Deliverability on the Interstate Natural Gas Pipeline System

Transcription

1 DOE/EIA-0618(98) Distribution Category UC-950 Deliverability on the Interstate Natural Gas Pipeline System May 1998 This report was prepared by the, the independent statistial and analytial ageny within the Department of Energy. The information ontained herein should not be onstrued as advoating or refleting any poliy position of the Department of Energy or any other organization.

2 Prefae Administration (EIA), Form EIA-176, Annual Report of examines the apability of the national pipeline grid to Natural and Supplemental Gas Supply and Disposition ; and transport natural gas to various U.S. markets. The report (5) Form EIA-191, Underground Natural Gas Storage quantifies the apaity levels and utilization rates of major Report. Complementary data were obtained primarily from interstate pipeline ompanies in 1996 and the hanges sine the EIA, Natural Gas Annual 1996, DOE/EIA-0131(96) or 1990, as well as hanges in markets and end-use onsumption earlier issues. patterns. It also disusses the effets of proposed apaity expansions on apaity levels. was prepared by the EIA, Offie of Oil and Gas, under the The report onsists of five hapters, several appendies, and diretion of Kenneth A. Vagts (202/ ). General a glossary. Chapter 1 disusses some of the operational and information onerning this report may be obtained from Joan regulatory features of the U.S. interstate pipeline system and E. Heinkel (202/ ), Diretor of the Natural Gas how they affet overall system design, system utilization, and Division. Detailed questions on speifi setions of the apaity expansions. Chapter 2 looks at how the exploration, publiation may be addressed to the following analysts: development, and prodution of natural gas within North Ameria is linked to the national pipeline grid. Chapter 3 Chapter 1. Introdution, James Tobin (202/ ). examines the apability of the interstate natural gas pipeline network to link prodution areas to market areas, on the basis Chapter 2. Aess to Supplies and Prodution Regions, of apaity and usage levels along 10 orridors. The hapter William A. Trapmann (202/ ). also examines apaity expansions that have ourred sine 1990 along eah orridor and the potential impat of proposed Chapter 3. Deliverability on the Interstate Network, new apaity. James Tobin. Chapter 4 disusses the last step in the transportation hain, Chapter 4. Deliverability to Markets, James Tobin. that is, deliverability to the ultimate end user. Flow patterns into and out of eah market region are disussed, as well as the movement of natural gas between States in eah region. Chapter 5. Aess to Transportation Markets, Barbara Mariner-Volpe (202/ ) and Mary E. Carlson Chapter 5 examines how shippers reserve interstate pipeline (202/ ). apaity in the urrent transportation marketplae and how pipeline ompanies are handling the seondary market for The overall sope and ontent of the report was supervised by short-term unused apaity. Four appendies provide James Tobin. Overall oordination of the report was provided supporting data and additional detail on the methodology used by James Thompson. Signifiant analytial ontributions were to estimate apaity. made by the following individuals: The main data soures (see Appendix D) used for the analysis Jay K. Mithell Chapter 2 inlude: (1) annual apaity reports and aompanying Format 567, System Flow Diagrams, filed with the Federal Mihael J. Tita Chapter 5 Energy Regulatory Commission (FERC) by major interstate pipeline ompanies (18 CFR and 260.8); (2) FERC Lillian H. Willie Young Chapter 3. Form 11, Natural Gas Pipeline Monthly Statement (1995 and earlier years); (3) FERC Form 2, Annual Report of Desktop publishing support was provided by Margareta Major Natural Gas Companies ; (4) Energy Information Bennett. iii

3 Contents Exeutive Summary... vii 1. Introdution... 1 Report Purpose and Struture... 1 Defining Deliverability... 2 Shipper Requirements... 4 Transmission System Design... 5 Pipeline Utilization... 7 Capaity Expansion Aess to Supplies and Prodution Areas U.S. Natural Gas Supplies by Region, Reeipt Capabilities Summary Deliverability on the Interstate Network Reent Changes Affeting the Pipeline Network System Growth Sine Major Transportation Corridors Summary Deliverability to Markets Major Market Changes, Regional Overviews Outlook Aess to Transportation Markets Estimating Capaity Availability Transportation Market Ativity Charateristis of Firm Capaity Held by Different Types of Shippers Summary Appendies A. State-to-State Natural Gas Pipeline Capaity and Usage Levels B. Natural Gas Pipeline and System Expansions, C. Changes in Natural Gas Markets D. Data Soures Glossary Page v

4 Tables 1. Forty Largest Interstate Pipeline Companies by Level of Deliverability, Natural Gas Prodution and Supplies in the Lower 48 States, by Region, Lower 48 Dry Natural Gas Proved Reserves and Reserves-to-Prodution Ratio, Central and Western Gulf of Mexio Lease Sales Before and After the Royalty Relief At Top 10 Fields in the Lower 48 States Ranked by Natural Gas Prodution, U.S. Natural Gas Produtive Capaity Utilization and Surplus Deliverability by Region, 1990, 1995, and Interregional Pipeline Export Capaity, Average Daily Flows, and Usage Rates, 1990 and Natural Gas Transportation Corridors and Assoiated Major Pipeline Systems, Interregional Pipeline Capaity, Average Daily Flows, and Usage Rates, 1990 and Regional Weather and Gas Storage Profile, Regional Energy Profile Comparison of Annual Average Change, or Regional Natural Gas Customer Market Share Changes, Regional Natural Gas Customers, Average Annual Change, Reserved Firm Transportation Capaity by Region, July 1996 and January Charateristis of Firm Contrat Capaity as of April 1, 1997, by Shipper Figures 1. Generalized Shemati of Natural Gas Pipeline Transmission Major Natural Gas Produing Basins and Transportation Routes to Market Areas Lower 48 Natural Gas Prodution by Region, U.S. Coalbed Methane Output, Comparison of Average U.S. Natural Gas Wellhead Prie and Canadian Natural Gas Import Prie, Canadian Gas Exports to the United States and Total Canadian Gas Prodution, Finding Costs for Natural Gas and Crude Oil, Offshore and Onshore Prodution Costs for Natural Gas and Crude Oil, 1995 and Depth Reords in Deep Water Gulf Drilling Capaity of New Natural Gas Pipeline Systems Plaed in Servie in the United States Between 1990 and Region-to-Region Natural Gas Pipeline Capaity, 1990 and Major Natural Gas Transportation Corridors in the United States and Canada, Net Natural Gas Pipeline Capaity Entering (-Exiting) Eah Region, Deember Interstate Natural Gas Capaity Summary for the Central Region, Interstate Natural Gas Capaity Summary for the Midwest Region, Interstate Natural Gas Capaity Summary for the Northeast Region, Interstate Natural Gas Capaity Summary for the Southeast Region, Interstate Natural Gas Capaity Summary for the Southwest Region, Interstate Natural Gas Capaity Summary for the Western Region, Relationship of Capaity and Utilization Conentration of Reserved Firm Capaity by Region, April 1996 April Growth in the Capaity Release Market, November 1993 Marh Capaity Held by Replaement Shippers, by Region and Heating Years, Capaity Held by Replaement Shippers During the Nonheating and Heating Seasons, by Region Natural Gas Pipeline Throughput Under Firm and Interruptible Servie, January 1996 September Share of Total Firm Capaity Held on April 1, 1997, by Type of Shipper Average Length of Long-Term Firm Contrats as of April 1, Average Length of Short-Term Firm Contrats, January and April Average Firm Capaity per Contrat as of April 1, Share of Regional Firm Capaity as of April 1, 1997, by Shipper for Seleted Regions Capaity Under New and Expiring Firm Contrats, April 1, 1996 April 1, Reserved, Utilized, and Available Capaity for the Heating Year vi

5 Exeutive Summary inrease in pipeline apaity, would seem to indiate that examines the apability of the interstate pipeline network to demand for natural gas was growing faster than new move natural gas to various markets within the United States, apaity was being added and that, in some areas, highlighting the hanges that have ourred sine oasional bottleneks or periodi apaity onstraints Signifiant hanges have ourred in the natural gas industry might have ourred or were developing. In other areas, sine the (EIA) published the inrease in pipeline usage rates simply refleted a 1 the predeessor to this report in Fundamental hanges greater use of existing apaity that had been previously in industry struture were imposed with the issuane of Order underutilized beause of overbuilding or a temporary 636 in 1992 by the Federal Energy Regulatory Commission dropoff in demand. that allowed market fores and ompetition to beome the primary fators influening hange in the natural gas Refleting its growing role in the U.S. natural gas marketplae. Several new onepts in natural gas trading and market, Canadian import apaity into the United distribution have developed, suh as the market enter, and States inreased by 69 perent, or 4.5 billion ubi feet hanges have been made in how ertain network resoures are per day. It also represents the largest portion of new being used in support of these system hanges, suh as open interregional pipeline apaity proposed for development aess to underground storage apaity. during the next several years. Although it is unlikely that For the most part, these hanges have been positive. Total all projets will be built, more than 7.7 Bf per day of import apaity expansion has been proposed, most of it U.S. natural gas onsumption has inreased by 17 perent feeding into the U.S. Midwest and Northeast regions. To sine 1990, marketed prodution has inreased by 6 perent, a great degree, the proposals are driven by produers in net imports have nearly doubled, and the interstate pipeline Western Canada seeking markets for that region s system has inreased in size and apability. Overall growth in expanding prodution apability. Plans to develop fields the pipeline network has ourred in both its deliverability in the Sable Island area off the east oast of Canada have and usage levels. For instane, between 1990 and the end of also triggered a need to find markets for that prodution 1996: as well. (Between 1990 and 1996, Canadian marketed natural gas prodution inreased at an 8-perent annual Deliverability (apaity) on the interstate pipeline rate, while natural gas end-use onsumption in Canada system inreased by more than 15 perent, or inreased at only a 3.5-perent rate, thus the desire to 10.9 billion ubi feet per day, at regional borders expand export apabilities.) (Table ES1). The largest inrease in interregional deliverability was to the Western Region, with an Growth and hanges in deliverability on the natural gas additional 3.2 billion ubi feet (Bf) per day, or network have also resulted in some shifts in transportation 45 perent (Figure ES1). The seond largest inrease was orridors and aess to prodution areas. Deliverability out of 2.4 Bf per day, 24 perent, into the Northeast Region. the Roky Mountain area is inreasing as produers there are The development of so muh apaity in the West led to seeking ustomers in expanding markets, suh as the U.S. a surplus of apaity and an overall drop in the pipeline Midwest, to supplement their traditional markets in the apaity usage rate, whereas in the Northeast, demand Western Region. Likewise, produers and pipeline ompanies growth fully supported the inrease. In fat, pipelines in the areas of West Texas and New Mexio have also shifted into the Northeast saw a substantial inrease in average a larger portion of their apabilities toward Eastern markets. daily usage rates, up 6 perentage points from 1990 levels. In 1997, at least 41 natural gas pipeline projets were ompleted and plaed in servie in the United States, adding Pipeline utilization rates also inreased, by 6.3 Bf per day of apaity overall, with 0.5 Bf per day of 7 perentage points, reahing a high of 75 perent (on that representing added interregional deliverability and an average day) in This inrease in interregional 3.9 Bf intraregional deliverability (Table ES1). A major pipeline use, ourring simultaneously with a major portion of the new pipeline apaity represented inreased reeipt apability in expanding supply regions. For instane, the largest projets were in the Gulf of Mexio (3.2 Bf per day) as offshore and deep-water development efforts in the area ontinue to expand. In addition, several major projets were ompleted that expanded aess to the Wind River and, Capaity and Servie on the 1 Interstate Natural Gas Pipeline System 1990: Regional Profiles and Analyses, DOE/EIA-0556 (Washington, DC, June 1992). vii

6 Table ES1. Regional Summary of Changes in Interstate Pipeline Capaity, , and Planned Additions, a Entering the Region (MMf/d) b Within the Region (MMf/d) Estimated Proposed Perent Estimated Proposed Perent Capaity Capaity Perent Capaity Additions Change Capaity Capaity Perent Capaity Additions Change End of End of Change Added in to Capaity End of End of Change Added in to Capaity Region Central... 11,824 12, , ,754 23, ,143 1,081 9 Midwest... 22,818 24, , ,354 23, , Northeast... 10,009 12, , ,261 32, , Southeast... 19,914 21, ,788 51, ,999 5 Southwest... 2,048 2, ,583 45, ,341 1,461 8 Western... 7,126 10, ,924 15, U.S. Total... 73,739 84, , , , ,874 12,492 9 Canada... 1,277 2, , NA NA NA NA NA NA Mexio , NA NA NA NA NA NA a Inludes only the sum of apaity levels for the States and Canadian Provines bounding the respetive region. b Represents the sum of the interstate pipeline apaity, or planned apaity, on a State-to-State basis as measured at individual State border rossing points, exlusive of apaities Entering the Region. Does not inlude projets that are entirely within one State. Gulf of Mexio projets are onsidered within the Southwest or Southeast region. Proposed apaity has been ounted in only one region even though some projets may ross regional boundaries. In the ase of a new line, the additional apaity has been inluded within the region in whih it terminates. For an expansion projet, the added apaity is inluded in the region where most of the expansion effort is foused. MMf/d = Million ubi feet per day. NA = Not available. D Soures: Capaity: (EIA), EIAGIS-NG Geographi Information System, Natural Gas Pipeline State Border Capaity Database, as of Deember Capaity Additions: EIAGIS-NG Geographi Information System, Natural Gas Pipeline Constrution Database, as of Marh 1998, ompiled from Federal Energy Regulatory Commission, Natural Gas At Setion 7() Filings, "Appliation for Certifiate of Publi Conveniene and Neessity," and various natural gas industry news soures. Figure ES1. Region-to-Region Natural Gas Pipeline Capaity, 1990 and 1996 (Volumes in Million Cubi Feet per Day) Western 3,786 (2,421) 45% 298 (250) 19% 1,194 (365) 227% 2,114 (1,283) 64% Central 66 (66) 0% 1,563 (1,254) 25% Midwest 2,354 (1,765) 33% 9,879 (8,988) 9% 3,049 (2,161) 41% 2,543 (1,211) 110% 4,887 (4,584) 7% 2,038 (2,024) 1% Northeast 2,393 (467) 412% 520 (100) 418% 45 (45) 0% NN = 1996 (NN) = 1990 N% = Perent Change 5,351 (4,340) 23% Southwest 350 (350) 0% 8,609 (8,555) 1% 844 (354) 138% 20,846 (19,801) 5% 9,821 (9,645) 2% 405 (405) 0% 5,149 (4,971) 4% Southeast Soure: (EIA), EIAGIS-NG Geographi Information System, Natural Gas Pipeline State Border Capaity Database, as of Deember viii

7 Powder River basins of the Roky Mountain area by almost from 10 perent. Pratially all salt avern storage sites 0.7 Bf per day. The first new export lines to Mexio to be are aessible from market enters. ompleted in 5 years were also plaed in servie during The inrease in pipeline utilization levels sine 1990 an be Availability of eletroni trading. Another growing attributed in part to new trading and shipping arrangements feature of the new natural gas marketplae is the that evolved with the introdution of pipeline open-aess inreased use of omputer-based eletroni trading. transportation and storage. The inreased opportunities for Although there are only a few dominant systems in this trading, variable routing of gas shipments, and the marketplae, the number of trades onduted via development of new servies to omplement and expedite eletroni trading has grown steadily during the past network operations have done muh to improve the effiieny several years. These systems bring together gas traders, and utilization of available apaity. Several fators an be apaity seller/buyers, and others at a number of optional ited as ontributing to the improvement, inluding: points on the pipeline grid and assist the parties in arrying out their transations. Most of the major market Development of a release market for pipeline enters/hubs in North Ameria, as well as a number of apaity, whereby unused firm apaity an be sublet the most ative spot-market trading points on the pipeline by other shippers. The pipeline apaity release market grid, are aessible to traders. Not to be forgotten, reahed a level of about 3.6 trillion ubi feet in 1996 however, is trading on the non-eletroni spot market, (the equivalent of 16 perent of available apaity). whih still aounts for the large majority of trading Before FERC Order 636, there was only limited ativity overing short-term buying and selling of natural experiene with apaity brokering, whih had been gas. Currently there are more than 120 trading points authorized by the Federal Energy Regulatory within the national pipeline network at whih trading is Commission in onduted by open-market traders. Development of market enters. Sine 1990, when only In the market for pipeline apaity, shippers prefer long-term one formal market enter/hub was operational (the Henry ontrats (a year or more in length) over short-term ontrats Hub in Louisiana), more than 36 market enters have and firm rather than interruptible transportation servies. developed at strategi points within the North Amerian During the 12 months ended Marh 31, 1997, about pipeline grid. These enters have ontributed 78 perent of apaity was reserved under firm transportation signifiantly to providing shippers greater aess to ontrats. However, not all of that apaity was used by the lowest-ost gas supplies. Shippers now use market ontrat holders and, in addition, substantial firm enters for rerouting gas supplies from one pipeline to transportation apaity is unsubsribed and available to another and also for aess to servies, suh as short-term shippers (27 trillion Btu per day, or 21 perent of maximum gas loans and parking, that failitate gas trading and apability in 1997). Although this unommitted apaity may improve pipeline apaity usage. The Henry Hub, the not suit the needs of a partiular shipper beause of its Chiago Center (Illinois), and the Leidy Hub loation or term et., it ould support additional market (Pennsylvania) are the three most ative market enters growth beyond urrent levels. Shippers also have aess to in the United States today. additional transportation servies in whih deliveries may not neessarily be guaranteed by the pipeline ompany. These Improved aess to underground storage. Open aess servies inlude apaity release and interruptible to underground storage servies, mandated in Order 636, transportation servie and are available to shippers depending has also played a large role in improving the quality of on the atual use of the pipeline system by firm transportation transating business on the natural gas pipeline network. ustomers. Marketers are the most ative in the short-term and The major trend in underground storage growth has apaity release markets beause these markets provide the been the inreasing development of high-deliverability flexibility to meet varying and unexpeted demand levels. failities, mostly salt avern sites, whih are designed to permit rapid aess and turnover of stored inventory. These types of sites have beome losely assoiated with market enters as they omplement the short-term Outlook parking and loaning servies offered by these enters. Based upon EIA natural gas onsumption projetions, the Sine 1993, daily deliverability from salt avern and market for natural gas will ontinue to grow steadily into the other types of high-deliverability storage failities has next entury. EIA foreasts about a 2-perent annual growth grown to represent more than 15 perent of total rate during the next 10 years ( ). Exluding demand underground storage daily withdrawal apability, up in the supply areas, this translates into a projeted inrease in onsumption of nearly 1.2 trillion ubi feet by the year ix

8 In fat, the extensive number of urrently planned apaity developing fields off the oast of Eastern Canada (Sable additions and expansion projets indiates that substantial Island) to Canadian and U.S. markets. These expansions ativity is underway to address these potential inreases in de- ould add between 5.9 and 7.0 Bf per day to U.S. import mand. If all the projets urrently proposed through 2000 apaity from Canada during the next 3 years along these were built, interregional apaity would inrease by as muh orridors, an inrease of more than 52 perent over 1997 as 14.7 billion ubi feet (Bf) per day, or about 17 perent, levels. from the level in Additional projets that are limited to providing servie within a speifi region omprise an Current interregional and State-to-State apaity levels, in additional 15.3 Bf per day of apaity. most instanes, appear to be adequate to meet urrent ustomer demands, although in a few instanes average daily Natural gas onsumption is projeted to grow at a 5-perent pipeline utilization rates inreased signifiantly between 1990 annual rate in the Southeast Region through 2008, supported and This rise in usage is a strong indiator that by antiipated growth in eletri utility and industrial markets instanes of peak-period apaity onstraint ould begin to for natural gas. Markets in the Northeast and Midwest are our if demand for natural gas in the affeted markets were projeted to expand at annual rates of only 3.3 and to inrease at a faster rate than expeted. Also, while the 1.6 perent, respetively. Current proposals to expand amount of new apaity proposed for the next several years pipeline apaity into these regions between 1998 and 2000 appears to be adequate, and in some instanes more than amount to the equivalent of about 10.7 Bf per day, with adequate, to meet foreasted demand, there will probably be 5.3 Bf per day direted to the Midwest, 5.0 Bf to the some loal areas with apaity onstraints. Northeast, and 0.4 Bf to the Southeast. The apability of the pipeline network to transport and deliver Based on urrent expansion proposals, the most extensive gas from supply areas to ultimate onsumers has grown development of new apaity during the next several years measurably sine 1990, and the quality and flexibility of will our along the Canadian orridors. At least four new servie has improved as well. Substantial further growth in pipelines and several expansions are planned that will expand system apability is expeted in light of the many expansion deliverability from Canada to the U.S. Midwest and Northeast projets sheduled for ompletion during the next few years. markets and also to Canadian domesti markets. These lines Further integration, improved servies, and more interwill improve aess to natural gas supplies in Western Canada onnetions along the grid should also help aommodate and also reate a new orridor to bring prodution from the antiipated future demand. x

9 1. Introdution The United States has an extensive network of pipelines for Analyze how regulatory hange and market fores sine transporting natural gas from supply areas to all of the lower 1990 have reated new market entities while altering the 48 States. In 1996, this system delivered about 20 trillion traditional role of a number of existing ones. ubi feet of natural gas to end users, an average inrease of 1 about 5 perent annually sine This trend is expeted Charaterize and ompare the various prodution and to ontinue, as (EIA) market areas in relationship to the interstate pipeline projetions indiate that demand ould be near an all-time system. 2 high by the turn of the entury. These projetions of inreasing demand raise important issues for the U.S. pipeline Assess shifts in market and end-use onsumption patterns transmission industry onerning the system's apability to 3 within the different markets between 1990 and move gas, the mehanisms for alloating apaity, and the best way to apportion osts among users to obtain effiient Identify and examine reent proposals for new pipeline use of the system. routes and apaity expansions on existing lines, partiularly their effets on apaity levels. Report Purpose and Struture This report primarily examines the apability of the interstate pipeline network to move natural gas to various markets within the United States. The examination evaluates these apabilities from supply areas to end-use markets, looking first at the produtive apaity and assets of major prodution areas and the ability of the pipeline network to handle urrent and proposed levels of prodution. It then assesses the ability of the mainline pipeline network to transport and diret supplies to end-use markets and the apabilities of the trunklines and regional pipeline systems to deliver gas to the ultimate onsumer. Throughout the report, the data are disussed and analyzed on a regional basis (see Figure ES1) to reflet the signifiantly different profiles of various prodution and market areas within North Ameria that are linked by the pipeline network. The main purposes of this study are to: Quantify the apaity levels and usage of apaity on the interstate pipeline network in 1996 between supply areas and major market areas. Examine the hanges that have ourred on the pipeline network sine 1990, inluding new pipeline systems and expansions to existing systems. The report does not attempt to identify speifi instanes of exess pipeline apaity or system bottleneks. Identifiation of speifi existing apaity onstraints or exesses would require modeling and simulation runs using atual daily operational data. Suh an endeavor would require more detailed and speifi data than were available for this study. This hapter disusses some of the operational and regulatory features of the U.S. interstate pipeline system: the shipper requirements that affet the overall system design, the design proess, the system utilization, and the regulatory proedures for apaity expansion. It also examines the differenes between various types of pipeline ompanies and the importane of underground storage failities in the design and operation of a pipeline system. Chapter 2 looks at how the exploration, development, and prodution of natural gas within North Ameria are linked to the national pipeline grid. The analysis inludes a profile of urrent and, where possible, projeted prodution levels within the major natural gas-produing areas in the United States and Canada. It also examines prodution levels relative to pipeline apaity on pipeline systems exiting these areas and entering the major natural gas transportation orridors serving markets in North Ameria. The apability of the interstate natural gas pipeline network to link prodution areas to market areas is examined in Chapter 3, based on apaity and usage levels along 10 orridors. Eah orridor is profiled and analyzed relative 1 'Exludes gas used for pipeline fuel as well as lease (field) and plant proessing. Also does not inlude Alaska and Hawaii. Energy Information Administration, Natural Gas Annual 1996, DOE/EIA-0131(96) (Washington, 3 Unless otherwise speified, historial or general prodution and DC, September 1997), Table 1. onsumption data ited throughout this report are based on the publiation, 2, Annual Energy Outlook 1996,, Natural Gas Annual 1996, DOE/EIA- DOE/EIA-0383(96) (Washington, DC, January 1998). 0131(96) (Washington, DC, September 1997).

10 to its ombined pipeline apaity and usage levels, espeially as to its reeipt apability from supply areas and deliverability to market areas. The hapter also examines apaity expansions that have ourred sine 1990 along eah orridor and the potential impat of proposed new apaity. Chapter 4 disusses the last step in the transportation hain, that is, deliverability to the ultimate end user. Flow patterns into and out of eah market region are disussed, as well as the movement of natural gas between States in eah region. The profile of the ustomer base is addressed to provide some insight into the urrent operation of pipeline and storage failities in the market area. The potential impat of announed expansion projets is analyzed relative to urrent apaity levels and the regional demand profile. Chapter 5 examines how shippers reserve interstate pipeline apaity in the urrent transportation marketplae. It looks at how pipeline ompanies are handling the seondary market for short-term unused apaity that is plaed on the market by shippers eager to lower their overall transportation osts. It also analyzes the level of this (apaity release) trading and what urrent trends might mean for firm and interruptible ontrat (reservation) levels on pipelines in the future. The report also inludes four appendies that provide supporting data and additional detail on the methodology used to estimate apaity. For the most part, the time series data used in this report over the years 1990 through There are a few exeptions worth noting, however. Pipeline projets ompleted in 1997 are inluded in the analyses in hapters 3 and 4, although these projets were only in servie for a part of the year. Sine pipeline flow data for 1997 were not yet available, no attempt was made to integrate the 1997 projets into any disussion of pipeline utilization or speifi State-to-State apaity profiles. Another exeption is the energy onsumption data in Chapter 4 (and Appendix C, Table C1). As of Marh 1998, no omparative annual data for 1996 were available onerning total national energy onsumption by fuel type. While this limited the data time series to the period 1990 through 1995, the use of average annual (perent) hange in the aompanying profile analyses minimized the impat of the 1 year of missing data. It should also be noted that the analysis in Chapter 5 examines firm transportation ontrat data for the 1997 heating year (the 12 months ended Marh 31, 1997). Analyses onerning out-year projetions vary with the types of issues being addressed. Projetions of pipeline apaity additions through the year 2000 presented in the report are based upon atual proposals urrently under ative onsideration by the pipeline ompanies and regulatory authorities. Some of these projets may not survive the development proess. Projetions onerning prodution (Chapter 2) and future demand levels (Chapter 4), on the other hand, reflet estimates presented in EIA s Annual Energy Outlook 1998 With Projetions to 2020 as produed from the EIA s National Energy Modeling System (NEMS). Defining Deliverability Deliverability is defined for this report as the maximum volume (apaity) that an be reeived, delivered, or passed through a speifi point during a speified period, e.g., 1 day. Pipeline deliverability, or apaity, an be measured in different ways, resulting in slightly different meanings. For example: Systemwide peak-day apaity. Major interstate pipeline ompanies file an annual apaity report (18 CFR ) with the Federal Energy Regulatory Commission (FERC) that reports their daily system apaity based on a design estimate of how muh their system an deliver for urrent shippers on a systemwide peak day, otherwise known as the oinidental peak day 4 (Table 1). The derivation of this figure differs among pipeline ompanies. Estimates of apaity on grid type (regional) systems (see Pipeline Utilization setion) often are based upon the sum of system maximum deliverability when the system is in a balaned state (reeipts math deliveries). Systemwide apaity on trunkline systems usually represents the sum of apaity at all delivery points. Peak-day apaity of eah individual reeipt, delivery, or interonnetion point. This estimate represents the maximum amount of natural gas that an be delivered into or out of the system during a period based on an individual ustomer s peak needs, although no system is apable of reahing these maximums at all points on the same day. The sum of these apabilities is known as the nonoinidental peak-day apaity. It is alled nonoinidental beause the days on whih delivery points on a pipeline system experiene their peak flow may not oinide. Capaity at a speifi (strategi) point along the pipeline system, usually at a ompressor station or hub interonnetion (of several pipelines). Compressor A oinidental peak flow is a volume measured at a delivery, reeipt, or 4 interonnetion point during a speified period (usually a day) when the entire pipeline system operated at its maximum (throughput) for a given year. Thus the day for this measure oinides for all shippers.

11 Table 1. Forty Largest Interstate Pipeline Companies by Level of Deliverability, 1996 Systemwide Coinidental Number of Number of Number of Peak-Day Peak-Day 4 5 Type of Reeipt Delivery Interonnet Capaity System Flow 1 Company Name System Points Points Points (MMf/d) (MMf) Columbia Gas Transmission Co. Grid ,445 7,309 Transontinental Gas Pipeline Co. Trunk ,376 6,448 CNG Transmission Co. Grid ,275 6,899 Tennessee Gas Pipeline Co. Trunk ,981 6,887 ANR Pipeline Co. Trunk ,923 6,311 Texas Eastern Transmission Corp. Trunk ,761 5,414 Natural Gas Pipeline Co of Ameria Trunk ,208 5,957 El Paso Natural Gas Co. Trunk ,744 4,075 Northern Natural Gas Co. Grid/Trunk ,800 4,290 Koh Gateway Pipeline Co. Grid/Trunk 937 1, ,598 3,741 Northwest Pipeline Corp. Trunk/Grid ,300 2,907 Texas Gas Transmission Corp. Trunk ,950 3,621 Panhandle Eastern Pipeline Co. Trunk ,917 2,744 Noram Gas Transmission Co. Trunk/Grid ,811 2,335 Great Lakes Gas Transmission Co. Trunk ,712 3,767 PG&E Gas Transmission Co. - Northwest Trunk ,619 2,756 Transwestern Gas Pipeline Co. Trunk ,615 1,292 Southern Natural Gas Co. (SONAT) Grid/Trunk ,411 2,848 National Fuel Gas Supply Corp. Grid/Trunk ,222 2,159 Columbia Gulf Transmission Co. Trunk ,063 2,845 Colorado Interstate Gas Co Grid/Trunk ,000 2,162 Northern Border Pipeline Co. Trunk ,760 1,791 Trunkline Gas Co. Trunk ,987 1,896 Williams Natural Gas Co. Grid/Trunk , Mississippi River Gas Transmission Co. Trunk ,724 1,703 Algonquin Gas Transmission Co. Trunk/Grid ,645 1,513 Florida Gas Transmission Co. Trunk ,497 1,611 Questar Pipeline Co. Grid/Trunk ,380 1,167 Sabine Gas Pipeline Co. Trunk ,304 1,211 Equitrans In. Grid Iroquois Gas Pipeline Co. Trunk ,017 Midwestern Gas Transmission Co. Trunk Kern River Gas Transmission Co. Trunk East Tennessee Natural Gas Co. Grid/Trunk KN Interstate Gas Co. Grid/Trunk Wyoming Interstate Gas Co. Trunk Viking Gas Transmission Co. Trunk Williston Basin Interstate Pipeline Co. Grid/Trunk Trailblazer Pipeline Co. Trunk Mojave Pipeline Co. Trunk Total 103,502 1 "Trunk systems are long-distane trunklines that generally tie supply areas to market areas. Grid systems are usually a network of many interonnetion and delivery points that operate in and serve major market areas. Some systems are a ombination of the two. Where two are shown, the first represents the predominant system design. 2 Pipelines with zero reeipt and/or delivery points transfer volume via interonnetions with other interstate pipelines. 3 Represents a reeipt, delivery, or emergeny interonnet with one or more of the other pipeline ompanies listed in this table. 4 Some pipeline ompanies reported their system levels in deaterms per day (Dth/d) rather than in million ubi feet per day (MMf/d). In those instanes, a fator of was used for the onversion. 5 Total volume reported as delivered off the entire pipeline system on its peak-day during the heating year extending from April 1, 1996, through Marh 31, All volumes reported in Dth/d and onverted to MMf/d using a onversion fator. MMf/d = Million ubi feet per day. Soure: Federal Energy Regulatory Commission (FERC). Reeipt/Delivery/Interonnets: FERC 567 Capaity Report, System Flow Diagram. Systemwide Peak-Day Capaity: FERC Annual Capaity Report (18 CFR ). Peak-Day Flow: FERC Form 2, Annual Report of Major Natural Gas Companies.

12 stations an be viewed as hoke points along a system be expressed as a reservation on system apaity for the beause they are designed to move a limited amount of reeipt and delivery of a maximum daily quantity of gas at gas through their loation over a period of time. Capaity speifi points along the network. Under firm transportation measures for individual pipelines at a hub are dependent ontrats, the pipeline ompany agrees to reserve apaity on upon the apabilities of the hub itself and operational its system to provide a shipper, suh as a loal distribution aspets of other pipelines using the hub during a peak ompany (LDC), industrial user, or eletri utility, with up to period. a speified quantity on any given day. Pipeline ompanies must stand ready to provide servie up to the volume level This report primarily uses the speifi point measure of speified under firm ontrats even though their shippers may deliverability, based on an estimated design throughput not need or atually request transport of that gas. (However, apability of a pipeline as it rosses State borders. This design in ertain instanes, pipeline ompanies have the authority to apaity estimates the flow that ould be obtained along a impose restritions on the level of servie they are obligated pipeline segment on a sustained basis under a speifi set of to provide (see Box, Operational Flow Orders )). onditions and thus provides a measure of omparability aross all pipeline systems. LDCs are still the prinipal providers of supply to the ultimate end user, aounting for about 42 perent of the natural gas It should be emphasized that the apaity numbers derived for sold to end users in 1996 (down from 46 perent in 1993) and this report are merely reasonable estimates based upon 25 perent of the gas transported on their behalf (up from design or ontratual onditions. Atual apaity at a 20 perent in 1993). They typially ontrat with pipeline partiular point or system wide is rarely one stable figure. ompanies for firm transportation and storage servies to meet Weather onditions, ambient temperature, elevation, and the requirements of their high-priority ustomers and for 5 operational variables, suh as short-term line paking and interruptible servie to meet the needs of their lower priority line pressure shifts, an affet stated apaity levels. In some ustomers. However, in some States where open-aess ases, line paking an inrease operational apaity by as transportation and deregulation are being tested, LDCs are muh as 20 to 30 perent. Some of this inrease is refleted in slowly beoming merely deliverers for other sellers. In 1996, the differenes between system apaity and peak-day flows nonsales deliveries represented 37 perent (4.9 trillion ubi shown in Table 1. In a number of ases, the peak-day flow is feet) of total LDC deliveries, up from 30 perent in well above the reported overall system apaity. Consumers are generally lassified into four ategories: (1) The pipeline apaity estimates in this report are based residential, (2) ommerial, (3) industrial, and (4) eletri primarily upon ompressor station data in the Federal Energy utility. Residential and ommerial gas onsumers usually Regulatory Commission Format 567, System Flow have no other alternative for fuel exept through the LDCs Diagrams, filed annually by the major interstate pipeline and thus are onsidered high-priority users. In ontrast, many ompanies. (See Appendix C for a detailed disussion of how industrial users and eletri utilities do not require firm apaity levels were derived and refined.) Systemwide servie beause they often have the apability to swith to apaity levels, when used, are based upon data reported to other fuels. Some eletri utility and industrial onsumers FERC by the major interstate pipeline ompanies in their ontrat for servie on an interruptible basis. Under annual apaity reports that aompany Format 567 (18 CFR interruptible ontrats, deliveries are subjet to urtailments ) or onstruted from pipeline delivery data reported by the pipeline ompany or loal distribution ompany when on FERC Form 11, Natural Gas Pipeline Company Monthly neessary to meet the requirements for servie under firm 6 Statement. ontrats. Rates for interruptible servie are generally less expensive than for firm servie. Servie to interruptible shippers is extremely important to the pipeline ompanies in their efforts to maintain a high level of throughput. Shipper Requirements Ultimately, the shippers requirements determine the design apaity of pipeline system failities. Pipeline ompanies seek to obtain a mix of shippers and ontrat types in order to maximize system throughput. Firm servie requirements may 5 Line paking is temporary storage of pipeline gas through the use of inreased ompression. 6 The FERC Form 11 data used are only through The form was revised in 1996 and now is filed only on a quarterly basis. The demand for natural gas is quite diverse regionally. For example, in the northern regions of the ountry where a high proportion of residential and ommerial onsumers use natural gas for heating, deliveries under firm servie ontrats are highly seasonal beause of the extreme weather variation. Other more temperate regions, suh as the Southwest, may be very dependent on natural gas used in the generation of eletriity to meet summer ooling loads. The use of natural gas for industrial purposes also varies substantially from

13 Operational Flow Orders When FERC Order 636 was instituted in 1993 and open aess beame the norm, the Federal Energy Regulatory Commission reognized that pipeline operators needed a mehanism in plae that would still allow them to maintain the operational integrity of their system during periods of potential flux and when the system is under stress. Conditions suh as extreme weather, unsheduled downtime on ritial parts of the system, and extreme imbalane situations are some of the reasons pipeline ompanies ite as the need for suh short-term ontrol. Operational flow orders (OFOs) (also alled system emergeny orders or ritial period measures) are the mehanisms put in plae to permit this ontrol. In effet, these orders permit the pipeline operator during emergeny situations to restrain shipper ativities and to urtail servies that ould result in imbalanes and servie interruptions. For instane, OFOs allow the operator to redue or eliminate flow toleranes and require shippers to maintain a strit daily balane between reeipt and delivery volumes. The OFO also may restrit or eliminate suh servies as intraday nominations, the use of seondary reeipt and delivery points, firm storage withdrawals, and interruptible storage servies. As an enforement measure, pipeline ompanies an exat penalties for violations (pipeline ompanies do not bear any osts inurred as a result of servie restritions and they get to keep any penalty revenues). Despite their utility, OFOs are ontroversial. The diret onsequene of measures taken under OFOs is to lessen short-term trading and shipping flexibility on the part of ustomers. Some maintain that pipeline operators are given too muh disretion regarding what onstitutes an OFO situation and that operators have inentives for maintaining the OFO for longer than is needed. Critis also argue that the fat that the pipeline ompany an retain any penalty revenues and plae restritions on nonfirm servies and seondary reeipt/delivery points is a disinentive to shippers who want these lower-ost servies but are unwilling to risk possible interruption of their operational flows during peak periods. While operating ontingenies must be addressed and some form of pipeline system ontrol during stress periods and emergenies will ontinue to be required, the riteria for OFO implementation may be hanged as more experiene is gained with emergeny situations under open-aess onditions. For instane, it has been suggested that the restritions be imposed in a ratheted manner, implementing more severe restritions only if the lesser ones fail to alleviate the situation. Among the other possibilities: limit restritions only to those parts of the system that are under stress; give shippers more advane notie before issuing the OFO; remove any finanial inentives to pipeline ompanies under the OFO; and learly define within the pipeline ompany s tariff the onditions for imposing an OFO and what operational onditions onstitute an end to an OFO. region to region. Some appliations use natural gas for feedstoks and require a seure, dediated supply of natural gas. Other uses are for boiler fuel where the user typially has the apability to burn other fuels in the event that natural gas is not available or is less eonomi than the alternatives. Transmission System Design The prinipal requirement of the natural gas transmission system is that it be apable of meeting the peak-day demand of its shippers who have ontrats for firm servie. To meet this requirement, the prinipal failities developed by the natural gas industry are a ombination of transmission lines to bring the gas to the market areas and of underground storage and liquefied natural gas (LNG) failities loser to the market areas to meet surges in demand (Figure 1). The design of the transmission lines and integrated storage sites represents a balane of the most effiient and eonomial mix of delivery tehniques given the operational requirements faing pipeline ompanies. The mix varies widely depending on the number and types of shippers and aess to supplies, either from prodution areas or underground storage. Many pipeline systems are onfigured prinipally for the longdistane transmission of supplies from prodution regions to market areas and are haraterized as trunklines (Table 1). At the other extreme are the grid systems, whih generally operate in and serve major market areas. Many of the grid systems an be ategorized as regional distribution systems. For the most part, they reeive their supplies from major trunklines or diretly from loal prodution areas and transport gas to loal distribution ompanies and other onsumers in more than one State. Underground storage is an essential omponent of an effiient and reliable interstate natural gas transmission and

14 Figure 1. Generalized Shemati of Natural Gas Pipeline Transmission (Exess) Underground Storage LNG (peaking) Storage Market Area Storage Peak Periods Prodution Dry Gas Baseload Ultimate Consumer Offpeak Periods Liquids Proessing Plant (Extration) Note: Areas shown are not proportional to atual operational volumes or apaity. Soure:, Offie of Oil and Gas. distribution network. The size of the transmission line often depends in large part on the availability of storage. Rather than size a line to meet peak-day volumes, the line need satisfy only the differene between total shipper peak requirements and maximum withdrawal from storage as it enters the market area. In off-peak periods, the line must be able to provide shippers off-peak needs plus injetion to storage. In addition, some storage sites may require that system flow be reversible and that the main transmission line in the viinity be able to aommodate this apability. The resulting pipeline onfiguration, inluding storage, may result in a omparatively low usage level in the off-peak season and a muh higher, albeit shorter term, usage level during the peak-demand season. During the nonheating season, for instane, when shippers do not use all the apaity ontrated for, natural gas an be transported and injeted into storage at a fairly onstant rate. By the beginning of the heating season (November 1), inventory levels are generally at their annual peak. Working gas, that is, the portion of natural gas in storage sites 7 ordinarily available for withdrawal and delivery to markets, is then withdrawn during periods of peak demand. In addition, the pipeline ompany itself an avoid the need to expand transmission apaity from prodution areas by using existing, or establishing new, storage failities in market areas 7 In addition to working (top storage) gas, underground storage reservoirs also ontain base (ushion) gas and, in the ase of depleted oil and/or gas field reservoirs, native gas. Native gas is gas that remains after eonomi prodution eases and before onversion to use as a storage site. Native gas and base gas typially are not withdrawn from the storage faility, as these volumes are neessary to ensure suffiient pressure for the withdrawal of the working gas. where there is a strong seasonal variation to demand and where the system may be subjeted to some operational imbalanes. The daily deliverability from storage an also be fatored into the design needs of a new pipeline or the expansion needs of an existing one. Some underground storage failities are loated in prodution areas at the terminus of the pipeline orridor and, in ontrast to storage near loal markets, an be used to store gas that may not be eonomially marketable at 8 the time of prodution. These sites an be used by shippers to store short-term exess supplies that exeed their reserve apaity on the pipeline system and the reverse when supplies fall below reserved apaity. Thus, the pipeline is relieved of additional demands for apaity brought on by temporary swings in transportation demands. Often new systems are initially designed to handle volumes beyond the minimum requirement. A number of fators are involved in alulating how muh gas a pipeline an arry, the most important being the diameter of the pipe and the 9 pressure pushing the gas along the pipe. Beause of flow dynamis, doubling the diameter of the pipe will inrease the 8 For instane, natural gas produed in assoiation with oil prodution is a funtion of oil market deisions, whih may not oinide with natural gas demand or available pipeline apaity to transport the gas to end-use markets. Another example is the storage of gas from low-pressure wells, where the gas an be injeted during the off-peak season and delivered, at high pressure, to the mainline during the peak season. 9 Standard design odes require that all pipelines passing though populated areas have their maximum operating pressures redued for safety reasons. It beame ommon pratie to maintain nominal diameter but inrease wall thikness where a line had to be derated for its surroundings in order to keep the working pressure rating more onstant along the line.

15 apaity more than sixfold at approximately twie the ost. Inreasing the pipe wall thikness or strength of the pipe will enable the pipe to withstand a greater pressure. The pressure pushing the gas is usually provided by mehanial ompression. The design proess itself inludes the development of ost estimates for various possible ombinations of pipe size, ompression equipment, and interstation distanes to find the ombination that minimizes transportation ost given the desired flexibility and expandability goals. New trunklines are typially built with larger diameter pipe than needed initially, but only with the urrently required ompression apaity. Compression an then be added, either in existing or new, intermediate stations, to inrease apaity as growth in load ours. Pipeline Utilization Pipeline ompanies prefer to operate as lose to apaity as possible, thus maximizing revenue; however, the average annual utilization rate usually does not reah 100 perent even in ases of full utilization. Several fators ontribute to these lower rates, inluding the outages resulting from pipeline maintenane. During the summer months, when pipeline apaity demands are lowest, most pipeline ompanies shedule needed maintenane. As a result, some pipeline segments or ompressor failities may be plaed out of servie and transportation servie suspended temporarily, for a day, a week, or even as long as a month. Thus, average utilization rates below 100 perent do not neessarily imply that additional apaity is available. A pipeline ompany that serves primarily a seasonal market may have a relatively low average utilization rate even if there is no unreserved apaity on its system. Yet beause of the diffiulty in balaning unused ommitments for firm servie with interruptible servie and transportation for others, it may be unable to provide further interruptible servie to omplement the high level of deliveries required during the peak onsumption periods. Integration of storage apaity into the pipeline network design an inrease average-day utilization rates. Storage used for seasonal demand-swings effetively moves demand from one season of the year to another. Trunklines, whih are generally upstream of the market storage areas, an be designed for a more onstant load than the pipelines on the downstream side of the storage fields. Storage is usually integrated into or available to the system at the prodution and/or the market end as a means of balaning flow levels throughout the year. Therefore, trunklines serving markets with signifiant storage apaity have a muh greater potential for obtaining a high utilization rate beause the load moving on these pipelines an be levelized. Furthermore, to the extent these pipelines serve multiple markets, they an also ahieve higher utilization rates beause of load diversity aross the markets they serve. In fat, some trunkline systems, espeially those reahing high-demand markets, often exhibit peak daily utilization rates greater than 100 perent. For example, the Iroquois Pipeline system, whih transports Canadian gas to the U.S. Northeast, showed a peak-period usage rate above 100 perent in 1996, as did the Trailblazer Pipeline system out of the Roky Mountains area. Several fators ontribute 10 to this situation. First, some trunkline systems are apable of handling muh larger volumes than indiated by the operational design level ertifiated by FERC, whih is the level that is used as the denominator when alulating usage rates (based on an annual throughput volume divided by 365 days). Seond, as the line an handle more than the ertifiated apaity and shipper demand is high, maximum usage is made of the pipeline by its owners. In many instanes of high demand, pipeline ompanies also use line paking and/or seondary ompression to inrease throughput, whih was a tati used by both Iroquois and Trailblazer this past year. When average daily utilization rates exeed stated apaity, it is more appropriate to use the peak-day volume as the atual apaity, or apability, of the system. Utilization on the grid systems operating loser to the market areas and downstream of the storage fields is more likely to reflet the seasonal load profile of the market being served than utilization on upstream trunklines. The grid-type systems usually operate at lower average utilization levels than the trunklines, although during peak periods, usage levels are generally also at muh higher rates. Grid systems usually show a marked variation between high and low flow levels, refleting their seasonal servie and loal market harateristis. Storage servies are usually highly integrated into the grid network to meet varying loal market demands. Beause grid systems have numerous interonnetions within the network, their overall usage levels depend upon what happens in the various parts of the system. Pipeline segments that show a high degree of utilization are either serving a It should also be noted that in some instanes the sum of individual 10 transportation transations may exeed pipeline apaity even though physially the pipeline may be full. For example, suppose a segment from points A to D (with points B and C between A and D) has a apaity of 200 million ubi feet (MMf) per day. Suppose further that this segment handles a 100 MMf per day transation from A to B, a seond of 100 MMf per day from B to C, and a third of 100 MMf per day from C to D. The pipeline ompany will report transportation volumes of 300 MMf per day, even though its apaity is 200 MMf per day but is only 50 perent utilized on any one segment.

16 shipper (or group of shippers) with relatively onstant 11 review of the environmental aspets of the projets. These demand or have a signifiant interruptible servie market. requirements have resulted in a very time-onsuming, omplex, and sometimes ontroversial proess. The primary measure of pipeline utilization used in this analysis is an estimate of average-day natural gas throughput One a projet is approved and onstruted under a Setion relative to estimates of system apaity at State and regional 7() ertifiate, the osts of the failities are eligible for boundaries. Another measure used is systemwide pipeline inlusion in the pipeline ompany rate base (when the flow rates, whih highlight variations in monthly system 12 ompany files its next general rate ase). Other options are usage relative to an estimated system peak throughput level also available to pipeline ompanies for apaity expansion, (see Box, Pipeline Utilization Measures ). In some instanes, depending on the size of the projet and the amount of risk where data were available, pipeline peak-day utilization rates the ompany is willing to assume. These options inlude: are referened in this report. System peak-day usage rates, although only a refletion of peak system deliveries versus Blanket Certifiate. Blanket ertifiation an be used for estimated system apaity, ome the losest to showing how relatively small projets. A blanket ertifiate approves a well the design of the system mathes urrent shipper peak- series of similar ations in one authorization. For day needs. For example, when a pipeline shows a ompara- instane, onstrution of small additions to a pipeline may tively low average usage rate (based on annual or monthly be authorized by a blanket ertifiate, provided the total data) yet shows a usage rate approahing 100 perent on its ost does not exeed some threshold level and other peak day, it indiates that the system is still alled upon and eligibility riteria are met. Similarly, pipeline ompanies is apable of meeting its shipper s maximum daily needs. may be allowed to transport gas on a self-implementing Nevertheless, a large spread between average usage rates and basis (without prior FERC approval) for many different peak-day usage rates an indiate a need to find better ways shippers on the approval of a single blanket ertifiate. In to utilize off-peak unused apaity. reent years, FERC has been using blanket ertifiation more frequently to authorize and failitate both onstrution projets and transportation programs. Capaity Expansion Although pipeline systems have some flexibility in handling hanges in demand, sometimes system expansion and new pipeline routes are needed. There was substantial interest in expansion of the national pipeline network during the late 1980's and early 1990's and that interest ontinues today. Two of the largest proposals of the late 1980's to be implemented during the early 1990's were the Iroquois projet, built to bring Canadian natural gas into the Northeast, and the Kern River projet, whih now transports natural gas from supply soures in Wyoming to California. These new lines began servie in 1991 and 1992, respetively. A large number of other new systems and expansions are planned or under onstrution that will bring additional supplies from Canada, as well as from the Roky Mountains area and the Southwest, to the U.S. Midwest and Northeast regions. In most ases, interstate pipeline ompanies are required under Setion 7() of the Natural Gas At of 1938 to obtain a ertifiate of publi onveniene and neessity before onstruting pipeline failities. Besides review of operational aspets of the system, other legislation requires extensive Optional Certifiate (formerly known as Optional Expedited Certifiate). In 1985, under Order 436, FERC introdued optional ertifiates whereby onstrution ould be approved without assessment of its market need or ompetitive proposals. In return, the pipeline ompany agrees to bear the majority of the risk of the projet. Furthermore, the pipeline ompany may not derease the projeted volume of servies used to design rates nor shift osts to pre-existing shippers. Beause of the at risk fator, some optional ertifiate projets tend to be more adversely affeted by proedural delays sine hanges in market onditions that our in the meantime may neessitate a re-evaluation of the projet s feasibility and its potential suess. NGPA Setion 311. Setion 311 of the Natural Gas Poliy At (NGPA) of 1978 allows an interstate pipeline ompany to sell or transport gas on behalf of any 11 These laws inlude: the National Environmental Poliy At, National Historial Preservation At, Endangered Speies At, Toxi Substanes Control At, Clean Air At, Clean Water At, Coastal Zone Management At, Wild and Seni Rivers At, Wilderness At, and National Parks and Rereation At. 12 In some instanes, FERC may also issue a Setion 7() ertifiate subjet to at risk onditions. In suh ases, the pipeline ompanies are not guaranteed authority to inlude osts in the rate base, and risks borne by the ompanies are not redued. Under an at risk ertifiate, a pipeline ompany's risk is minimized only where it has fully ontrated the apaity of a new line.

17 Pipeline Utilization Measures At State Borders The State-to-State measure of pipeline utilization used in this analysis is based on estimates of average-day pipeline throughput relative to estimates of system apaity at State boundaries. Average-day throughputs were omputed by dividing annual Stateto-State flows in 1990 (reported by pipeline ompanies) by 365 days and those in 1996 by 366 days. Average-day utilization for the 2 years were then derived by dividing the average-day flow by the estimated apaity level. This measure provided the basis for the analysis pertaining to usage of speifi portions of a pipeline system and additionally some insight into the type of servie provided in the area. But, beause it uses averaged annual throughput volumes, the measure implies nothing about the availability of apaity during peak periods, exept to the extent that the average daily utilization approahes, or exeeds, 100 perent. (Servie levels on a pipeline system often vary from month to month, day to day, and even hourly.) As the omputed utilization rate approahes 100 perent, it indiates only that the volume of gas moving through a speifi geographi area on an average day during the year approximated estimated apaity. When this does our, however, it is likely that the speifi system loation experienes some onstraints during peak periods. A system that fully utilizes available apaity for short periods and not on a sustained basis throughout the year will show a lower utilization rate based on a daily averaging of annual throughput. Systemwide In order to evaluate operational and utilization levels of the various pipeline systems during the year, several flow-rate derivations were omputed. These rates are based on a omparison of 1995 monthly throughput (the latest available monthly data) on the entire pipeline system with the largest throughput (sales, transportation, and interompany transfers) that ourred in any month over a 15-year period ( ). They were developed to show the degree of differene that ours on different types of systems over the year as seasons and demand hange. In these omputations, the highest monthly throughput during the 15-year period is used as the proxy for the systemwide apaity of the pipeline. (This method has its limitations, inluding the fat that aounting of throughput an vary by pipeline ompany, leading to the reporting of exess throughput levels.) For 1995, (1) average-month throughput, (2) high-month throughput, and (3) low-month throughput were eah divided by the 15-year high-month throughput to derive three flow-rate perentages. In addition, a summer (nonheating season) usage level, using the sum of volumes delivered during the nonshoulder months of May through September divided by 153 days, was also omputed. (April and Otober are onsidered to be months that shoulder the heating season of November through Marh.) Another systemwide usage rate was also omputed based upon an annual system (deliverability) apaity level reported to the Federal Energy Regulatory Commission (FERC) by the major pipeline ompanies and the system s yearly peak 1-day volume. This figure provided a snapshot of the system s maximum use level ontaining a minimum skew aused by downtime and other fators. An analysis of the peak-day, high month, low month, average monthly, and average summer (off-peak) throughput rates provides some understanding of the load variability on a pipeline system throughout the year. For instane, systems with a high-month rate of 100 perent in 1995 had a reord monthly throughput level in If these same systems also exhibited high average utilization rates at State border rossings, they may be onstrained in their abilities to serve additional shippers without apaity expansion. In ontrast, systems having a relatively low peak-month throughput but high average utilization levels at speifi points along the network probably are experiening more loalized apaity onstraints. Comparison of the systemwide average-month flow rates with utilization rates at State border rossings an provide insight into how representative the individual utilization rates are of the whole system. For example, if utilization rates are very high at State border rossings but the systemwide average-month rate is signifiantly lower, then there are likely to be elements of the system, probably wholly ontained within a region or State, where utilization is low. Conversely, if utilization rates at State borders are very low but the systemwide average-month rate is signifiantly higher, then there are likely to be elements of the system where utilization is quite high. These areas are likely to be near supply regions where interstate pipelines interonnet and transfer large volumes of gas from one system to another.

18 new pipeline projets at various stages of development in the United States, Canada, and Mexio. If all U.S. projets were ompleted, the amount of new apaity would add more than 29 billion ubi feet of daily deliverability on the national network. The most extensive development is foused on expanding the deliverability of Canadian gas to the U.S. Midwest and Northeast and to Canadian markets. The seond- largest fous is on improving aess to the inreasing deep- water prodution in the Gulf of Mexio. Next are those projets whose objetive it is to inrease the flow of lowerinrease flows of Western Canadian gas to the Midwest ost supplies loated in the Central United States to markets loated primarily in the Midwest. Currently, the apability to do so is limited. The latter series of expansions will be ompeting, to some degree, with the projets slated to marketplae. The potential impat of proposed apaity expansions is disussed in subsequent hapters. intrastate pipeline or loal distribution ompany. FERC has exempted the onstrution of failities used solely for Setion 311 transportation from ertifiate requirements. Constrution is subjet to environmental onditions and a 30-day notie to FERC, whih requires only information on the delivery point of gas from the interstate pipeline, the total and daily volumes expeted to be delivered, and the rate to be harged for transportation or sale. Planned expansions of the urrent pipeline system are proposed under eah of these options and are detailed in Appendix B. The traditional Setion 7() appliation is still the most widely used. As of Marh 1998, the was traking more than 100 proposed pipeline expansions and

19 2. Aess to Supplies and Prodution Areas Natural gas prodution patterns in the lower 48 States have 1990s, growing as a major soure of deliverability in the hanged in reent years as new fields have been brought on lower 48 States. line and older gas-produing areas have delined in importane. For example, the eighth largest gas field in the Alaska is not inluded as a supply area in this study beause United States in 1996 in terms of output, Bob West in its natural gas prodution is not destined for U.S. markets in southern Texas, was disovered only in 1990 and as late as the lower 48 for some time to ome and therefore does not 1993 did not even figure among the top 30 produers. Also, diretly affet U.S. gas deliverability within the time frame of new tehnology has rejuvenated older fields and allowed the analysis. prodution from fields previously thought uneonomi. The shifts in regional prodution will affet existing pipeline routes, reduing flows along some, while inreasing flows along others. Some regional prodution inreases from new gas fields in the Roky Mountain area and New Mexio will require additional apaity to transport the gas to markets. The Gulf Coast region has seen a substantial inrease in prodution over the past several years and, although traditionally served by an extensive pipeline network, will probably require the addition of new apaity. Meanwhile, prodution in the Anadarko and Arkoma Basins delined during the first half of the 1990s. This hapter disusses U.S. natural gas deliverability at the wellhead through 2000 and the apability of the pipeline network to reeive and export that gas through the national network grid. The analysis fouses on eight produing areas that roughly orrespond to major geologi basins in the lower 48 States (Figure 2), as well as imports from Canada. Relatively new produing regions (in terms of average field age) overed in this hapter inlude the offshore Gulf of Mexio; major fields in the Roky Mountain States of Utah, Colorado, and Wyoming; and the San Juan Basin of New Mexio. Older produing regions examined inlude the Permian Basin; the onshore Gulf Coast of Texas and Louisiana; the Anadarko and Arkoma basins in Oklahoma, Kansas, and Arkansas; the fields of East Texas; and the 13 Appalahian Basin. Although a relatively minor gas produer, the Appalahian Basin region is notable beause of its proximity to major markets in the Northeast. Canada has sharply inreased gas exports to the United States during the U.S. Natural Gas Supplies by Region, Total natural gas prodution in the lower 48 States has shown an upward trend during the 1990s, rising 5 perent from an average 47.7 billion ubi feet (Bf) per day (17.4 trillion ubi feet (Tf) on an annual basis) in 1990 to 50.1 Bf per day (18.4 Tf per year) in 1996 (Table 2), its highest level sine the early 1980s. Higher gas demand and stable pries are projeted to raise prodution in the lower 48 to about 54 Bf per day (19.8 Tf per year) in The 1.9-perent average annual growth rate foreast for the period 1996 through 2000 is more than double the prodution growth rates of the first half of the 1990s. 14 Lower 48 gas reserves inreased to 156 Tf in 1996, marking the third onseutive year of higher reserve levels although still slightly below the 1990 level of 160 Tf. This reent trend is expeted to ontinue. Various fators, suh as improved well ompletions, advaned stimulation tehnology, and improved seismi tehnology, have allowed produers to maximize gas output from existing fields, resulting in a deline in the ratio of reserves to prodution sine The near-term supply outlook for natural gas shows expanded prodution through 2000, refleting the reent prodution trends as well as the substantial volume of remaining 15 resoures. One reent study estimated remaining reoverable gas resoures at 929 Tf as of Deember 31, 1996, suggesting 14 Unless otherwise noted, all foreasts are derived from data in the Energy Information Administration (EIA) publiation Annual Energy Outlook 1998 With Projetions to 2020, DOE/EIA-0383(98) (Washington, DC, Deember 1997). Historial data for the lower 48 States are from EIA s Natural Gas Annual 1996, DOE/EIA-0131(96) (Washington, DC, September 1997), and earlier editions of this report. The lower 48 totals are disaggregated to regional 13 The regional data were aggregated from data by State and sub-state estimates, based on relative dry gas prodution values as reported in the EIA areas. The lak of strit orrespondene between the basins and these data report U.S. Crude Oil, Natural Gas, and Natural Gas Liquids Reserves 1996, means that portions of basins may be exluded, or other lesser basins may be DOE/EIA-0216(96) (Washington, DC, Deember 1997), and earlier editions. 15 inluded in the regional estimates. For expository purposes, the regions, in, Annual Energy Outlook 1998, some ases, are treated as equivalent to the major basins within the regions. (Washington, DC, Deember 1997).

20 Figure 2. Major Natural Gas Produing Basins and Transportation Routes to Market Areas Western Canada Sedimentary Basin Williston Basin Green River Basin Powder River Basin Denver- Julesberg Basin Illinois Basin Mihigan Basin Uinta/Pieane Basin Saramento Basin San Joaquin Basin San Juan Basin Permian Basin Anadarko/ Arkoma Appalahian Basin Blak Warrior Basin East Texas/ North Louisiana Basins Capaity (Million Cubi Feet per Day) Gulf Coast Basin South Texas Basin 15,000 12,000 9,000 6,000 3,000 0 Correspondene to Major Natural Gas Produing Regions Produing Region State or Substate Regions Basins Contained Whole or in Part Gulf Coast South Louisiana (onshore) Gulf Coast and South Texas Basins Texas RRC Distrits 1, 2, 3, 4 Anadarko/Arkoma Arkansas Anadarko/Arkoma Basin Kansas Oklahoma Texas RRC Distrit 10 Permian Basin New Mexio, East Permian Basin Texas RRC Distrits 7B, 7C, 8, 8A, 9 Rokies Colorado Uinta/Pieane, Julesberg, Powder River, and Utah Green River Basins Wyoming East Texas North Louisiana East Texas/North Louisiana Basins Texas RRC Distrits 5, 6 San Juan Basin New Mexio, West San Juan Basin Appalahian New York Appalahian Basin Ohio Pennsylvania Virginia West Virginia Other Onshore Alabama, California (onshore), Florida, Kentuky, Mihigan, Williston, Saramento, San Joaquin, Illinois, Mississippi, Arizona, Illinois, Indiana, Maryland, Missouri, Mihigan, and Blak Warrior Basins Montana, Nebraska, Nevada, North Dakota, Oregon, South Dakota, and Tennessee Offshore Federal waters of the Gulf of Mexio, and State waters of California, Alabama, Louisiana, and Texas Soure:, EIAGIS-NG Geographi Information System, Natural Gas Pipeline State Border Capaity Database, as of Deember 1997.