Natural Gas Market Information

Scope of Presentation Natural gas information –market monitoring –support for market transactions Information models –architecture

Wellhead Production Gas Processing Plant Pipeline Underground Storage Local Distrib. Company Residential Commercial Industrial Elect. Util. Imports Generalized Schematic Sales of Natural Gas in U.S. Third Party (Marketer, Broker) Consumers

Participants Miles of Pipe Regulatory Regime in 2000 Producers 8,000 Independents -- Phased price deregulation 24 Majors Begun in 1979, completed in 1989 Pipelines ,000 Federal Energy Regulatory Commission (FERC) Natural Gas Marketers 260--Unregulated Local Gas Utilities 1, ,000 State Utility Commissions End Users Residential 53 million -- Unregulated Commercial 4.5 million Industrial 40 thousand Electric Utilities Interstate - FERC Intrastate - 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)

MarketersBrokersTraders OPERATORS OPERATORSProducersPipelineStorageLDCs Diverse Users with... Trade Press and Media FINANCIAL FINANCIAL Risk Managers Investors CONSUMERS InformationAggregators Market Players Government

CONSUMERSPrice Terms and Quality of Service Alternative Fuel Prices Long-term Availability Spot prices Futures prices Supply/demandforecasts Market analysis MARKETERS Spot prices Futures prices Storage changes SupplyDemandWeather Reserves Flow Rates NominationsReceipts/DeliveriesWeatherPrices...Diverse Information Needs InformationAggregators Market Players Government Trade Press and Media OPERATORSFINANCIAL

Regulators Role Is Changing Company Centric Industry Centric Federal 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

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... How far We’ve come Transparent wholesale natural gas prices Weekly storage ‘estimates’ Futures market information Electronic access to capacity information Electronic gas trading systems Information that was not available prior to the industry restructuring to 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

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 Architecture FERC 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 Infrastructure Well-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

Monthly Data Measurement Points and Systems: Physical Flows of Natural Gas from Wellhead to Burnertip Natural Gas Produced at Wellhead Gas Processing Plant Pipeline Underground Storage Other Pipeline(s) Local Distribution Company Residential Commercial Industrial NUGS Utility Imports and Exports Form EIA-857 Form EIA-191 Form EIA-895 Form EIA-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 needs have increased Why is EIA doing Strategic Information Planning? No coverage of key areas - marketers Declining coverage in some existing data series (prices ) Reassess Data/ Information 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 Collection Redesign Cognitive and Pilot Testing Implementation Industry Conceptual Design Focus Group Report

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 Groups