544 ENERGY MANAGEMENT HANDBOOK 1990. The Energy Policy Act of 1992 revised and further increased the excise tax effective January 1, 1993. Another factor to consider in ASHRAE Guidelines 3-1990—Reducing Emission of Fully Halogenated Chlo- rofl uorocarbon (CFC) Refrigerants in Refrigeration and Air-Conditioning Equipment and Applications: The purpose of this guideline is to recom- mend practices and procedures that will reduce inadvertent release of fully halogenated chlorofl u- orocarbon (CFC) refrigerants during manufacture, installation, testing, operation, maintenance, and disposal of refrigeration and air-conditioning equipment and systems. The guideline is divided into 13 sections. High- lights are as follows: The Design Section deals with air-condition- ing and refrigeration systems and components and identifies possible sources of loss of refrigerants to atmosphere. Another section outlines refrigerant re- covery reuse and disposal. The Alternative Refrigerant section discusses replacing R11, R12, R113, R114, R115 and azeotropic mixtures R500 and R502 with HCFCs such as R22. 20.7 REGULATORY AND LEGISLATIVE ISSUES IMPACTING AIR QUALITY 20.7.1 Clean Air Act Amendment On November 15, 1990, the new Clean Air Act (CAA) was signed by President Bush. The legisla- tion includes a section entitled Stratospheric Ozone Protection (Title VI). This section contains extraordi- narily comprehensive regulations for the production and use of CFCs, halons, carbon tetrachloride, methyl chloroform, and HCFC and HFC substitutes. These regulations will be phased in over the next 40 years, and they will impact every industry that currently uses CFCs. The seriousness of the ozone depletion is such that as new fi ndings are obtained, there is tremendous political and scientifi c pressure placed on CFC end-us- ers to phase out use of CFCs. This has resulted in the U.S., under the signature of President Bush in February 1992, to have accelerated the phaseout of CFCs. 20.7.2 Kyoto Protocol The United States ratified the United Nations’ Framework Convention on Climate Change, which is also known as the Climate Change Convention, on December, 4, 1992. The treaty is the fi rst binding inter- national legal instrument to deal directly with climate change. The goal is to stabilize green house gases in the atmosphere that would prevent human impact on global climate change, The nations that signed the treaty come together to make decisions at meetings call Conferences of the Parties. The 38 parties are grouped into two groups, developed industrialized nations (Annex I countries) and developing countries (Annex 11). The Kyoto Protocol, an international agreement reached in Kyoto in 1997 by the third Conference of the Parties (COP-3), aims to lower emissions from two groups of three greenhouse gases: Carbon dioxide, methane, and nitrous oxide and the second group of hydrofluorocarbon (HFCs), sulfur hexafluoride and perfl uorocarbons. Emissions are meant to be reduced and limited to levels found in 1990 or 1995, depend- ing upon the gases considered. The requirements will impact future clean air amendments, particularly for point sources. These requirements will further impact the implementation of distributed generation sources, which are discussed in the following section. Table 20.1 Candidate Alternatives for CFCs in Existing Cooling Systems ——————————————————————————————————————————————————— CFC Alternative Potential Retrofi t Applications CFC-11 HCFC-123 Water and brine chillers; process cooling CFC-12 HFC-134a or Auto air conditioning; medium temperature commercial food Ternary display and transportation equipment; refrigerators/freezers; Blends dehumidifi ers; ice makers; water fountains CFC-114 HCFC-124 Water and brine chillers R-502 HFC-125 Low-temperature commercial food equipment ——————————————————————————————————————————————————— CODES, STANDARDS & LEGISLATION 545 20.8 REGULATORY AND LEGISLATIVE ISSUES IMPACTING COGENERATION & INDEPENDENT POWER PRODUCTION 2 Federal, state and local regulations must be ad- dressed when considering any cogeneration project. This section will provide an overview of the federal regulations that have the most signifi cant impact on cogeneration facilities. 20.8.1 Federal Power Act The Federal Power Act asserts the federal government’s policy toward competition and anti- competitive activities in the electric power industry. It identifi es the Federal Energy Regulatory Commis- sion (FERC) as the agency with primary jurisdiction to prevent undesirable anti-competitive behavior with respect to electric power generation. Also, it provides cogenerators and small power producers with a ju- dicial means to overcome obstacles put in place by electric utilities. 20.8.2 Public Utility Regulatory Policies Act (PURPA) This legislation was part of the 1978 National Energy Act and has had perhaps the most signifi cant effect on the development of cogeneration and other forms of alternative energy production in the past decade. Certain provisions of PURPA also apply to the exchange of electric power between utilities and cogenerators. PURPA provides a number of benefi ts to those cogenerators who can become Qualifying Facilities (QFs) under the act. Specifi cally, PURPA • Requires utilities to purchase the power made avail- able by cogenerators at reasonable buy-back rates. These rates are typically based on the utilities’ cost. • Guarantees the cogenerator or small power producer interconnection with the electric grid and the avail- ability of backup service from the utility. • Dictates that supplemental power requirements of cogenerator must be provided at a reasonable cost. • Exempts cogenerators and small power producers from federal and state utility regulations and associ- ated reporting requirements of these bodies. In order to assure a facility the benefits of PURPA, a cogenerator must become a Qualifying Facility. To achieve Qualifying Status, a cogenerator must generate electricity and useful thermal energy from a single fuel source. In addition, a cogeneration facility must be less than 50% owned by an electric utility or an electric utility holding company. Finally, the plant must meet the minimum annual operating effi ciency standard established by FERC when using oil or natural gas as the principal fuel source. The standard is that the useful electric power output plus one half of the useful thermal output of the facility must be no less than 42.5% of the total oil or natural gas energy input. The minimum effi ciency standard increases to 45% if the useful thermal energy is less than 15% of the total energy output of the plant. 20.8.3 Natural Gas Policy Act (NGPA) The major objective of this legislation was to create a deregulated national market for natural gas. It provides for incremental pricing of higher cost natural gas supplies to industrial customers who use gas, and it allows the cost of natural gas to fl uctuate with the cost of fuel oil. Cogenerators classifi ed as Qualifying Facilities under PURPA are exempt from the incremental pricing schedule established for in- dustrial customers. 20.8.4 Resource Conservation and Recovery Act of 1976 (RCRA) This act requires that disposal of non-hazardous solid waste be handled in a sanitary landfi ll instead of an open dump. It affects only cogenerators with biomass and coal-fired plants. This legislation has had little, if any, impact on oil and natural gas co- generation projects. 20.8.5 Public Utility Holding Company Act of 1935 The Public Utility Holding Company Act of 1935 (the 35 Act) authorizes the Securities and Ex- change Commission (SEC) to regulate certain utility “holding companies” and their subsidiaries in a wide range of corporate transactions. The Energy Policy Act of 1992 creates a new class of wholesale-only electric generators—“ exempt wholesale generators” (EWGs)—which are exempt from the Public Utility Holding Company Act (PUH- CA). The Act dramatically enhances competition in U.S. wholesale electric generation markets, including broader participation by subsidiaries of electric utili- ties and holding companies. It also opens up foreign markets by exempting companies from PUHCA with respect to retail sales as well as wholesale sales. 2 Source: Georgia Cogeneration Handbook, published by the Governor’s Offi ce of Energy Resources. 546 ENERGY MANAGEMENT HANDBOOK 20.8.6 Moving towards a deregulated electric power marketplace EPACT-1992 set into motion a widespread movement for utilities to become more competitive. Retail wheeling proposals were set into motion in states such as California, Wisconsin, Michigan, New Mexico, Illinois and New Jersey. There are many is- sues involved in a deregulated power marketplace and public service commission rulings and litigation will certainly play a major role in the power market- place of the future. Deregulation has already brought about several important developments: • Utilities will need to become more competitive. Downsizing and minimization of costs including elimination of rebates are the current trend. This translates into lower costs for consumers. For example Southern California Edison announced that the system average price will be reduced from 10.7 cents/kWh to lower than 10 cents by the year 2000. This would be a 25% reduction after adjusting for infl ation. • Utilities will merge to gain a bigger market share. For example, Wisconsin Electric Power Company merged with Northern States Power; this merger of two utilities resulted in a savings of $2 billion over 10 years. • Utilities are forming new companies to broaden their services. Energy service companies, fi nancial loan programs and purchasing of related compa- nies are all part of the new utility strategy. • In 1995 one hundred power marketing compa- nies have submitted applicants to FERC. Power marketing companies will play a key role in brokering power between end users and utili- ties in different states and in purchasing of new power generation facilities. • Utilities will need to restructure to take ad- vantage of deregulation. Generation Companies may be split away from other operating divi- sions such as transmission and distribution. Vertical disintegration will be part of the new utility structure. • Utilities will weigh the cost of repowering and upgrading existing plants against purchasing power from a third party. Chapter 24 discusses many more issues on the topic of electrical deregulation. 20.9 OPPORTUNITIES IN THE SPOT MARKET 3 Basics of the Spot Market A whole new method of contracting has emerged in the natural gas industry through the spot market. The market has developed because the Natural Gas Policy Act of 1978 (NGPA) guaranteed some rights for end-users and marketers in the purchasing and transporting of natural gas. It also put natural gas supplies into a more competitive position with de- regulation of several categories. The Federal Energy Regulatory Commission (FERC) provided additional rulings that facilitated the growth of the spot market. These rulings in- cluded provisions for the Special Marketing Programs in 1983 (Order 2346) and Order 436 in 1985, which encouraged the natural gas pipelines to transport gas for end-users through blanket certifi cates. The change in the structure of markets in the natural gas industry has been immense in terms of both volumes and the participants in the market. By year-end 1986, almost 40% of the interstate gas sup- ply was being transported on a carriage basis. Not only were end-users participating in contract car- riage, but local distribution companies (LDCs) were accounting for about one half of the spot volumes on interstate pipelines. The “spot market” or “direct purchase” market refers to the purchase of gas supplies directly from the producer by a marketer, end-user or LDC. (The term “spot gas” is often used synonymously with “best ef- forts gas,” “interruptible gas,” “direct purchase gas” and “self-help gas.”) This type of arrangement cannot be called new because the pipelines have always sold some supplies directly to end-users. The new market differs from the past arrange- ments in terms of the frequency in contracting and the volumes involved in such contracts. Another characteristic of the spot market is that contracts are short-term, usually only 30 days, and on an interruptible basis. The interruptible nature of spot market supplies is an important key to understand- ing the operation of the spot market and the costs of dealing in it. On both the production and trans- portation sides, all activities in transportation or purchasing supplies are on a “best efforts” basis. This means that when a cold snap comes the direct purchaser may not get delivery on his contracts because of producer shutdowns, pipeline capacity and operational problems or a combination of these problems. The “best efforts” approach to dealing can also lead to problems in transporting supplies CODES, STANDARDS & LEGISLATION 547 when demand is high and capacity limited. FERC’s Order No. 436 The impetus for interstate pipeline carriage came with FERC’s Order No. 436, later slightly changed and renumbered No. 500, which provided more fl ex- ibility in pricing and transporting natural gas. In passing the 1986 ruling, FERC was attempting to get out of the day-to-day operations of the market and into more generic rule making. More significantly, FERC was trying to get interstate pipelines out of the merchant business into the transportation business—a step requiring a major restructuring of contracting in the gas industry. FERC has expressed an intent to create a more competitive market so that prices would signal ad- justments in the markets. The belief is that direct sales ties between producers and end-users will facilitate market adjustments without regulatory requirements clouding the market. As more gas is deregulated, FERC reasoned that natural gas prices will respond to the demand: Lower prices would assist in clearing excess supplies; then as markets tightened, prices would rise drawing further invest- ment into supply development. FERC Order No. 636 Order 636 required signifi cant “Restructuring” in interstate pipeline services, starting in the fall of 1993. The original Order 636: • Separates (unbundles) pipeline gas sales from trans- portation • Provides open access to pipeline storage • Allows for “no notice” transportation service • Requires access to upstream pipeline capacity • Uses bulletin boards to disseminate information • Provides for a “capacity release” program to tem- porarily sell fi rm transportation capacity • Pregrants a pipeline the right to abandon gas sales • Bases rates on straight fi xed variable (SFV) design • Passes through 100% of transition costs in fi xed monthly charges to fi rm transport customers FERC Order No. 636A Order 636A makes several relatively minor changes in the original order and provides a great deal of written defense of the original order’s terms. The key changes are: • Concessions on transport and sales rates for a pipeline’s traditional “small sales” customers (like municipalities). • The option to “release” (sell) fi rm capacity for less than one month—without posting it on a bulletin board system or bidding. • Greater fl exibility in designing special transporta- tion rates (i.e., off-peak service) while still requiring overall adherence to the straight fi xed variable rate design. • Recovery of 10% of the transition costs from the interruptible transportation customers (Part 284). Court action is still likely on the Order. Fur- ther, each pipeline will submit its own unique tariff to comply with the Order. As a result, additional changes and variations are likely to occur. 20.10 THE CLIMATIC CHANGE ACTION PLAN The Climatic Change Action Plan was established April 21, 1993 and includes the following: • Returns U.S. greenhouse gas emissions to 1990 levels by the year 2000 with cost effective do- mestic actions. • Includes measures to reduce all significant greenhouse gases, carbon dioxide, methane, nitrous oxide, hydrofluorocarbons and other gases. 20.11 SUMMARY The dynamic process of revisions to existing codes plus the introduction of new legislation will impact the energy industry and bring a dramatic change. Energy conservation and creating new power generation supply options will be required to meet the energy demands of the twenty-fi rst century. This page intentionally left blank CHAPTER 21 NATURAL GAS PURCHASING 549 CAROL FREEDENTHAL JOFREEnergy Consulting Houston, Texas 21.1 PREFACE This is the second full revision for this chapter, Natural Gas Purchasing. Chapter 21 was originally writ- ten when the book was published in 1993. Rewrite for the fi rst revision was a completely new effort done in 1996. As of 2000, the industry has continued to change and is still in the conversion from a federally regulated, price-controlled business to an economically dynamic, open industry, and this is a completely revised writing. Changes are continuing to shape the industry differently, especially when coupled with the changes coming from the potential decontrol of the electric power industry. To make even more changes, the impact of ECommerce business-to-business is beginning to play a role in this industry. When this revision was started, only one com- pany offered the web for gas marketing. As of 2000, fi ve additional companies had launched ECommerce busi- ness-to-business natural gas trading. The old natural gas business is really a new busi- ness. Its structure goes back 150 years but it is more like a new industry. It has the typical growth and turmoil of a new business. Energy products, especially natural gas and electricity, are new businesses as the country goes into the new millennium. Newly “reformed” companies, new marketing organizations, new systems affecting gas marketing, and even, a new industry structure makes it necessary to start from scratch in writing the revision for this chapter. Like the new millennium, the natural gas industry and equally as important, the total energy business is going through its own transition. Change will continue as companies and businesses try different strategies. ECommerce will play a major role in the industry’s transition. This phase of the transition is amorphous and makes it diffi cult to predict the exact course of events for the future. Things that appeared far-out years ago are becoming closer to reality. The newest buzzwords, “distributive electricity” includes the use of fuel cells and small dual cycle turbine driven generators by residential and small commercial users. Both of these are becoming economically feasible. The impact on the gas and electric industries is unknown. This is a time of change for the new energy business. Marketing and supplying energy products like natural gas and electricity will go through many changes before optimum conditions are found. A few things are for sure. Natural gas is becoming the major fuel for stationary power uses in the United States. Long dominated by oil products for this use, now gas is becoming the leader. Coal continues as a major fuel source for electric generation. Consumption of coal for power generation has reached record levels in recent years but environmental concerns and the required high capital for new coal burning generating plants will reduce coal’s market share. The public’s dislike of nuclear power and the high costs to build plants with the safety desired means no growth for this industry. A new philosophy will have to be developed by society recognizing safety and environmental benefi ts of atomic power before new nuclear facilities will be built. The natural gas industry, just like the power indus- try, which is going through its own decontrol activities, change will be a way of life always. Companies in the energy fi eld and in associated areas such as communi- cations, fi nancial, systems, etc. will continue to merge, acquire, spin off, and change their structure and goals. As the country goes into the new millennium, these are industries in transition and will change along with the growth industries in cyberspace. A big difference from the old, staid and conservative electric and gas utilities of the prior century! Change and growth are the way. Regardless of this, one factor continues to domi- nate. The profi t motive is still the driving force of the industry today. It will not change but will continue into the future. Economics will govern change and be the basis for decision making. All the transforma- tions—buying and selling of companies, new marketing companies, new systems for handling the merged assets, etc. will all be subject to one metric; is it profi table? Al- ready, some acquisitions made by large electric and gas companies to bring together various parts of the energy industry have come apart because the fi nal economics did not pass muster. The purpose of this chapter is to give the fuel buyer, for any operations or industry, the knowledge and infor- 550 ENERGY MANAGEMENT HANDBOOK mation needed to buy natural gas for fuel. The buyer may be in a large petrochemical plant where natural gas is a major raw material or may be the commercial user hav- ing hundreds of apartments needing gas for heat and hot water or plant operator where the gas is used for process steam. It might be a fi rst time experience or an on-going job for the buyer. This chapter will give the background and information to fi nd natural gas supplies for any need at the lowest cost and highest service and security. The chapter will include information on history of the indus- try, sources of supply, transportation, distribution, stor- age, contracts, regulatory, and fi nancial considerations needed to buy natural gas. 21.2 INTRODUCTION Natural gas is predominately the compound “meth- ane,” CH 4 . It has the chemical structure of one carbon atom and four hydrogen atoms. It is the simplest of the carbon based chemicals and has been a fuel for industry, for illumination, and for heating and some cooling of homes, offi ces, schools, and factories. Natural gas is also, a major fuel for generating electricity. In addition to fuel uses, gas is a major feedstock for the chemical industry in making such products and their derivatives as am- monia and methanol. Natural gas is used in refi ning and chemical plants as a source for hydrogen needed by these processing businesses. Through the reforming process, hydrogen is stripped from the methane leaving carbon dioxide, which has its usefulness in chemical manufac- turing or use, by itself in cooling, carbonated drinks, or crude oil recovery. The term “natural gas industry” includes the peo- ple, equipment, and systems starting in the fi elds where the wells are located and the natural gas is produced. It includes other fi eld tasks as gathering, treating, and pro- cessing. Transportation to storage or to interstate or in- trastate pipelines for further transportation to the market area storage, or to the distribution system for delivery to the consumer and the burner tip, are part of the system. The burner tip might be in a boiler, hot water heater, com- bustion engine, or a chemical reactor to name a few of the many uses for natural gas. Natural gas is produced in the fi eld by drilling into the earth’s crust anywhere from a couple of thousand feet to fi ve miles in depth. Once the gas is found and the well completed to bring the gas to the earth’s surface, it is treated if necessary to remove acid impurities and again, if necessary, processed to take out liquid hydrocarbons of longer carbon chains than methane, which has a single carbon atom. After processing, the gas is transported in pipelines to consuming areas where distribution compa- nies handle the delivery to the specifi c consumer. In addition to the people and companies directly involved in the production, transportation, storage, and marketing of natural gas, there are countless other busi- nesses and people involved in assisting the gas industry to complete its tasks. There are systems companies, regu- latory and legal professionals, fi nancial houses, banks, and a host of other businesses assisting the natural gas industry. Figure 21.1 shows the many parts of the indus- try as it is known today. The money fl owing through the major sections of the industry are shown in Figure 21.2. The $85 billion industry shown in the diagram only repre- sents the functions in getting natural gas, the commodity, to market and consumption. Not included in the overall industrial revenues are the moneys generated by the sales and resale of gas before its consumption, the processing and marketing of natural gas liquids coming from the gas, and the fi nancial markets where gas futures and other fi nancial instruments are sold and traded. These are big businesses also. Estimates are that the physical gas is traded three to four times before consumption. In the fi nancial markets, gas volumes 10 to 12 times the amount of gas consumed on an average day are traded daily. Figure 21.3 should be of most interest to the natural gas buyer as it depicts the various sales points, stages, and handling the gas goes through in getting from the wellhead to the burner tip—from the wellhead to the consumer. As one can see in the diagram, there are many alternate paths the gas can travel before coming to its end use as a fuel or feedstock for chemical manufactur- ing. Each one of the stages on the fl owsheet represents an added value point in the travel to consumption. Raw gas coming from the wellhead many times has suffi cient quality to go directly into a transporting pipeline for de- livery to the consuming area. Sometimes the gas needs fi eld treating and/or processing to meet pipeline specifi - cations for acceptance into the pipeline. The gas industry is the oldest utility except for water and sanitation. In the middle of the 19th century, many large cities used a synthetic gas made from pass- ing steam over coal to light downtown areas and provide central heating systems. Big cities like Baltimore, New York, Boston, and many more cities and municipalities used gas for illumination. Many utilities from that period exist today and are still gas and electric suppliers to the areas they serve. In the early days of the gas business, there was no natural gas, as known today. Instead, these utilities pro- duced a synthetic gas for both the illumination and the central heating systems. The synthetic gas, sometimes called “water gas” because of the method of producing it, NATURAL GAS PURCHASING 551 Figure 21.2 Gas Industry Money Flow for Business Activities. Figure 21.1 Natural Gas Industry Flowsheet. 552 ENERGY MANAGEMENT HANDBOOK had bad attributes—it contained a high content of hydro- gen and carbon monoxide, two bad actors for a gas used in homes, businesses, and factories. People died when exposed to it because of the carbon monoxide, and build- ings blew-up because of the hydrogen when free gas from leaks or pipe ruptures was ignited. When natural gas came on the scene in the early 1900s, where it was avail- able, it quickly replaced the old manufactured gas. About the same time, advances were made in electricity so that cities and municipalities changed to electricity for light- ing and illumination. Natural gas quickly lost its market for municipal lighting. Natural gas was originally an unwanted by-product from the oil fi elds. Problem was getting rid of it. Flaring was used, but this was a waste of good natural resources. Around the beginning of the century, associated gas from Ohio oil fi elds was shipped to Cleveland in wooden pipes to replace the then used synthetic gas. In the early days of the industry, the limitations to greater uses of natural gas were that gas was produced in only certain parts of the country and transportation was available for only very short distances. Market penetration was thwarted by the ability to ship it. There were no long distance pipelines in the early days of the industry. Natural gas made a great replacement for the synthetic counterpart—methane is essentially safe as far as toxicity and is much safer as far as explosion. Gas’ growth was dependent on build- ing long distance pipelines. Not until the 1930s did the industry have the capability of making strong enough, large steel piping needed for the long-distance pipelines. Completion of major interstate pipelines to carry gas from producing regions to consumers was the highlight of the 1930s to the start of World War II in the early 1940s. Pipeline construction came to a halt and was dor- mant until the war’s end. Construction went full force after the war to insure delivering the most economical and easiest fuel to America’s homes, commercial facilities and industrial players. Even today with the start of the new millennium, some areas of the U.S. still do not have a fully developed natural gas distribution and delivery system. Areas in the West where population is sparse, parts of the Northeast where oil prices were too competi- tive to delivered gas prices, and other parts of the country lacking distribution systems for the same reasons are still without natural gas. Many of these use what is called “bottled gas,” a mixture of propane and butane or pro- pane only for home heating and other critical uses. Just recently, new supplies and pipelines were developed to bring natural gas to the Northeast U.S. from Canada. Ad- ditional distribution systems will bring more gas to more customers through the country from the tip of Florida to the North Central and West Northern states. Ever since natural gas became available for fuel, it was under some form of government economic control. Through the tariff mechanism for pricing natural gas, the government had the power to make gas prices more or less attractive to competing fuels. Further, with the government controlling wellhead prices and slow to make changes in prices as conditions changed, it became diffi cult and economically undesirable to expand natural gas production. Government price controls hampered the growth of the U.S. natural gas business. The gas shortages of the mid-1970s are an example of government control stifl ing expansion and growth. There was no shortage of gas reserves, only a shortage of incentives for producers to develop and supply the gas. The free market builds its own controls to foster competition and growth. Congress passed the Natural Gas Policy Act of 1978 to change the policy of government economic control. A few years of transition were needed before signifi cant changes began in the industry. Real impact started in 1985. Even today, the industry is still in transition. The federal decontrol changed interstate marketing and movement of natural gas. Gas at the local levels where the state Public Utility Commission or similar local gov- ernment has control, is still heavily regulated. Decontrol at the federal level is slowly fi ltering down to local agen- cies. As of 2002, some states began moving to “open transportation” rules. A current obstacle to the swifter implementation of rules at the state and local levels is the tie of gas and electricity as utilities within state regulatory control. With the electric industry going through its own “decontrol,” many wanted to see the much larger electric industry work out the utility problems. Then gas could follow with less negotiating and discussion. The electric timetable is now years behind its planned evolution and this has slowed gas local control further. Figure 21.3 Wellhead to Consumer Flowsheet NATURAL GAS PURCHASING 553 With the price of gas changing each year, the total industry value changes. The industry in nominal an- nual terms is roughly a $100 Billion business. Electricity is around $230 Billion. Many electric companies that were both gas and electricity utilities even before deregulation, have bought major natural gas pipelines or gas distribu- tors. Large electric companies bought into the natural gas industry whether they purchased transporters, distribu- tors, or marketing companies. Interestingly, in a relatively few years, some of these combinations have come apart because of poor profi tability. Electric and gas utility companies have gone after transportation and marketing companies. Surprisingly, none of the expanding companies have sought to buy, at the beginning of the gas business, the oil and gas explora- tion and production companies (E&P companies). These are the companies looking for natural gas and then pro- ducing it. While all of the transporting companies, whether long distance or distribution in nature and, further, wheth- er electric and/or natural gas in business, have shied away from the production companies, other E&P companies have merged or acquired smaller operations to add to the total capability of the company. The signifi cant changes during the 1990's saw major E&P companies acquire even major and independent E&P assets. 21.3 NATURAL GAS AS A FUEL Why has natural gas grown in popularity? What makes it a fuel of choice in so many industries as the new millennium begins? What shortcomings does it have? Figure 21.4 shows the change in basic fuels mix used in the U.S. in 1985 and 1999. Nuclear, which started in 1960, enjoyed a period of rapid growth. The high costs for all the safety engineered into the plants had made it an uneco- nomical system towards the end of the century. There are no nuclear plants scheduled for construction. Even some of those completed and running and some with the initial construction still in progress were shut down or converted into natural gas fi red units. The only change that will be seen in nuclear generation of electricity is plant effi ciencies will be improved for the units continuing to operate. Coal usage in the U.S. has grown in recent years with record coal production in the late 1990s. Coal is by far the major fuel used for electric generation, com- manding a 56% market share. It has many negative properties like the need for railroads for transportation, high pollution from the burner after-products, and poor handling characteristics including being dirty, losses on storage, and the diffi culties of moving a solid material, including the disposal of the remaining ash. Still, coal has a number of things going for it which will keep coal in use for many years to come. The ready availability and abundance are major merits. The stability of coal prices will always give coal a place in the market. Figure 21.5 shows the comparison in prices among coal, natural gas, and oil products for the period 1985 through 1999. Coal at about a dollar per million British units (MMBtu) is not only much cheaper per unit of energy, but also has the advantages of availability and abundance. Coal will slowly lose position because of its disadvantages of pol- lution and higher costs to meet changing standards and high capital costs for building new generating plants. Petroleum products have lost market share in the later years because of their costs and the dependence of the U.S. on foreign suppliers for crude and crude oil products. Oil products used for electric generation include distillate fuel oil, a relatively lightweight oil, which during the refi ning process can have most of the sulfur removed during that process. Low sulfur fuels are desirable to keep emissions low for environmental reasons. The other major oil product used is residual fuel oil, the bottom of the barrel from the refi ning pro- cess. This is a heavy, hard to transport fuel with many undesirable ingredients that become environmental problems after combustion. Many states have put costly tariffs on using residual fuel oil because of its environ- mental harm when used. Figure 21.4 U.S. Basic Fuels 1985 & 1999 (Quadrillion Btu) [...]... ENERFAX Internet Daily www.enerfax.com 5 GAS DAILY Printed, Fax, & Electronic Daily 800/424-2908 Crutchfield Energy Data www.ftenergyusa.com/gasdaily 6 GASearch Internet Market intelligence 972 /2 47- 2968 www.gasearch.com 7 Platts Printed, Fax, & Electronic Biweekly & Current A/C 800 /75 2-8 878 www.mhenergy.com 8 Natural Gas Internet Various www.naturalgas.com 9 NATURAL GAS MONTH, EIA Internet & Printed Monthly... reliability All integrated 3 www.buyenergyonline.com Buy and sell energy Great Britain 4 www.capacitycenter.com Alerts to find capacity on natural gas pipelines 5 www.coralconnect.com Lots of information Allows one to buy and trade gas and electricity with Coral Energy 6 www .energy. com Deregulation Status, Consumer Education, Links to energy suppliers, etc 7 www.energycrossroads.com “The e-partner of... and to provide other electricity services such as power surge protection 14 www redmeteor.com Energy Trading system 15 www.scana.com SCANA Online is an Internet-based energy auction 16 www.itron.com Provides interactive energy e-business solutions for optimizing energy usage and energy procurement processes 17 www.tradecapture.com TradeCapture.com is an innovation which will give you one stop shopping... GAS & RELATED ENERGY TRADE ASSOCIATIONS 1 2 3 4 5 6 7 8 9 10 11 12 13 14 American Gas Association (AGA) Trade organization on natural gas; major source of information on gas local distribution companies American Petroleum Institute (API) Represents the nations oil and gas industries Association of Energy Engineers Organization supplying information and services for energy efficiency, energy services,... service required, and/or the location of the consumer 572 ENERGY MANAGEMENT HANDBOOK Table 21 .7 Natural Gas Price Reporting Sources ——————————————————————————————————————————————————— SOURCE MEDIA TIMING TELEPHONE WEBSITE ——————————————————————————————————————————————————— 1 ACEO/NGX Internet Same day & near month www.naturalgas.com 2 Bloomberg Energy Internet Spot Market Current less 20 3 CNN The Financial... Panhandle Pipeline CMS Energy Houston, TX Trunkline Pipeline Houston, TX ANR Pipeline Coastal Corp Houston, TX Detroit, MI CIG Pipeline Colorado Springs, CO Columbia Gas Tran’n Columbia Energy Co Charleston, WV Columbia Gulf Trans’n Houston, TX CNG Pipeline Dominican Energy Pittsburgh, PA Algonquin Gas Trans’n Duke Energy Boston, MA Texas Eastern Pipeline Houston, TX El Paso Pipeline El Paso Energy Houston,... energy- related subject matter, common energy units, common energy- consuming machinery and systems, HVAC concepts, and the general field of energy engineering is assumed The field of Automatic Controls is a busy technology with lots of jargon, hardware and software variations and details, and the sheer volume of it can create an air of mystery and awe If this chapter 577 is successful, the reader will be... the inventory these companies hold and from which gas is produced to fill market needs In 19 97, the U.S government’s Department of Energy showed U.S natural gas reserves in the order of magnitude of 170 trillion cubic feet (Tcf) of economically recoverable reserves Without any replacement, this would be a 5- to 7- year life of existing reserves at current consumption rates U.S exploration and production... www.gasmart.com Develops technical solutions for natural gas and related energy markets www.gri.org Voice of the interstate natural gas system including the pipelines and companies supplying natural gas www.ingaa.org National Energy Marketers Association National non-profit trade association representing all facets of the energy business www.energymarketers.com Natural Gas Information & Education Resources... on the value of the gas at that location versus Henry Hub and the added cost NATURAL GAS PURCHASING 571 Table 21.6 Commerce & Energy ——————————————————————————————————————————————————— Number Internet Address Activities & Purpose ——————————————————————————————————————————————————— 1 icapenergy.com ICAP Energy, Inc is an over-the-counter broker of natural gas, electricity and weather derivatives 2 www.apx.com . Association of Energy Engineers Organization supplying information and services for energy effi ciency, energy services, deregulation, facilities, management, etc. www.aeecenter.org 4 Canadian Energy. 3,548 Bcf, 16.0 percent of Figure 21 .7 North American Gas Producing Areas in 1999 U.S. PRODUCTION 18,659 Bcf IMPORTS 3,538 Bcf TOTAL 22,1 97 Bcf 558 ENERGY MANAGEMENT HANDBOOK total U.S. gas supply & ENERGY REGULATION 1 Department of Commerce Information on offshore production of gas and oil www.doc.gov. 2 Department of Energy (DOE) Information on energy products; supply, demand, Energy