Natural Gas Market Information

Scope of Presentation

• Natural gas information– market monitoring

– support for market transactions

• Information models– architecture

Wel

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Gas ProcessingPlant

Pipeline

UndergroundStorage

LocalDistrib.Company

Residential

Commercial

Industrial

Elect. Util.

Imports

Generalized SchematicSales of Natural Gas in U.S.

Third Party (Marketer, Broker)

Consumers

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n Gas ProcessingPlant

Pipeline

UndergroundStorage

LocalDistrib.Company

Residential

Commercial

Industrial

Elect. Util.

Imports

Generalized Schematic Physical Flow ofNatural Gas in U.S.

Consumers

ParticipantsParticipants Miles of PipeMiles of Pipe Regulatory Regime in 2000Regulatory Regime in 2000

ProducersProducers 8,000 Independents8,000 Independents ---- Phased price deregulationPhased price deregulation24 Majors24 Majors Begun in 1979, completed in 1989Begun in 1979, completed in 1989

PipelinesPipelines 160160 285,000285,000 Federal Energy RegulatoryFederal Energy RegulatoryCommission (FERC)Commission (FERC)

Natural Gas MarketersNatural Gas Marketers 260260 ---- UnregulatedUnregulated

Local Gas UtilitiesLocal Gas Utilities 1,2001,200 833,000833,000 State Utility CommissionsState Utility Commissions

End UsersEnd Users Residential 53 millionResidential 53 million ---- UnregulatedUnregulatedCommercial 4.5 millionCommercial 4.5 millionIndustrial 40 thousandIndustrial 40 thousand

Electric Utilities 500Electric Utilities 500 ---- Interstate - FERCInterstate - FERCIntrastate - State CommissionsIntrastate - State Commissions

The U. S. Natural Gas Industry At A Glance

Sources of Information

• Delivery– LDC / pipeline tariffs

– Pipeline internet sites

– Third party internet sites

• Commodity– Spot Market Center Systems

– Futures Markets (NYMEX / KCBOT)

– Third party (after-the-fact) published prices

– EIA (used to monitor historical activity)

MarketersMarketersBrokersBrokersTradersTraders

OPERATORSOPERATORS

ProducersProducersPipelinePipelineStorageStorageLDCsLDCs

Diverse Users with ...

Trade Press and MediaTrade Press and Media

FINANCIALFINANCIAL

Risk ManagersRisk ManagersInvestorsInvestors

CONSUMERSCONSUMERS

Information Information AggregatorsAggregators

Market Market PlayersPlayers

GovernmentGovernment

CONSUMERSCONSUMERSPricePriceTerms and Quality of ServiceTerms and Quality of ServiceAlternative Fuel PricesAlternative Fuel PricesLong-term AvailabilityLong-term Availability

Spot pricesSpot pricesFutures pricesFutures pricesSupply/demandSupply/demandforecastsforecastsMarket analysisMarket analysis

MARKETERSMARKETERSSpot pricesSpot pricesFutures pricesFutures pricesStorage Storage changeschangesSupply Supply DemandDemandWeatherWeather

ReservesReservesFlow RatesFlow RatesNominationsNominationsReceipts/DeliveriesReceipts/DeliveriesWeatherWeatherPricesPrices

...Diverse Information Needs

Information Information AggregatorsAggregators

Market Market PlayersPlayers

GovernmentGovernment Trade Press and MediaTrade Press and Media

OPERATORSOPERATORS FINANCIALFINANCIAL

Regulators Role Is Changing

Company Centric Industry CentricFederal regulation of pipelines (by FERC)

focuses on the structure and operation of energy markets.– Effect of competition– Impact of policies– Monitoring and oversight of markets

Overarching Goal of Federal Energy Regulators in the U.S.

• Maximize consumer and economic benefits

• Minimize the need for future regulatory intervention

Market Monitoring

Tracking performance indicators of a well-functioning market

• Efficiency

• Transparency

• Transactional liquidity

• Ease of market entry and exit

• Competition

Information Needed to Support Rate Making Activities

CompanySpecific

IndustryAggregate

Current and historical data on costs,cost components, prices,throughput, services

Types of customers and theirparticular service needs and usagepatterns

Estimates and future costs andchange in components, demand,customer make-up

Access to Information - Important in a Competitive Market

Relevant information is needed by:

• Consumers - to make informed decisions on energy purchases.

• Regulators - to monitor transactions and to prevent exercise of market power.

What is “Relevant” Information?

Information on …• Available services - e.g. capacity (capacity,

available capacity, system outages)

• Market structure including affiliate relationships

• Transactional Information

• Imbalance and overrun information

The Information Revolution...The Information Revolution...How far We’ve comeHow far We’ve come

Transparent wholesale natural gas pricesTransparent wholesale natural gas pricesWeekly storage ‘estimates’Weekly storage ‘estimates’Futures market informationFutures market informationElectronic access to capacity informationElectronic access to capacity informationElectronic gas trading systemsElectronic gas trading systems

• • • • •

Information that was not available priorInformation that was not available prior to the industry restructuringto the industry restructuring

In the Future Information Needs May Include

• Transparent retail natural gas and electricity prices

• Real time information systems • Information on exchanges of gas (maybe

even daily storage estimates) • Gas/electric convergence (and developing

Btu markets) may lead to additional information needs

Information Systems to Support Market Transactions

• Electronic bulletin boards

• Electronic trading systems

• Value added networks (VANs)

Non-EIA Information Systems For Consumers

Online CommercialInformation Services

FERCBulletin Board

Commercial EDI Interchange Services

IndividualP ipeline EBB

Electronic GasTrading Systems

User

Internet Energy CompanyHome Page

Link

- Nominations - Buying/Selling Gas- Capacity Availability

- Network Services- Access to P ipeline EBBs

- Regulatory Filings, Tariffs, etc.- EDI Converted Data

- NYMEX Quotes- Dow J ones - Weather- etc.

- Capacity Availability- Nominations- Gas Trading- Information Services

- EDI Converted to Common F ormat

First Tier Services Second Tier Services

- NYMEX Quotes- Dow J ones - Weather- etc.

- F ile Download

- Gas Management- C onfirmations- Billing

- P roduct Imformation- P ublic Announcements

- Service Offerings

- F ile Download

- F ile Download

Natural Gas Page on EIA Web Site

(Upper Screen)

The Case for Standardized Business Practices

Gas Industry Standards Board• Pro-active approach - reps from many

segments of the industry participate

• Facilitates business transactions with multiple pipelines and suppliers.

Information ArchitectureFERC Model

Information Architecture(FERC Model)

Source: FERC

Information Technology Architecture (As Implemented by the FERC)

Built on the concept of 3 layered infrastructures connected by the

security infrastructure:

• Information infrastructure

• Communication infrastructure

• Processing infrastructure

Information InfrastructureWell-defined data and data relationships are

essential to a secure and interoperable information infrastructure

• The information itself is what is most important • Characterizes the type of information (who needs it and how it is

generated, accessed and maintained.• Defines data, models, data relationships, facilitates storage and

retrieval, and describes the constraints/limitations on the use of the data

• This knowledge is then used to develop a tech. strategy for efficiently managing the data

• Value through use of common data format and exchange standards

Communications Infrastructure

• Objectives:• connectivity - ability to interface with current and

anticipated processing equipment

• interoperability - permit hardware from competing vendors to communicate. Open system design that allows independence and flexibility

• scalability - configured to support required range of users and traffic requirements

Communications Infrastructure

• Consists of the communication equipment, software and networks that link computers and peripherals within the organization. Provides:– protocols for information movement– mechanisms for detecting network faults– mechanisms for linking with other networks

Processing Infrastructure

• Provides the computer systems and software necessary for:– computing, comparing, selecting, evaluating

– moving, displaying information

– managing user interfaces

– managing system processes and controlling system usage

Security Infrastructure

• Consists of the requirements, policies and practices to secure information sharing:– safeguard resources and supervise resource

sharing– ensure resource availability to authorized users– detects and reports intrusion attempts by

unauthorized users

Design Considerations• Flexible - should accommodate future needs

• A standard architecture reduces the complexity of the computing environments promoting consistency among applications and data and reduce redundant products

• Central to the definition of architecture is the identification and use of standards.

• Develop the user's ability to transparently interact and exchange information with other systems and users.

• Communication services and associated standards are a fundamental part of establishing interoperability.

Goals Re: Information: FERC Model

• Flexible

• Practical

• Efficient (more efficient operations)

• Reduce costs/customer burden

• Provide efficient, cost-effective access to the information that is needed by regulated entities and the general public -- when they need it -- and in a format that is useful to them.

• IN ADDITION - security of the data, data network and interchange may be a major concern.

Primary Technical Considerations

• Primary focus include the concepts of flexibility, enhancement, security, cost/benefit and standards.

• Provide vendor-neutral, cross-platform method of transporting and validating critical data

E-filing Information

• Becoming more prevalent in the gas industry.

• Should ensure that any gains or improvements made (e.g. e-filing) are not hindered by non-electronic processing i.e., all manual processes immediately following the electronic filing process.

Transition Strategy - Options:1. System leap - where organizations standardize on a system

for several years then "leap" forward to new systems every 3-5 years (total system replacement every x years)

2. Incremental change paradigm - when organizations continuously adopt incremental upgrades – Advantages include: minimal training costs, min. problems with

staffing and communication, budget requirements are spread-out over several years

3. Rolling replacement - e.x. change occurs at a constant rate - e.g. a third of the change happens each year.

Natural Gas Information Program at the Energy Information

Administration

Key Data Area of Interest

• Supply activities: production, storage, imports• Supply infrastructure:

– transmission and storage capacity– drilling, producing wells

• Consumption by sector• Prices:

– cash and futures markets– wellhead to downstream

Why is Good Information Important?

• Information is needed for policy making and for assessing the gas industry’s performance.

• Public policy now relies on competition to ensure adequate supplies, low costs, and reasonable prices to consumers.

• Private investors need accurate and reliable information for investment decisions.

Measurement of Volumetric Information about the Domestic Natural Gas Industry

• Production volume• Underground storage• Consumption by residential, commercial or

industrial customers• Consumption by regulated electric utilities• Consumption by other electric generators• Transportation of natural gas

Monthly Measurement of Natural Gas Data

Industry Segment

Domestic natural gasproduction

Underground NaturalGas Storage

Consumption and pricesfor residential,commercial, industrial,and NUGS sectors

Consumption and pricesto regulated elecricutilities

Data System

EIA-895

EIA-191

EIA-857

EIA-759 and FERC-423 (run by anotheroffice in EIA)

Respondents

Offices of States (AndU.S. Department ofInterior) where naturalgas is produced

Operators of all knownunderground natural gasstorage fields

Sample of approximately400 companies deliveringto those sectors

Regulated utilities withlarge electric generationplants

Monthly Data Measurement Points and Systems: Physical Flows of Natural Gas from Wellhead to Burnertip

NaturalGasProducedatWellhead

GasProcessingPlant

Pipeline

UndergroundStorage

OtherPipeline(s)

LocalDistributionCompany

Residential

Commercial

Industrial

NUGS

Utility

ImportsandExports

Form EIA-857

FormEIA-191

FormEIA-895

FormEIA-759

Important Issues for Data Quality

(Accuracy and Adequacy)

• How do we assure that we are asking the right questions of the right parties?– Assessing the changing information needs – Issues of frame development and frame

maintenance• If a sample, its design and assuring

representativeness and precision

– Issues of Forms design

Major Steps and Processes in a Survey

• Initial Steps– Determine requirements for information– Design and test instrument– Obtain approval for instrument– Develop and implement processing system– Field instrument

Major Steps and Processes in a Survey - Cont.

• Fielding the instrument (some of the details)– Determine the potential respondents

• Building and maintaining the frame

– Select the respondents• Total enumeration or sample?

• If latter, design and select the sample

– Distribute the instruments

Major Steps and Processes In a Survey - Cont.

• For each survey cycle– Receive, track, and enter data from

respondents– Edit responses

• Follow up with respondents for edit failures

– Deal with non-response– Prepare and evaluate aggregate estimates– Prepare dataset feeds for distribution media

Dealing with Data Problems

• Nonresponse• Imputation• Nondisclosure of confidential information

• Noncoverage due to design considerations• “Truth in statistics” statements• Recognize limitations and develop

alternative procedures to fill the gaps in data requirements

Natural Gas Information Products Accessibility

• Products are distributed through the EIA web site.

• The EIA web site provides quick release of products.

• Some reports are also printed, although EIA is phasing out most printing.

• Databases are available through the EIA web site and on the EIA CD

Information needshave increased

Why is EIA doing Strategic Information Planning?

No coverage of key areas - marketers

Declining coveragein some existing data

series (prices)

Reassess Data/Reassess Data/Information ProgramInformation Program

EIA’s goal: - minimize respondent burden - optimize processes/resources

- maximize customer satisfaction

NEXT GENERATION * NATURAL GAS (NG)2

A project to design and implement a new, comprehensive information program for natural gas to meet

customer requirements in the

post-2000 time frame.

Natural Gas Data Systems Development

With changes in the regulatory and financial environment, EIA’s natural gas systems are

increasingly unable to successfully measure the industry

•Separation of equity from custody flows•Rise of Actors outside the scope of current systems•Development of new phenomena such as market hubs

Next Generation * Natural Gas

Project Overview

Data Requirements

Information CollectionRedesign

Cognitive andPilot Testing

Implementation

IndustryConceptual

Design

Focus GroupReport

• Purpose: Obtain opinions, information and insights on

what data EIA should collect in the future

• Format:– structured– administered by an independent firm– discussions are confidential

• Results: will be used to guide EIA in designing the

natural gas data program to meet the information needs of

the industry

Focus GroupsFocus Groups