Natural Gas Tutorial

MIC Meeting

March 2010

Discussion Topics

●Analogies.

●Electric vs. Gas day.

●Trading & Scheduling.

●Operating Constraints.

Contributors

●Bill Casey (PGE)●Ernie Crawford (PNM)●Justin Thompson (APS)●Kent Price (SRP)●Moe Sakkijha (APS)●Paul Goldstein (Sempra Generation)●Steve Maestas (PNM)●Timothy Carter (xcelenergy)

Electric vs. Gas Analogies

Kent Price

Industry Parallels - Electric vs. Gas

● Transmission vs. Transportation

● Speed of light vs. miles per hour

● Electric vs. Gas day

● Preschedule vs. Day Ahead

● Real time vs. Intraday

● Schedule vs. nomination

● Immediate vs. Storage

Electric vs. Gas Day

Steve Maestas

Standard Power Flow Day VS Gas Flow Day

● Power volumes are split into two components:● Heavy Load – Hours Ending 7:00 PPT through 22:00 PPT● Light Load – Hours Ending 1:00 PPT through 6:00 PPT & Hours

Ending 23:00 PPT and 24:00 PPT● Hourly scheduling

● Daily Gas is purchased in MMBtu/Day flowing● from 7:00 PPT and ending 6:59 PPT next day● Hourly flow is 1/24th of daily nomination

PowerHeavy Load

Daily Gas

PwrLL

Hours In( Pacific Prevailing Time )

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 01 02 03 04 05 06 07 08

PowerLight Load

Standard Trading Schedules For WECC Power VS Gas

Monday Wednesday = Power & Gas Trade Next Day00 00/24 00/24 00/24 00/24 00

Power

Gas

Power Std. Trading Time 06:00 8:00Gas Std. Trading Time 05:00 6:30

Power Flow Day Midnight to Midnight

Gas Flow Day 7:00 to 6:59 PPT

Thursday = Power Trades (Friday / Saturday) & Gas Trades (Friday)00 00/24 00/24 00/24 00/24 00

Power

Gas

Friday = Power Trades (Sunday / Monday) & Gas Trades (Saturday to Monday)00 00/24 00/24 00/24 00/24 00

Power

Gas

Monday Tuesday Wednesday

Thursday Friday Saturday

Friday Saturday Sunday Monday Tuesday

Tuesday Wednesday Thursday

Wednesday Thursday Friday

Trading Calendar

● ICE – Coordinates with larger players & New York Mercantile Exchange calendar

●WECC – Subcommittee●East trades weekend (Sat-Mon) on

Friday●WECC trades 2+2 for weekends

Weekend Gas Burn Pattern

Trade Transactions

●InterContinental Exchange (ICE)

●Broker

●Bilateral vs. Direct

●Electric vs. gas customer types

Electric vs. Gas Scheduling

Paul Goldstein

Electric vs. Gas Scheduling – Day Ahead (PPT)

Gas● Trading typically finished in the West by 6:30 am● Cycle 1 nomination deadline for next gas day due at 9:30 am● Cycle 2 nomination deadline for next gas day due at 4:00 pm

Power - Non CAISO● Trading typically finished in the West by 6:00 am● Power physically scheduled no later than 3:00 pm

00/24 00/24

Power

Gas

00/24

Preschedule Ends

Cycle 1 Ends

Cycle 2 Ends

00/24

Electric vs. Gas Scheduling – Day Ahead (PPT) Gas

● Trading typically finished in the West by 6:30 am● Cycle 1 nomination deadline for next gas day due at 9:30 am● Cycle 2 deadline for next gas day due by 4:00 pm

Power - CAISO● Energy Bids/Schedules submitted to CAISO no later than 10:00 am● Market results typically received no later than 1:00 pm

00/24 00/24

Power

Gas

00/24

Market Results

Cycle 1 Ends

Cycle 2 Ends

00/24

Electric vs. Gas Scheduling – Intra Day (PPT)

● Electric1. Real time hourly adjustments

● Gas1. Cycle 3 deadline for same gas day – 8:00

am● Bi-lateral power trades for day-ahead include

last 7 hours of the current gas day. If trading is finished at 6:00 am, there are two hours to trade and schedule gas.

● Cycle 3 has traditionally been the most liquid of C2-C4

Electric vs. Gas Scheduling – Intra Day (PPT) – Cont’d

● Gas – Cont.2. Cycle 4 deadline for same gas day – 3:00 pm

● CAISO day-ahead market awards received at 1:00 pm (leaves 3 hours to trade and schedule the gas needs for the last 7 hours of the current gas day).

● Since the gas day lasts through 7:00 am the next day there are usually no nomination changes for 15 hours of actual gas day.

Electric vs. Gas Scheduling – Intra Day (PPT) – Cont’d

● Gas – Cont.3. Pro-rata examples

● If new gas/transport is nominated on later cycles, full volume

● Depending on the pipeline, if a shipper wants to move gas from one delivery point to another, not all volume can be re-directed Cycle 3 – 66% Cycle 4 – 50%

● Other scenarios if you have already moved some or if the Cycle 3 nomination is new and you want to move some for Cycle 4

Electric vs. Gas Scheduling – Intra Day (PPT) – Cont’d

● Gas – Cont.4. Other options to balance gas needs (some or all

are not available at many locations)● Storage● No-notice services● Flow Day Diversion (Redirect)

Electric vs. Gas Scheduling – Intra Day (PPT) – Cont’d

● Power● Real time hourly changes either bi-lateral or through

CAISO awards

Electric vs. Gas Scheduling – Intra Day (PPT) Electric

● Real time hourly adjustments Gas

● Cycle 3 deadline for same gas day – 8:00 am ● Cycle 4 deadline for same gas day – 3:00 pm ● After Cycle 4 ability to change gas quantities/schedules are

limited

PowerHeavy Load

Daily Gas

Hours In( Pacific Prevailing Time )

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 01 02 03 04 05 06 07 08

PowerLight Load

PwrLL

Cycle 3 Cycle 4

Electric vs. Gas Trading Disconnect

●WECC only NERC region that trades Saturday electricity in advance of gas.

●Similar disconnect occurs due to holidays and first of the month.

●Electric-gas market disconnect can range from one to several days.

●Market disconnect results in pricing of electricity before gas price is known.

Electric vs. Gas Trading Disconnect – Cont.

●Gas price uncertainty presents risk, likely reflected in electricity prices.

●Gas price uncertainty may result in generation being withheld from market.

●Better alignment of electric-gas markets results in proper valuing of electricity and heat rate options.

Electric vs. Gas Operations

Justin Thompson

Analogy: Inadvertent Flow

Electricity●Generated electricity on the grid must

be consumed immediately, i.e., there is no electricity storage on the grid

● Inadvertent Flow the difference between the actual and scheduled flows between two power grids (also know as unscheduled flows and loop flows)

Gas Pipeline Operation Fundamentals

What is Line Pack - The ability of a natural gas pipeline to effectively "store" small quantities of gas on a short-term basis by increasing the operating pressure of the pipe. Most pipelines use line pack as a resource to help manage the load fluctuations on their systems, building up line pack during periods of decreased demand and drawing it down during periods of increased demand.

• If the pipeline pressure gets too low it may collapse

• If the pipeline pressure gets too high it may cause leaks or ruptures

Gas Pipeline Operation Fundamentals – Cont.

● Gas pipelines must operate with a line pack within a certain range, similar to a voltage range for a transmission line“Receipts” (input) of gas need to match “Deliveries”

(burn) to keep line pack in balanceWhen “Deliveries” exceed “Receipts” line pack goes

downWhen “Receipts” exceed “Deliveries” line pack goes

up

● To incent correct behavior – pipelines impose penalties when shippers don’t balance “Receipts” and “Deliveries”

Gas Pipeline Operation Fundamentals – Cont.

Analogy: Imbalance Gas

●Natural Gas ● Most pipelines have gas storage attached

to the system• Transporter must contract for firm storage

service or rely on interruptible storage● Some pipelines offer a park and loan (pack

or draft) service at an extra cost• Subject to availability, interruptible

Analogy: Imbalance Gas – Cont.● Natural Gas● A shipper on the pipeline may leave some gas

on the pipe as line pack (pack the pipe) Most pipelines discourage this practice & will

penalize excessive behavior● All major pipelines can provide extra gas

beyond what is actually scheduled by a shipper by taking gas out of line pack (draft the pipe) As above, excessive behavior will incur penalties,

possible interruption.

Emergency Conditions

● Strained and Critical Operating Conditions (SOC & COC)● Declared by pipelines for extreme or emergency

conditions Either high or low line pack

● If emergency is severe enough then pipelines can “Flow control” deliveries off the pipeline or restrict receipts into the pipeline if shipper is not in balance

Either may limit supply to a generator

Penalties

● “Deliveries” in excess of reserved capacity (excessive drafting the pipeline)

● “Deliveries” excessively more than actual take/burn (excessive packing the pipeline)

● “Deliveries” above hourly limits

● “Deliveries” or “Receipts” in the wrong direction when in an SOC or COC

●Magnitude can be severe and up to 300% of the current gas price

Electric Vs. Gas Operating Issues

●Contingency Response● Power – instantaneous balancing required – gas

generators main source of contingency reserves during most hours in southern portion of WECC

● Gas – some ability to pull on pipeline in real time (burn more gas) but not infinite supply Important for shippers to stay in balance Penalties and “Flow Control” curtail excessive

“Deliveries”

Electric Vs. Gas Operating Issues

●Curtailments & redispatch●Power

Line overloads Unscheduled flow mitigation

●Gas Freezing temperatures in the gas producing

areas causing wellheads to freeze Pipeline flowing gas schedules

approaching or exceeding capacity limits During pipeline/compressor station

maintenance outages

Issues the Industry is Facing

●Gas delivery flexibility.

●Gas fueled resources to integrate high penetration of variable generation.

●Are there valid reliability concern due to electric-gas industry interdependency?

●Competition for gas supply during weather extremes?

●Discussion and questions.

●Direction from MIC.