Category Archives: safety

Richard Meyer How well-functioning natural gas markets provide safe, reliable, and cost-effective service to customers.

Natural gas is a primary energy source utilized by more customers than ever before.

The US natural gas market—itself comprised of extensive infrastructure and systems, customers served, state and federal regulatory frameworks and industry practices—continues to perform safely, reliably, and cost-effectively for all customers.

But some argue that gas and electricity markets have not kept pace with the needs of power generators.

With increasing volumes of gas delivered for power generation, and the need for additional flexibility to balance variable renewable resources, some groups contend that we need new approaches to the rules and regulations governing how pipelines deliver natural gas supplies to these customers.

To be clear, dialogue about market rules and system operations are a healthy exercise in maintaining a safe and reliable gas delivery system. However, any dialogue about changes to existing rules and regulations must take the broader market needs, and obligations, into consideration.

In that vein, I want to use this post to share some facts about how natural gas is delivered to consumers to provide some needed context for this gas-electric harmonization dialogue.

Are Rules Not Keeping Pace with the Evolving Markets?

In a recent op-ed in the Wall Street Journal, Fred Krupp, the President of the Environmental Defense Fund attempts to establish his case that natural gas pipelines aren’t properly serving electric generators:

“New England regulators have assumed the region’s natural gas pipelines were being used efficiently. Not so. Valuable space was going unused on the busy Algonquin Pipeline, which supplies gas for electricity and heating, even during the coldest days when demand is highest. There was also a persistent gap between the amount of gas scheduled in advance, and the volume that flowed.”

Mr. Krupp references an unpublished study in which researchers examined the gas scheduling practices of two companies in the Northeast.

The study alleges that two companies routinely held capacity that other customers could not access. In other words, gas capacity was artificially constrained.

In response, the companies have called the report “a complete fabrication,” noting that scheduling practices are “to help protect customers from interruptions—including during unpredictable, extreme weather conditions.” The merits of the study’s allegations will be worked through official processes.

Digging deeper, there’s a larger context missing in Mr. Krupp’s op-ed, and EDF’s broader message.

In a letter to the editor of the Wall Street Journal, AGA’s President Dave McCurdy responds to Mr. Krupp’s comments:

Natural gas pipelines provide services to many customers, including electric generators and natural gas utilities represented by AGA. Gas utilities are obligated under state regulations to meet their customers’ needs—delivering gas directly to homes and businesses for heating, hot water and cooking. Gas utilities plan diligently to help ensure gas is always there when customers need it.

Mr. Krupp observes there is a “persistent gap between the amount of gas scheduled in advance, and the volume that flowed.” This reflects a misunderstanding of how the natural gas system works. Weather can’t be perfectly predicted. Pipelines and utilities must maintain safe operating margins, and gas utilities contract for firm interstate pipeline capacity to ensure reliability and flexibility, especially for the coldest days.

Mr. McCurdy also notes some statistical maneuvering in the way the problem is framed:

Mr. Krupp misleadingly presents this margin in terms of power generation demand, inflating its apparent significance. The economic paper he cites itself states that, over the 37 cold days analyzed for the statistic, the unutilized capacity was only 7% of the pipeline’s overall capacity. By necessity, pipeline systems are designed to meet demand that peaks on just a handful of days each winter. This means the margin on capacity constrained pipelines, such as those in New England, on those few peak days is likely much lower still.

It’s important to note that Mr. Krupp raises issues that are specific to the Northeast and not indicative of a systemic problem across the US.

The Northeast is unique primarily because the construction of new natural gas pipeline infrastructure has been limited. In other parts of the country, where pipeline infrastructure has kept pace with load growth, the natural gas market has not experienced the same persistent constraints.

Dovetailing on Mr. McCurdy’s letter, and by way of emphasis, I’d like to call out some additional key ideas going forward as we continue to discuss gas-electric harmonization:

1. Gas utilities are obligated under state regulations to reliably meet the natural gas supply needs of millions of Americans.

Natural gas utilities have a regulatory mandate or obligation to serve their core customers. These core customers are residential households and businesses, hospitals and nursing homes, schools, grocery stores, police and fire stations.

Importantly, gas utility systems are designed to meet peak demand requirements of their core customers on the coldest days of the year. Guided by past experiences and state regulatory oversight, gas utilities develop comprehensive plans to reliably deliver natural gas to their core customers.

Gas utility distribution systems are often the final step in a delivery chain of moving natural gas from areas of production to customers. After natural gas is produced, much of it is transported through long-haul interstate and intrastate pipelines before arriving at distribution pipeline systems for delivery to households and businesses.

To meet their obligations, gas utilities build and manage a portfolio of supply sources, storage and transportation services—which include a diverse set of physical and contractual assets—to help ensure they can reliably meet anticipated peak-day demand.

The last thing any gas utility wants is not to have enough gas to meet its customer needs. A loss of pressure during a peak winter month could be catastrophic. Supply management practices help ensure an event like this doesn’t happen.

2. To meet supply obligations, pipelines and gas utilities must maintain safe operating margins.

Weather can’t be predicted perfectly. Even a small change in temperatures could push customer gas demand higher than anticipated. In response, a gas utility will often call for more natural gas supplies, which may necessitate the use more interstate pipeline transportation capacity to move those supplies.

As such, flexibility is a key requirement in maintaining pipeline integrity and supply reliability. Many aspects of the current scheduling and nomination process support this critically-needed flexibility on pipeline systems.

Requirements for flexibility do not preclude pipelines from exploring innovative strategies. Indeed, pipelines continually offer new flexible service offerings, especially to meet the needs of new customers, like electric generators.

Importantly, gas utilities do not control the supply price of natural gas, and they do not earn a profit on the gas they deliver. Instead, utilities earn a profit on the delivery service they provide to customers, rates which are set by public utility regulators.

3. Market rules have evolved to meet changing needs.

In 2015, FERC concluded a major industry review of its regulations to better coordinate the scheduling of wholesale natural gas and electricity markets given increased reliance on natural gas for electric generation. FERC looked into providing additional scheduling flexibility to all shippers on interstate natural gas pipelines.

Following this activity, FERC adopted certain scheduling modifications, stating it expected that the changes would provide significant benefits to both the natural gas and electricity industries and would improve coordination between the industries.

More recently, throughout 2016, the North American Energy Standards Board held a forum on Gas-Electric Harmonization issues to further explore the potential for faster, computerized scheduling. In short, regulated gas utilities are already advancing strategies to build on efficiency and evolving market strategies.

4. The gas industry has evolved to meet changing needs too.

Under today’s market rules, unused capacity does not simply go unused. It is often released to other shippers who can then repurpose that capacity for their needs.

When gas utilities, or other shippers, do not need the firm pipeline capacity that they have under contract, FERC’s regulations allow for the capacity to be temporarily released for use by others in a secondary capacity release market.

FERC’s rules for capacity release programs are set up to avoid discrimination in the control of access to interstate pipeline capacity and to allocate the available capacity to pipeline system users who value it the most. FERC actively monitors the pipeline capacity release program to ensure compliance with its regulations.

Additionally, FERC’s regulations allow gas utilities and other firm shippers to enter into Asset Management Arrangements under which firm interstate pipeline capacity may be released to entities with expertise in managing supply and delivery arrangements—so-called asset managers.

While they can be structured in many of ways, here’s how a typical Asset Management Arrangement works: The unused firm interstate pipeline capacity is released to an asset manager, usually a marketer, who then uses the capacity to serve the releasing shipper’s gas supply requirements and, when it is not needed, it may be further released or used to make bundled gas commodity sales to other third parties.

FERC has found that these Asset Management Arrangements:

  • Result in an overall increase in the use of interstate pipeline capacity;
  • Facilitate the use of capacity by different types of customers;
  • Benefit the natural gas market by creating efficiencies through more load-responsive gas supply and an increased utilization of transportation capacity; and
  • Provide significant benefits to a variety of participants in the natural gas and electric marketplaces, and to the secondary natural gas market itself.

These are just a couple of examples of how the natural gas market and FERC policy have evolved to work efficiently and optimize unused interstate pipeline capacity, avoid unnecessary duplication of pipeline facilities, and allow gas utility and other pipeline customers the ability to contract to meet their reliability needs.

5. The natural gas market has provided economic signals that efficiently channel investment for new pipeline infrastructure.

The natural gas market, in many geographic areas, continues to function well with established practices that send market participants signals indicating a need for new pipeline capacity.

Prices and transportation cost differentials, detailed market analyses, open-season commitments from shippers, investor commitments, and regulatory oversight all send signals to market participants that additional pipeline construction may be needed.

The market’s well-functioning behavior is evidenced by the significant amount of new pipeline capacity being built.

Growing production and demand in Northeast markets has necessitated the construction of a significant amount of new pipeline capacity, although the process is often difficult and strewn with opposition. New pipeline takeaway capacity associated with the Appalachian basin is set to increase more than 70 percent between 2017 and 2018, according to March 2017 estimates by Bloomberg New Energy Finance.

From January to August 31, 2017, seventeen new US natural gas projects amounting to a capacity of 7 Bcf per day and 482 miles of pipeline have been placed into service. More are expected through the end of 2018.

Reliability of service for customers is an overarching priority for both the gas and electric industries. The foundation for providing reliable supplies in many instances is adequate infrastructure, where needed, as well as pipeline scheduling practices that preserve and enhance, but not decrease, reliability for all gas pipeline system customers.

Gas-electric harmonization is an onion with never-ending layers to peel. The above points are neither comprehensive nor definitive. However, I hope they add some needed facts and context to an important dialogue underway.

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Dave McCurdy Enhancing the Safety Culture of Our Employees

Safety is at the core of the work that AGA’s more than 200 member companies do as they deliver clean natural gas to more than 177 million Americans every day. Our customers are our employees, family and neighbors. For generations, natural gas utilities have served communities and supported families through good paying jobs and the opportunity for career advancement.

We have seen an alarming rise in the number of incidents across the nation where individuals have threatened the health and safety of workers building natural gas pipelines. We have received reports of bomb threats, vehicular assault, employee tools and materials being stolen or vandalized in broad daylight and the ultimate tragedies, several homicides.

This is unconscionable. No one should fear that type of violence while doing their job. Further, damaging natural gas pipelines poses enormous risk which could result in harm to people, property and our environment.

The American Gas Association supports a bipartisan letter to U.S. Attorney General Jeff Sessions, led by Congressman Ken Buck, R-Colo. and signed by 84 members of Congress, requesting information on the specific mechanisms in place to prosecute those who attempt to intentionally harm pipeline workers or damage the pipeline infrastructure they are constructing.

America’s natural gas utilities make a commitment to their employees and their families that they will be safe while they are at work. We at AGA are doing our part to help them keep that commitment.

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Jake Rubin 5th Anniversary of Hurricane Sandy

Photo Courtesy: NJNG

Photo Courtesy: NJNG

Five years ago today, high winds, tidal surges and flooding caused by Hurricane Sandy ravaged part of the Northeast United States. Just days after the storm, natural gas utilities began work in the bitter cold to restore gas service to thousands of homes and businesses ahead of the threat of a quickly approaching nor’easter. More than 300 utility workers that left the comforts of their homes in the south, mid-west and Canada to assist in recovery efforts.

Three years later, the American Gas Association (AGA) made this video to honor those that traveled so far to provide much-needed assistance. We told the stories of teams from Alliant Energy in Iowa and Wisconsin that drove to the affected area and New Jersey Natural Gas which provides safe, reliable natural gas to half a million customers in parts of New Jersey that saw massive devastation from Hurricane Sandy.

AGA closely monitored the impacts of recent Hurricanes like Harvey and Irma and continue to receive regular updates from government and our member companies about the effects of Hurricane Maria and other natural disasters that have touched our nation. Our thoughts are with all those who have been impacted by the destruction these natural disasters have caused.

Unlike that fateful day in 2012, AGA’s Mutual Assistance Program has not been activated over the past few months. Natural gas utilities have done a tremendous job keeping their systems intact and running properly. It is incredibly rare for natural gas customers in the United States to lose service and their utilities respond swiftly and effectively if they do.

We know that there is still a lot of work to do to before homes and businesses in areas recently hit by hurricanes feel like they are back to normal. AGA will continue to seek ways to assist our members and their customers as recovery efforts continue.

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Jake Rubin Harvey and Irma Assessment

Hurricane Harvey satellite image - courtesy NOAA/NASA

Hurricane Harvey satellite image – courtesy NOAA/NASA

AGA is closely monitoring the impacts of Hurricanes Harvey and Irma and our thoughts are with all those who have been impacted by the destruction these natural disasters have caused. There will no doubt be a long road to recovery, and natural gas utilities in Florida and Texas, and beyond, are working tirelessly to help aid in that recovery.

During a disaster of the magnitude seen with both Harvey and Irma, natural gas utilities, first and foremost, look to confirm that all employees in the affected areas are safe and accounted for and to assess injuries or safety incidents. Thus far, we are getting positive reports from our members in the affected areas and seeing encouraging accounts in the media.

SNL Energy’s Sarah Smith reported on Tuesday afternoon that, “The gas utilities of the Southeast appear to have come through Hurricane Irma with minimal infrastructure damage despite the devastation wrought over large swaths of the region.”

Smith recounts positive news from Florida Public Utilities Co., Florida City Gas and South Carolina Electric & Gas Co.

E&E’s David Iaconangelo analyzes the impact of Hurricanes Harvey and Irma on the oil and gas industry. He spoke with Richard Kuprewicz, president of Accufacts Inc., who said in the lead-up to Irma’s landfall that pipelines were often designed “so they can run independently, like an island on their own.”

The piece goes on to note that, “Operators of the Gulfstream and Sabal Trail pipelines, which deliver natural gas from neighboring states to central Florida, said Irma had not interrupted service.”

It is still too early in the evaluation and recovery process to determine whether or not the planned resilience of the natural gas delivery system performed as intended.

In July, the Natural Gas Council, which collectively represents companies that produce, transport and deliver clean, affordable natural gas throughout the United States, released a joint report, “Natural Gas: Reliable and Resilient” that provides a practical guide to the operational measures, physical characteristics and contractual underpinnings of the natural gas system’s exceptional record of reliability and resilience.

Dave McCurdy, our President and CEO, said, “all along the natural gas supply chain, from production to end-use delivery, the industry employs a portfolio of tools to help ensure protection of its facilities from both and physical and cybersecurity threats.”

Our thoughts are with all those in Texas, Florida and other areas hit by these natural disasters for a safe and speedy recovery.

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