • Development of futures market
    • deregulation of wellhead prices, spot market
    • emergence of a secondary market for trading pipeline capacity
natural gas futures trading market is used to hedge against price volatility
Natural Gas Futures Trading Market Is Used to Hedge Against Price Volatility
  • New York Mercantile Exchange (NYMEX) for
  • deliveries at Henry Hub
  • Allows a buyer to lock-in a price for an amount of gas (10,000 MMBtu) that will be delivered at some time in the future (36 consecutive months).
  • Trading for the next month’s deliveries stop three business days prior to the first day of the delivery month.
restructuring of u s retail markets
Restructuring of U. S. Retail Markets
  • Residential and small commercial consumers are, to varying degrees by state, acquiring choice of supplier.
  • Electric generators, industrial and large-volume commercial customers have effectively had supply choice for a number of years.
as of december 2002 twenty states and the district of columbia have a residential choice program
As of December 2002, Twenty States and the District of Columbia Have a Residential Choice Program
retail restructuring varies across the u s for several reasons
Retail Restructuring Varies Across the U.S. for Several Reasons
  • States Act Independently of Each Other
  • Political/Economic Objectives Differ
  • Regulatory Structures Differ
  • Market Size to Attract Energy Providers
retail unbundling may include more than supply acquisition
Retail Unbundling - May Include More than Supply Acquisition

Retail unbundling may evolve to include the following traditional distributor services:

  • Storage
  • Metering
  • Balancing
  • Standby service - "supplier of last resort"
what are the signs of a sufficiently competitive market
What Are the Signs of a “Sufficiently” Competitive Market?

Competitive Markets generally possess one or more of the following characteristics:

  • Many buyers and sellers
  • Many product options
  • Relative ease of entry and exit
  • Risk, on the part of the service provider, of losing money if they do no operate efficiently
elements of a well functioning gas market
Elements of a Well Functioning Gas Market
  • Unconcentrated market structure
  • Grid integration
  • Supply/Demand responsiveness
  • Risk management tools – hedging and forward contracting
  • Accurate scheduling, system reliability
  • Access to information – market monitoring
  • Capacity expanding in response to market signals
u s interstate and selected intrastate natural gas pipeline systems 2002
U.S. Interstate and Selected Intrastate Natural Gas Pipeline Systems 2002

Source: Energy Information Administration, Office of Oil & Gas

, EIAGIS-NG Geographic Information System

gas market centers serve as major trading and transshipment points
Gas Market Centers Serve As Major Trading and Transshipment Points

Sumas Center

Chicago Center

PGT Center

Iroquois Center

Columbia Gas Center

New York Center

Western Center

Golden Gate Center

Ellisburg-Leidy Center

Cheyenne Hub

California Energy Center

Mid-Continent Center

Dominion/Sabine Center

Blanco Center

Ouachita Hub

Mojave Center

Perryville Center

Carthage Hub

Waha (Lone Star) Hub

Houston Hub

Waha EPGT Hub

Waha Hub

The Exchange Center

Nautilus Hub

Katy Hub

Louisiana Hub

Aqua Dulce Hub

Henry Hub

Moss Bluff Hub

Egan Hub

Source: Energy Information Administration, GasTran Gas Transportation Information System, Natural Gas Market Centers Database.

market center and hub services






Gas Sales

Title Transfer

Electronic Trading



Risk Management

Hub-to-Hub Transfers

Market Center and Hub Services
there is no centralized planning of additions to gas pipeline capacity
There is No Centralized Planning of Additions to Gas Pipeline Capacity
  • Need determined by estimates of future gas demand
  • Pipelines obtain approval of FERC:

- demonstrate need for capacity

- minimize adverse environmental and cultural impact

natural gas storage
Natural Gas Storage
  • Critical supply component during heating season
  • Smoothes the production of gas throughout the year
  • Withdrawals help satisfy sudden shifts in demand and supply caused by weather
  • Supports hub services (parking, loaning…)
natural gas consumption varies widely by month
Natural Gas Consumption Varies Widely by Month

Source: EIA, Natural Gas Division

there are over 400 storage facilities in the u s
There are Over 400 Storage Facilities in the U.S.

Working Gas 3.9 Tcf

Deliverability 78 Bcf per day

changes in storage operations over the last five years
Changes in Storage Operations Over the last five years
  • More emphasis on inventory management
  • Significant growth in deliverability
  • Commodization of storage – risk management tool: price hedge
  • Emergence of third party operators
  • Increased capital investment by local utilities and large consumers
  • Supports hub services and intra-day services
  • Linkage between storage and spot prices
  • Supports market liquidity
peak day storage facilities
Peak Day Storage Facilities
  • Liquefied natural gas – typically more expensive than underground storage. Used mostly in areas where other storage not available.
  • Peak-shaving facilities (propane) – typically used during brief periods when demand spikes.
  • Pipeline Line pack – through increased compression, uses the pipeline as a temporary storage facility
Natural Gas Supply, Consumption, and Imports Are Projected to Expand Through 2025(1970-2025, trillion cubic feet)
federal energy regulatory commission
Federal Energy Regulatory Commission
  • Independent regulatory agency that regulates aspects of the electric, natural gas and oil pipeline and nonfederal hydropower industries.
  • Ensures that rates, terms and conditions of service are just and reasonable
  • Authorizes construction of natural gas pipeline facilities
  • Ensures hydropower licensing, admin. and safety actions are consistent with the public interest.
u s bureau of land management u s dept of interior
U.S. Bureau of Land Management – U.S. Dept. of Interior
  • Administers 262 million acres of public lands, primarily in 12 Western States
  • Responsible for leasing oil/gas resources on all federal-owned lands
  • Review and approval of permits and licenses to explore, develop and produce oil/gas
  • Inspection and enforcement of lease requirements and operations
u s dept of transportation office of pipeline safety
U.S. Dept. of TransportationOffice of Pipeline Safety
  • Ensures the safe, reliable and environmentally sound operation of interstate natural gas pipelines
  • Responsible for compliance, inspection and enforcement procedures of pipeline safety procedures
federal agencies affect the u s gas market
Federal Agencies Affect the U.S. Gas Market
  • Department of Interior
  • Bureau of Land Management
  • Minerals Management Service
  • Bureau of Indian Affairs
  • U.S. Geologic Survey
  • Department of Agriculture * U.S. Forest Service
  • Department of Energy * Office of Fossil Energy
  • Department of Commerce
  • Department of Treasury
  • Environmental Protection Agency
  • Department of Transportation * Office of Pipeline Safety
  • FERC
  • Federal Trade Commission, CFTC