Transcript Goal 3: Maintain Downstream Efficiencies

Gas & Power
Coordination: Growing
Pains in Time of
Transition
Mark Stultz, BP
Natural Gas Supply Association
OPSI Annual Meeting
Chicago, Illinois
October 13, 2014
Natural Gas Supply Association
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
Represents major integrated producers, large
independent producers and LNG suppliers.

NGSA members’ business models differ
– Some primarily focused on getting gas to
first liquid point
– Others optimize gas assets through
marketing and trading

Today: provide gas supplier/marketer
perspective on how to address gas-electric
concerns
Increasing Gas Demand Creates
Transitional Phase for Power Sector
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

Abundant supply of clean-burning natural gas

Advantages of natural gas leading to
significant demand growth
– For many years, generators capable of
securing affordable gas without firm
contractual commitments
– Now, regional pipeline capacity constraints
limiting previous system flexibility
Well-functioning natural gas market with
competitive prices
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Canadian gas power consumption in 2035 is 4 Bcfd of the total 43 Bcfd.
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2014 INGAA Foundation Study
Natural Gas Industry Can
Address Generator Needs
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
Flexibility can be afforded through:
– Commodity options: physical “call” options, shapedproduct offerings and pipeline asset optimization
– Flexible Pipeline services: no-notice, storage, nonratable flow, enhanced nominations, park-and-loan,
and operational balancing arrangements

Flexibility needed by generators requires:
– Gas supplier to “stand-ready” by reserving supply and
physical assets
– Expanding infrastructure if existing system cannot
accommodate increased needs

Such services are typically premium services due to
added reliance on storage and other assets
Just-in-Time Reliability: Riskier in
Capacity-Constrained Regions
 Absent advance arrangements, generators:
– Risk lack of pipeline capacity
– Pay spot market price for gas

Gas production is sold in advance
– Producers sell all available gas to ensure there are no
disruptions in physical flow
• Bulk of production is sold on term or monthly basis
• Remaining “swing” is sold in the Timely Cycle
– Unexpected gas needs primarily met by pipelines and
marketers with local assets (storage and line-pack)
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Generators in Organized Markets Must
Balance Economic vs. Reliability Risk

Ultimately generator decides best portfolio mix to meet its
obligations based on individualized risk assessment

If generator accepts risk, “can’t get gas” becomes
economic decision --- NOT gas curtailment
– “Curtailment:” physical supply cut off

Sympathize with generators: difficult to economically
justify firm contract investments
– Lack of adequate compensation in organized power
market structures
– Uncertainty of long-term generation commitments
– Firm service may only be needed on limited number of
days
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Organized Market Rules Can Help
Support Increased Fuel Reliability
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
RTO should ensure rules and pricing structures
– Create stronger link between performance and
capacity market obligations
– Provide incentives for generators to contract for
reliable gas services
– Permit generators to recover costs of reliable fuel
commitments

Investment in fuel security through pipeline contracting, in
turn, supports new gas infrastructure

PJM recognizes issue
– Considering solutions in capacity market for generators
to recoup costs associated with firm fuel investment
Gas Industry Transitioning to
Better Serve Power Market Needs

Infrastructure is key: producers stepping up to
back new pipeline projects to market hubs

Natural Gas Council process instrumental to
broadly-endorsed gas schedule proposal
– Later Timely Cycle for generators to submit
nominations to pipelines
– Increased opportunity for customer
nominations/adjustments later in the day

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Continuing to connect with customers to
address needs
Final Thoughts
 Transition growing pains until:
– Adequate gas infrastructure in place
– Generators can better align pipeline
capacity contracts with expected
generation commitments
 Product/price/reliability issues will sort
out with proper market signals
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