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
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