Commercial side vs. Operational side: Pulling in the same direction?

In today’s natural gas pipeline world, it seems like the Commercial aspects of the pipeline are often not in synch with the Operational side. While almost all pipelines adhere to the theme and goal of “moving as much gas as possible, in a safe and efficient manner”, the Operational and Commercial sides of the business may have different ideas about how to accomplish these goals. It all comes down to how much companies are willing to “push their pipelines”.

An Operations Control person normally likes to run the pipeline on a consistent pace, so that compression and linepack are at a steady level. This leads to lower operating costs and more efficient operations. The Commercial side is more motivated by throughput and making sure every last bit of a pipeline’s capacity is utilized. Capturing that extra bit of margin (especially when prices go up) can be the difference between a profit or loss for the month. Although a blanket statement, it often holds true – Operations looks to reduce costs while Commercial looks to increase revenue.

The industry is littered with examples of cases where actual results did not meet projected expectations. Oftentimes new production and compression is brought on line to a gathering system, only to “back off” existing production. How many times has a 10 mm/d well come into a system, but resulted in only a 6 mm/d increase in total throughput? Too many of those can certainly kill an ROI calculation. Another case would be selling the maximum daily capacity at a delivery point. That works fine until there is a two hour upset in the field, with no way to make up the difference during the day – imbalances anyone?

While no one suggests that the Commercial side of the business would ever expect Operations to do anything unsafe, isn’t it fair to ask,”How much more can we move before we get into a bind?” Doing this can impact operating costs negatively, while increasing transportation revenue. Which is better? While the answer to that question can be debated ad nausea, it seems that the key is to make sure that both sides of the coin are looked at.

If the operational side of the business can be pushed to run the pipeline outside of traditional “comfort zones”, the company may, in fact, realize more revenues without sacrificing safety and efficiencies. In return, the Commercial side of the business should be tasked to truly understand the costs of each new deal they make. Increased revenue does not necessarily relate to increased profit – especially if the Commercial side does not realize the cost to move their increments of gas. There should be a Commercial realization that sometimes no new deal is the best deal.

The pipeline companies who manage this conundrum the best way will be those that are around for the duration. This will involve the better day to day management of data and the ability to accurately project different operational conditions based on varying commercial scenarios. And maybe more importantly, it may require different reporting structures within the organization to be accountable to each other.

Many companies keep their operational and commercial arms of the organization under a completely different set of executives. An accurate and sufficient quantity of data is a must in order to bring Commercial and Operations together in their forward looking plans. So, how does a company overlay commercial transactions (taking into account the fact that gas can change hands numerous times before it goes from the receipt point to the delivery point) on top of the operational pipeline and make good decisions? Now that’s a separate discussion for another time…

Robert Young

Pipelines as terrorist targets

There is considerable debate on how serious the concern is over major pipelines as a terrorist target. Recent action has been taken in the US to limit the amount of public information on pipeline location, size, etc. Citizen groups, especially local communities near these pipelines however, want and need to have this information as it affects thier daily lives.

A recent article in the Leader-Post titled Pipeline security issues raised delves into this issue.

Just last week, the Saudi branch of al-Qaida has threatened terrorist strikes on Canadian energy facilities that produce and deliver oil and natural gas to the United States in an effort to cause major economic damage.

According to this article, the purpose of targeting Candandian pipelines would be to disrupt the flow of oil and gas into the United States.

"Imaging something happening to that corridor, so that Chicago suddenly finds itself in winter without heat and without energy for Midwest industry even for a day. Imagine the symbolic impact on Canada-U.S. economic relations . . . and the economic consequences," said Rudner.

Is Canada seeing a greater threat level because of their status as a major supplier to the US?

Does this qualify as a "force majeure"?

Utility: Water leak undermined gas pipeline

When workers began digging in the area they found that the gas line, buried 5 feet deep, had been undermined by a sinkhole caused by a leak from the water service line ... The water service pipe ran above the gas main.

Taxing Big Oil

Wisconsin Gov. Proposes Taxing Big Oil, this article in Wired News by Scott Bauer covers a proposal by Wisconsin to

[tax] big oil companies more than $270 million over the next two years to help pay for the state's transportation needs.

Apparently a similar proposal was submitted and defeated in California. What are your thoughts on this?

Natural gas causes explosion

Natural gas causes explosion in Saratoga Springs killing homeowner and a Questar Gas employee

http://www.heraldex tra.com/content/ view/209204/ 3/

CALEB WARNOCK - Daily Herald
UTAH--A massive natural gas explosion destroyed a Saratoga Springs home Tuesday afternoon, killing two people inside. April Roper, 24, who had moved into the home less than a month ago with her husband and daughter, and 48-year-old Larry Radford, an employee of Questar Gas, died in the blast, said Sgt. Spencer Cannon of the Utah County Sheriff's Office.

The daughter of the homeowners was flown to an area hospital by medical helicopter after suffering minor abrasions near her mouth, according to neighbors. The name of the daughter and husband of the victim were not released. The girl, believed to be about 2 years old, was outside near the home when the explosion occurred. "We are just lucky more people haven't been hurt," said Cannon, noting debris from the home flew several hundred feet.

The explosion happened after work crews punctured a natural gas line in the Harvest Meadows neighborhood near the home, Cannon said. Questar spokesman Darren Shepherd said the company got a call about the leak around 1:30 p.m. Questar employees repaired the 2-inch plastic gas line that serves the neighborhood and then evacuated nearby homes while it searched for gas.
At about 4 p.m., after gas had been shut off to the home for about 25 minutes, Roper and Radford went into the basement of the home to turn on the water heater and furnace, Cannon said. Two minutes later, an explosion leveled most of the home, leaving only part of the three-car garage standing.

Flames then engulfed the ruins. Because the remaining walls of the red brick home were unstable and swaying, crews had to wait at least two hours before they could begin slowly removing the debris to look for the victims, which were located minutes before 9 p.m. Shepherd said Questar is investigating the accident.

"We're just saddened by the whole incident and until we can get a little more information we probably won't have much to say until then," he said.
Eddie and Mindy Meyersick, who live in an adjacent home, said they were talking in their kitchen when the explosion happened. Eddie Meyersick ran to the scene, calling 911 on his cell phone as he went. He said he found the owner of the home weeping and screaming for his wife and led the owner a distance away, afraid there would be another explosion.

Meyersick said that as he ran toward the home, he was afraid he'd be hit by flying debris. A brown leather couch was flung onto the roof of a neighbor's home by the force of the explosion. Oak kitchen chairs and a child's booster seat could be seen on a nearby lawn. The family had just moved into the home about a month ago, said Mindy Meyersick.

Anne White said she too was in her home, which looks into the backyard of the destroyed home, when the explosion happened. She ran to her window to find most of the home gone, and called 911. "I'm not kidding, this house just exploded," she recalled saying when dispatchers initially seemed unsure if the call was real. Just after she called 911, a smaller second explosion occurred and the remains of the home were then engulfed in flames, she said.

About 10 p.m. Tuesday, a steady stream of white smoke flowed eastward from the home, eerily illuminated by banks of flood lights used by emergency crews. A blanket of smoke permeated the neighborhood.

Jeremy Duda contributed to this story.
This story appeared in The Daily Herald on page A1.

Oil on the Brain

This is the title to a new (just released) book on the oil industry. Check out this review: Digging into black gold/A wild ride through the all-powerful oil indusry, master of our economy. The book is available for sale now.

February 2007 Update

Association of Oil Pipe Lines

• Pipeline Inspection, Protection, Enforcement, and Safety Act of 2006

Energy Information Administration

• Future World Oil Forecast ppt pdf
• Analysis of the Energy and Economic Impacts of a Cap-and-Trade Program for Greenhouse Gas (GHG) Emissions. pdf

Federal Energy Regulatory Commission

• Release of Capacity on Interstate Natural Gas Pipelines; Request for Comments
  
• Next Commission Meeting: 2/15/07. View Details.
• Staff issue draft environmental impact statement for the proposed Kinder Morgan Louisiana Pipeline project (CP06-449) Read More
• Commission unveils new Market Oversight webpage Press Release | Market Oversight
• Commission imposes first penalties under EPAct authority Press Release | Chairman's Statement | Commissioners Statements: Kelly's, Moeller's, and Spitzer's |IN07-1-000 | IN07-3-000 | IN07-4-000 | IN07-5-000 | IN07-6-000

National Energy Board Canada

• National Energy Board Pipeline Crossing Regulations, Part II

Pipeline & Hazardous Materials Safety Administration

• PHMSA Meeting of the Technical Hazardous Liquid Pipeline Safety Advisory Committee
• PHMSA Fraud Alert for Contractors - 2006
• PHMSA Advisory on Pipeline Safety: Lessons Learned From a Security Breach at a Liquefied Natural Gas Facility
  

U.S. Department of Energy

• Statement from Energy Secretary Samuel W. Bodman on the Expansion of the Strategic Petroleum Reserve to 1.5 Billion more>

In the news...

• BP continues investigation of leaky pipeline
  Seattle Times - Jan 31 12:18 PM Oil company BP plans to remove a 40-foot section from a major Prudhoe Bay pipeline to learn more about leaks that led to the partial shutdown of the nation's largest oil field last summer.
• OSHA Signs New Alliance with Pipeline Contractors Employees in the pipeline construction industry will benefit from a safer workplace as a result of a new Alliance signed last week between the Occupational Safety and Health Administration (OSHA) and the American Pipeline Contractors Association (APCA).
• Neptune LNG Deepwater Port Project Receives Approval From U.S. Maritime Administration SUEZ Energy North America's subsidiary, Neptune LNG LLC, today announced that the U.S. Maritime Administration has decided to issue a deepwater port license to the company to build, own, and operate the Neptune offshore LNG delivery system in Massachusetts Bay.
• Pipeline project unveiled Colorado's largest utility and the natural gas pipeline company that serves the Front Range said Wednesday they plan to build 164 miles of new pipelines and a storage facility capable of holding about 7 billion cubic feet of natural gas.