CHAPTER 8 ADMINISTRATION OF NATURAL GAS CONTRACTS GAS CONTROL
| Jurisdiction | United States |
(Sep 1991)
ADMINISTRATION OF NATURAL GAS CONTRACTS GAS CONTROL
Presidio Gas Resources, Inc.
Englewood, Colorado
It has been said that natural gas is a superior fuel product that is hampered by an inferior administrative infrastructure when faced with the demands of today's dynamic market place.1 Even more recently, natural gas has been characterized as having a poor image with one reason being that "Vendors' promises may vaporize because they mismanage delivery of gas through the national maze of pipeline owners...".2 However when one considers the changes that have occurred within the natural gas industry within the last 10 years, the problems are more understandable. The impact of the Natural Gas Policy Act of 1978, regulated the industry from a gas shortage to a gas surplus within a period of a few years. Partial
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deregulation along with a restructuring of the industry that included transportation and contract demand turn-back (Order 436), old gas renegotiation and abandonment (Order 451), take-or-pay crediting (Order 500), occurred within a few years in the mid 1980's. See Exhibits A and B for a comparison. Considering the adaptation that has developed within the various segments, and the computer evolution that has occurred during this same time period (the personal computer is just 10 years old) acknowledgment has to be given to the development of a workable infrastructure.
MANAGING INFORMATION SYSTEMS
This paper addresses the topic of administration of gas contracts as it pertains to gas control. There was no standard in any industry segment ie., producer, pipeline, local distribution company, or end-user, as to how these industries confront this function. Furthermore the development of computer software for this particular function (for both mainframe and personal computers) has lagged, leaving the industry to generate the tools to handle a very dynamic situation. Once a decision was made to internally solve the problems encountered in tracking gas movement, often the "gas marketing" people were a low priority for mainframe data processing time. In order to cope with information requirements, natural gas professionals spent time, usually on a personal computer, designing spreadsheets, data bases and programs. What has developed is a "system" of non-integrated, nonstandardized data. This problem is not only an intercompany problem, but often
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an intracompany dilemma as well. For instance record-keeping in an exploration and production company may show different data between the production, marketing, division order, and accounting departments. Even EIA3 records a balancing item that "represents the differences between the sum of the components of natural gas supply and the sum of the components of natural gas disposition. (Exhibit C) These differences may be due to quantities lost or to the effects of data reporting problems. Reporting problems include differences due to the net result of conversions of flow data metered at varying temperatures and pressure base; the effect of variations in company accounting and billing practices; differences between billing cycles and calendar periods; and imbalances resulting from the merger of data reporting systems, which vary in scope, format, definitions, and type of respondents".4
This observation is noted, because as natural gas becomes more valuable, legal questions as to the ownership and responsibility for the administration of the gas volumes will become more of an issue within the industry. As people are asked to research questions that date back to the early 1980's, it will be necessary to remember the environment in which these transactions occurred. Anyone researching a gas volume matter, may in fact conclude that a negotiated settlement may be a more prudent resolution to a claim then reconstructing and recalculating the transaction.
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GAS CONTROL
The problems addressed above are jointly confronted in two publications. COPAS Bulletin No. 24, Producer Gas Imbalances, was issued in 1989 to recommend minimum guidelines necessary to properly identify, reconcile, report and resolve imbalances between producers.
Also, in 1989 a joint task force on gas accounting was established among representatives of Interstate Natural Gas Association of America (INGAA), American Petroleum Institute (API), and the Council of Petroleum Accountants Societies (COPAS). This task force was represented by eight producer and eight pipeline representatives. Subcommittees were formed around the problem areas of allocations and nominations, terminology, volume imbalance reconciliations, standard contract accounting provisions and electronic communication. The resulting document that was published in April 1990 is COPAS Bulletin No. 28, Joint Task Force Guidelines on Natural Gas Administrative Issues. Although these documents certainly do not dictate certain options or prohibit other methodologies of administrating the details of natural gas movements, this paper uses these sources exclusively to encourage the necessity of uniformity to encourage an efficient, economic grid to facilitate the flow of gas to meet market requirements.5
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OBJECTIVE and BENEFITS
I have often contended that natural gas is not moved by pipeline, but in fact by telephone and fax. Efficient natural gas flows require good communication, and the main objective of the INGAA/API-COPAS guidelines is simply is ensure that all of the market participants (producer, transporter, shipper, operator, marketer, local distribution company (LDC), and enduser) are using the same language. There are multiple benefits resulting from this simple premise.
A strong motivation to use these guidelines is to improve cash flow. Prior agreements between the producer and the transporter will accelerate "actual" quantity reporting and help eliminate post period reconciliation, resulting in faster, more accurate billing and payment.
Imbalances will be discussed at length in a later portion of this paper. Although imbalances cannot be avoided, they can be managed to reduce financial exposure, and to predetermine imbalance reconciliation and resolution agreements.
Pipelines are undergoing a transformation from a merchant to a transporter, and the systems that were designed with predictable gasflows are now expected to adapt to market supply and demand shifts. A more efficient nomination process should result in more timely assessments and utilization of available transporter capacity.
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The "new" natural gas marketplace has incurred additional administrative costs for all participants. However...
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