BV ERCOT Gas Study Report March 2012

GASCURTAILMENTRISKSTUDY
Preparedfor

TheElectricReliabilityCouncilofTexas
MARCH2012
Black&VeatchHoldingCompany2011.Allrightsreserved.
TheElectricReliabilityCouncilofTexas|GASCURTAILMENTRISKSTUDY
TableofContents
TableofContents.......................................................................................................... i 1.0ExecutiveSummary............................................................................................3 2.0Introduction..........................................................................................................8 2.1OrganizationofthisReport......................................................................................9 3.0ReviewofHistoricalCurtailments..............................................................11 3.1DataAvailability&Sources....................................................................................12 3.2SummaryofHistoricalCurtailments&Causes..............................................13 3.3BestPractices&LessonstobeLearned............................................................16 4.0NaturalGasInfrastructure&Market.........................................................18 4.1InterstatePipelines...................................................................................................18 4.2IntrastatePipelines...................................................................................................19 4.3NaturalGasStorageFacilities..............................................................................20 4.4RoleofGasCompressors........................................................................................21 4.5SurveyResultsofNaturalGasInfrastructureServingERCOT Generators............................................................................................................................22 5.0RiskAssessmentApproach&Assumptions........................................26 5.1SummaryofApproach............................................................................................26 . 5.2ToolsandSoftware....................................................................................................29 5.3GlobalAssumptions...................................................................................................31 6.0RiskAssessmentResults.............................................................................35 6.1ImplicationsfromFreezingWeather................................................................35 6.2ImplicationsfromPipelineDisruption.............................................................46 6.3ImplicationsfromTropicalCyclones................................................................51 Appendices.................................................................................................................57 . AppendixADataSources............................................................................................57 AppendixBWeatherAnalysis...................................................................................60 . AppendixCStatisticalDetails...................................................................................66 . AppendixDTexasRailroadCommissionCurtailmentPlan..........................69 AppendixELiquidityinTexasNaturalGasMarket.........................................71 AppendixFDecember1983eventsimulatedfor20112012.....................86 Glossary.................................................................................................................................99
BLACK&VEATCH|TableofContents
LISTOFTABLES
Table1Sourcesofcurtailmentinformation.................................................................. 2 1 Table2Indicativenumbersofnaturalgascompressorsservingthe Texasgaspipelineinfrastructure................................................................ 2 . 2 Table3.Sizesofcurtailmentincidentdatasetsavailablefor definitionofeventsandprobabilisticriskanalyses............................. 8 2 Table4.Weatherstationsusedforfreezingweatheranalysesof ERCOT...................................................................................................................... 5 3 Table5.Winter(Dec,Jan,Feb)dailyHDDcorrelationsamongthe fourheavyloadWeatherZones................................................................... 5 . 3 Table6.Winter(Dec,Jan,Feb)dailyHDDcorrelationsbetween ERCOTandothergasdemandregions...................................................... 6 3
ii
LISTOFFIGURES
Figure1Black&VeatchApproachtoDeliveryofPhase1Study.............................9 Figure2Numbersofdocumentedgascurtailmentincidentsstudied................. 3 1 Figure3Fishbonediagramforpossiblefreezingweathercausesof gascurtailments.................................................................................................. 4 1 Figure4Fishbonediagramforpossiblepipelinerelatedcausesof gascurtailments.................................................................................................. 5 1 Figure5Fishbonediagramforpossibletropicalcyclonerelated causesofgascurtailments.............................................................................. 6 1 Figure6InterstateNaturalGasPipelinesServingERCOTGenerators............... 9 1 Figure7IntrastateNaturalGasPipelinesServingERCOTGenerators................ 0 2 Figure8NaturalGasStorageAssetsinERCOTsServiceRegion........................... 1 . 2 Figure9NaturalGasPipelinesServingERCOTElectricGenerators..................... 3 2 Figure10NumberofPipelineInterconnectsforEachElectric Generator............................................................................................................... 4 2 Figure11PipelineCapacityasPercentageofPeakNeeds........................................ 5 2 Figure12SupplyDemandFundamentals........................................................................ 0 3 Figure13Black&VeatchIntegratedMarketModelingProcess............................. 1 3 Figure14Lower48NaturalGasSupplyProjection.................................................. 2 3 Figure15TexasNaturalGasSupplyProjections........................................................ 2 3 Figure16Lower48NaturalGasDemandProjection.............................................. 3 3 Figure17TexasNaturalGasDemandProjection....................................................... 4 3 Figure18PowerOutageRiskcurve(freezingweather)annualized, includingerrorenvelopebeginningatthe55thpercentile ofprobability(modeorpeak)oftheriskdistribution........................ 8 3 Figure19.Lossofonshoregasproductionduringextremefreezing events....................................................................................................................... 9 3 Figure20PowerOutageRiskcurvesforfreezingweatherwith projectedfuturetrends.................................................................................... 0 4 Figure21.IncrementalDailyDemandByScenario..................................................... 2 4 Figure22.OnshoreGulfCoastProductionandImpactsfrom WellheadFreezeoffs......................................................................................... 3 4 Figure24.ProjectedIntrastatePipelineUtilization,NorthTexasto Houston................................................................................................................... 4 4 Figure25.ProjectedIntrastatePipelineUtilization,WestTexasto NorthTexas........................................................................................................... 5 4 Figure26.ProjectedIntrastatePipelineUtilization,SouthTexasto Houston................................................................................................................... 5 4 Figure27.Definitionofthepipelineincidentsavailableforrisk analysis.................................................................................................................... 6 4
BLACK&VEATCH|TableofContents iii
Figure28.PowerOutageRiskcurveforpipelineinfrastructure issues........................................................................................................................ 7 4 Figure29PipelineCapacityComparisonAcrossPipelineDisruption Scenarios................................................................................................................ 0 5 Figure30.IndicativePipelineUtilizationAcrossPipelineDisruption Scenarios................................................................................................................ 1 5 Figure31Observedfrequencyoftropicalcyclonesandtheirimpacts ongasproductionintheGulfofMexico.................................................... 2 5 Figure32.PowerOutageRiskcurvesderivedforannualizedtropical cyclonefrequencies.......................................................................................... 3 5 Figure33.TemporarygasdemanddestructioncausedbyHurricane Ikein2008.DatafromEnergyInformation Administration..................................................................................................... 4 5 Figure34.GulfofMexicoGasProductionAffectedbyTropical Cyclones.................................................................................................................. 5 5 Figure35.LossofGasProductionAnticipatedforTropicalCyclone astheCausalEvents.......................................................................................... 6 . 5 FigureA1:Processusedtocollectandsortinformationaboutgas curtailments.......................................................................................................... 7 5 FigureE1:TexasNaturalGasPricingPoints................................................................... 8 7 FigureE2:CriteriaforPlattsTierRankingsforNaturalGasPricing Points....................................................................................................................... 9 7 FigureE3:HistoricalPlattsTierRankingsforTexasPricingPoints..................... 9 7 FigureE4:TradedVolumesandDealsofNaturalGasReportedat TexasPricingPoints:MonthlyAveragesofDailyVolumes............... 0 8 FigureE5:DailyTradedVolumesReportedatTexasNaturalGas PricingPoints:September2001................................................................... 1 8 FigureE6:DailyTradedVolumesReportedatTexasNaturalGas PricingPoints:February2003...................................................................... 2 8 FigureE7:DailyTradedVolumesReportedatTexasNaturalGas PricingPoints:AugustthroughOctober2005........................................ 3 8 FigureE8:DailyTradedVolumesandDealsReportedatTexas NaturalGasPricingPoints:September2008.......................................... 4 8 FigureE9:DailyTradedVolumesandDealsReportedatTexas NaturalGasPricingPoints:JanuarythroughMarch2011................. 5 8 FigureF1.NotablycoldwintersaffectingERCOTsince1950................................. 6 8 FigureF2.LengthsoffreezingweathereventsaffectingERCOT.......................... 7 8 FigureF3.DailytemperaturesinnorthTexasduringDecember1983.............. 8 8 FigureF4.Freezingtemperaturepatternsinmajorhistoricalevents affectingERCOT................................................................................................... 8 8
iv
FigureF5.WeatherstationsusedfortheDecember1983analyses acrossERCOT........................................................................................................ 9 8 FigureF6.Freezeoffrisksatanonshorenaturalgaswellhead............................ 1 9 FigureF7.Significanceofphysicaltemperaturerelativetowindchill............... 2 9 FigureF8.DailywindchillvaluesacrossERCOTduringDecember 1983......................................................................................................................... 2 . 9 FigureF9.NaturalgasproductionlossesduringtheFebruary2011 freezingweatherevent.................................................................................... 3 9 FigureF10.Empiricalproductionlossmodelsbasedonproduction weatherdataregressions................................................................................ 4 9 FigureF11.TheoreticalgasproductionlossesinFeb2012under Dec1983weatherconditions........................................................................ 5 9 FigureF12.DailywinterfreezerisksacrossERCOTcomparedwith December1983event....................................................................................... 6 9 FigureF13.DailywinterwindrisksacrossERCOTcomparedwith December1983event....................................................................................... 7 9 FigureF14.EstimatedAggregateLossofGenerationCapacity.............................. 9 9
1.0ExecutiveSummary
Thisstudypresentstheriskofgassupplycurtailmenttoelectricgeneratorswithinthe serviceregionoftheElectricReliabilityCouncilofTexas(ERCOT)overa1Year,5Yearand 10Yeartimehorizon.Itreviewshistoricalincidentsofgassupplycurtailmentexperienced byERCOTsgenerators,examinesthenaturalgasinfrastructureservingthesegenerators andassessestheriskofgassupplycurtailmentonaprobabilisticandafundamental supply/demandbasis. Curtailmentwasdefinedforthepurposesofthisstudyasthelossofnormallyexpectedgas deliveryasaconsequenceofsupplyortransportationinterruptionscausedbyweather driven,contractualoroperationalissues. Thisstudyconsidersthephysicalcapabilitiesofthenaturalgasinfrastructureinserving electricgeneratorsratherthanthecontractualarrangementstoserveelectricgenerators withnaturalgas.Althoughtheremaybefinancialimplicationstoprocuringthegassupply needed,naturalgasserviceisgenerallyavailabletoelectricgeneratorssubjecttothe regulatoryandphysicalconstraintsofthesystem.Further,studyingcontractual agreementswhicharesubjecttocommercialnegotiationsandchangethroughtime,does notallowforalongertermviewoftheriskofnaturalgascurtailmenttoelectricgenerators whichisbettercapturedfromtheperspectiveofthephysicallimitationsofthenaturalgas infrastructureinservingtheneedsofelectricgenerators. Thisstudydoesnotincludeorconsidermitigatingmeasuresthathavebeenorcanbe incorporatedtoreducetheriskofgassupplyinterruptionforpowergenerators.Therefore, thisstudytakesaconservativeviewontheriskofgascurtailmenttoelectricgenerators. Therehavebeensignificantchangesinthegasindustryoverthelast25years,specifically, thepipelinestypicallynolongerownthegastheytransportanddeliver,andthereisan increaseduseofgasstorageasaphysicalhedgeagainstbothsupplyandpricingvolatility andtoensuredeliverability.Combinedwiththegreaterliquidityinthenaturalgasmarket, inreality,whennaturalgassupplyordeliveryisimpacted,theredundancyand interconnectednessinthenaturalgasmarketgenerallyprovidesconsumers(including electricgenerators)withalternatesourcesandroutesfornaturalgassupplytopartiallyor fullyservetheirneeds.Pipelinelinepack,naturalgasstorageanddisplacementofsupply fromothermarketscouldallcontributetomitigatetheriskofdisruptionofnaturalgas supplytoelectricgeneratorswithintheERCOTserviceregionthatarepresentedinthis study.
BLACK&VEATCH|1.0ExecutiveSummary
Historicalcurtailmentsdatarecordkeepingislimited Thisstudyexaminedhistorical GasCurtailmentIncidents&Causes 120 recordsforgassupplycurtailment 108 fromvarioussourcesincluding 100 ERCOT,theNationalEnergy TechnologyLaboratory(NETL)and 80 theRailroadCommissionofTexas 60 54 (TRRC)andfoundseverelimitations incapturinginformationabout 40 incidentsofnaturalgascurtailment toelectricgenerators.Theleading 20 10 causeofthegassupplycurtailment 2 0 incidentsidentifiedwasfreezing weatherwithexistingTRRC regulationsand/orpipelinecontractualprovisionscontributingtogassupplycurtailments toelectricgenerators.Pipelinedisruptionsandtropicalcycloneswereinferredtohave causedtheotherhistoricalincidentsofcurtailmentthatwerereviewed.
NumberofIncidents
GASCURTAILMENT/ FREEZINGWEATHER GASCURTAILMENT/PIPELINE OPERATION GASCURTAILMENT/ TROPICALCYCLONE GASCURTAILMENT/ UNKNOWNCAUSE
ERCOTgeneratorsdemonstratereliabilityandredundancyofnaturalgassupply Thisstudyconductedasurveyof HistogramShowingPipelineCapacityas%ofPeakNeeds 25 electricgeneratorswithinERCOTs 23 serviceregiontoassesstheiraccessto 20 naturalgasinfrastructuretoserve theirgasdemand.Basedonsurvey 15 13 responses,ERCOTselectric 11 generatorsdemonstratereliability 10 andredundancyofsupplythrough 7 6 5 theirinterconnectionswithmultiple 5 4 pipelinesandaccesstoalevelof 0 capacitythatiswellinexcessoftheir Capacityas%ofPeakDemand peaknaturalgasneeds.60%of surveyrespondents(correspondingto51,550MWofnameplatecapacity1)indicated interconnectswithmorethanonenaturalgaspipeline.Allthesurveyrespondentsthat providedsufficientdatatomakeanassessmentofadequacyindicatedaccesstocapacityin excessoftheirpeakneeds.
NumberofGenerators
100%149% 150%199% 200%249% 250%299% 300%349% 350%399% >400%
Naturalgaspipelineinfrastructureissufficienttomeetprojectedneeds NaturalgaspipelineinfrastructureservingERCOTgeneratorswasfoundtobeadequateto meetanticipatedpeakdemandduringtheanalysisperiodinthescenariosanalyzed.

1
The nameplate capacity is inclusive of generation capacity that is part of Private Use Networks which generally serve their own industrial loads rather than selling power into ERCOT.
4
Althoughthereispotentialforisolatedincidents,thefundamentalsupply/demandanalysis undertakeninthestudyindicatedtherobustnessofthenaturalgaspipelineinfrastructure inmeetingtheneedsofelectricgeneratorswithinERCOT,eveninthepresenceofstrong competingdemandfromothermarketsandsectors. RiskfromFreezingWeather18%probabilityofhaving2000MWofcapacity temporarilyunavailableduetogascurtailments Riskassessment,basedon historicalincidentsof curtailment,indicatesthatin anygivenwinter,thereisan 18%probabilityofsupply disruptionfromlackofgas supplyor contractual/regulatorydefined curtailmentimpactingabout 2,000MWgenerationcapacity andabout90%probabilityof impactingabout350MW. Whilefreezingweatheristhe mostimpactfuloftherisk factorsconsidered,the probabilityofgassupplycurtailmentduetofreezingweatherprojectedforwardshouldbe viewedtogetherwithassociatedmitigationsnamely,increasedthermalprotectionof wellheadsagainstfreezeoffsandtheprioritiesandrevisionofcontractualcurtailments initiatedbyfreezingweather.Bothwellheadthermalprotectionandalternativecontractual provisionsofferopportunitiesforassuringgreaterreliabilityofgasdeliveriesduringcold winterevents. RiskfromPipelineDisruptions5%probabilityintheneartermofhaving500MW ofgenerationcapacitytemporarilyunavailable Riskassessmentofpipeline disruptionsbasedonhistorical incidentsofcurtailment indicatesthatthereisa5% annualprobabilityoflosing 500MWasaconsequenceof gassupplycurtailmentdueto pipelineoutages.Althoughrisk assessmentassumesthatthe entireanountofcurtailedgas wasrequiredforpower generationandnoalternate
supplywasavailable,redundancyinpipelinecapacityservinggeneratorscanreduce exposuretogassupplycurtailmentfrompipelinedisruptions. RiskfromTropicalCyclones 13%probabilityinthe neartermofhaving1000 MWofgenerationcapacity temporarilityunavailable Comparedwiththetotal volumeofgasrequiredfor ERCOTpowergeneration,the proportionofgasobtained fromGulfofMexico(GOM) offshoreproductionissmall withlessthan5%ofthetotal ERCOTgasconsumption dependingonGOM production.Therefore,tropicalcycloneimpactsonERCOTspowergenerationare relativelysmall.Forperspective,onthe1Yrhorizonthereisa13%riskof1000MW generationlossfromtropicalcyclone. Conclusions&recommendations Dataavailabilityplacedconstraintsonunderstandingandanalyzinghistoricalgassupply curtailmentstoelectricgeneratorswithinERCOTsserviceregion.Increasedcoordination betweennaturalgasandpowerindustryregulatingagenciescouldhelpensureimproved crosscaptureofinformationastheroleofnaturalgasasafuelsourceforpowergeneration continuestogrow.IfERCOTisexpectedtomonitorfuelimpactsonthereliabilityofthe electricgrid,betterdatacaptureofcurtailmentincidentsisneeded. Somespecificrecommendationsarelistedbelow: ERCOTOperatorlogswerethemostcompletesourcereviewedinthestudyofincident dataonnaturalgassupplydisruptionexperiencedbyelectricgeneratorswithinERCOT. Itwasobservedthatcaptureofnaturalgascurtailmentincidentinformationwouldbe morecompleteandaccuratewithgreatertrainingofERCOToperatorstoimprove recognitionof,andfamiliaritywith,naturalgaspipelinesandutilitiesservingERCOTs electricgenerators. ThisstudyincludedasurveyofgasfiredelectricgeneratorswithinERCOTsservice regiontoassesstheirexperiencewithnaturalgassupplydisruption.Itisrecommended thatstandardizedcategoriesofgasdeliveryissuesshouldbeincludedasaregularreport elementintheannualreportingbygeneratorstoERCOT.ThiswillallowERCOTtotrack andassessanytrendsassociatedwithnaturalgassupplydisruptiontoelectricgenerators andtodevelopriskmitigationplansifatrendreflectingincreasingdisruptiontoelectric generatorsisobserved.
ThisstudyrecommendscontinuedcoordinationbetweenERCOTandtheRailroad CommissionofTexas(TRRC)tofacilitatebetterdatacaptureincludingdevelopmentof communicationpathwaysandreportsforgasdeliveryincidentsaffectingpower generationfacilities. Inadditiontocostconsiderationsassociatedwiththedecisiontocontractforfirmor interruptiblegasserviceand/orhaveduelfuelsupply,contractualagreementsthat requirecurtailmentofgassupplytogeneratorsormandatorycurtailmentpoliciesas definedbytheTRRCmayinhibitapowergeneratorsabilityandmotivationtoacquire firmgassupply.Reviewoftheseagreementsandpoliciescouldhelpdeterminewhether newpoliciesorregulationsarerequiredtoincreasethereliabilityofERCOTgeneration.
2.0Introduction
TheElectricReliabilityCouncilofTexas(ERCOT)commissionedaGasCurtailmentRisk Studytoevaluatetheriskofnaturalgassupplydisruptionstoelectricgeneratingstations withintheERCOTadministeredportionofTexas. DuringthefirstweekofFebruary2011,theSouthwestexperiencedextremelycoldweather withtemperaturesfallingbyasmuchas50degreesoveraneighteenhourperiodinvarious citiesinTexas.ThisextremecoldeventsawlowtemperaturesintheDallasFt.Wortharea dippingto13Fwhich,accordingtoourprobabilisticanalysis,wasaneventwithawinter timedailyprobabilityoflessthan1%.DuringthefirstfourdaysofFebruary,210individual generatingunitswithinERCOTsserviceregionexperienceddisruptionoftheirnormal generationoperationsduetoavarietyoffactors.Thescaleofgenerationlossledto controlledloadsheddingthatimpactedasmanyas4.4millioncustomers2duringtheevent. Amajorityofthegenerationlossesexperiencedoccurredduetoproblemsrelatedtoplant operationincludingfrozensensinglines,frozenequipment,frozenwaterlines,frozen valves,andbladeicing.Extremelowtemperatureeventsin1989and2003similarly createdconditionsresultinginlossofgenerationinERCOT.AFERCNERCinvestigation foundthat,althoughthegenerationlossassociatedwiththeseextremeweathereventswas notprimarilydrivenbygassupplycurtailment3,naturalgassupplywasimpactedasaresult ofweatherandcontributedtothelossofgeneration. Byfueltype,about38%ofERCOTsannualaveragegenerationiscurrentlyaccomplished withnaturalgas.4GasfiredgenerationcapacitywithinERCOTisprojectedtoincreaseby over15,000MWinthenext10years.Withnaturalgasshareofelectricgenerationwithin ERCOTbeingpoisedtoincreaseto50%overthenext10yearsandbeyond,itisimportant tounderstandtherisksfacedbyelectricgeneratorsduetopotentialdisruptionsinnatural gassupply. ThisstudyisintendedtoincreaseERCOTsunderstandingoftherisksofgenerationloss fromgassupplycurtailmentinthefutureandtoconsiderpotentialmitigationmeasures thatERCOTcanpursuetoreducerisksarisingfromthesecurtailments.Thestudyisalso intendedtoassistERCOTtoobjectivelyassessthecostsandbenefitsofplanningoperations formitigatinggassupplycurtailmentrisktoitselectricgenerators. Thescopecoveredbythisstudyissummarizedbelow:
Report on Outages and Curtailments During the Southwest Cold Weather Event of February 1-5, 2011, Federal Energy Regulatory Commission (FERC) and North American Electric Reliability Coporation (NERC), August 2011. 3 It was stated that For the Southwest as a whole, 67 percent of the generator failures (by MWh) were due directly to weather-related causes, including frozen sensing lines, frozen equipment, frozen water lines, frozen valves, blade icing, low temperature cutoff limits, and the like. (p. 8). Report on Outages and Curtailments During the Southwest Cold Weather Event of February 1-5, 2011, Federal Energy Regulatory Commission (FERC) and North American electric Reliability Coporation (NERC), August 2011, 357 p. 4 ERCOT (2011b) Data file: GenerationByFuelType_2002-2010.xls.
http://www.ercot.com/content/news/presentations/2011/GenerationByFuelType_20022010.xls.
BLACK&VEATCH|2.0Introduction
Deliverable1Reviewpastnaturalgasinterruptionsimpactingelectricgenerationfor insights. Deliverable2Forpipelinesystemsthatservegeneration,surveypipelinephysical limitationstoprovidingnaturalgastoelectricgenerationinERCOT. Deliverable3ReviewscenariosinwhichERCOTnaturalgassupplytoelectric generatingstationscouldbesignificantlylimited,includingconditionsofseverecold temperaturecombinedwithhighwindspeeds.Calculatetherisk(assessprobability)of sucheventsinthenear(1to5year)andmid(5to10year)timeframe. Black&Veatchsapproachtomeetingtherequirementsofthethreedeliverableswas designedtocollect,processandsystematicallyanalyzethedatarequiredtoestimatethe riskofgassupplycurtailmenttotheelectricgeneratorswithinERCOTsserviceregionand isillustratedinFigure1.
1. CompilePastNatural GasInterruptionsfor PowerGeneration
A. Events (numbers&types) B. CausalFactors C. LessonsLearned
ReferenceDatabaseof RealizedRisksand Consequences
2. SurveyGasPipeline Data&Performance
A. Transmission B. LDCs C. Storage
MapoverofPipelines toGasFired Generators
D. ERCOTSpecific RiskedCurtailments
A. ExogenousRisks B. Probabilistic Risk Analyses:5 and 10yrHorizons C. ErrorEstimations forProbabilistic RiskAnalyses
Identificationof Scenarios
SevereWeather Infrastructure Disruptions
3. ConstructGas CurtailmentScenarios
Probabilistic Analysis of Scenarios

PalisadeDecisionTools modeling
AssessingImpacton NaturalGasService
ModelingwithGPCM
Figure1Black&VeatchApproachtoDeliveryofPhase1Study
2.1ORGANIZATIONOFTHISREPORT
Theremainderofthisreportisorganizedasfollows: Section3:ReviewofHistoricalCurtailmentSummaryofourreviewofthehistorically reportedincidentsofnaturalgascurtailmentswithinERCOT. Section4:NaturalGasInfrastructureSummaryofthenaturalgasinfrastructureserving electricgeneratorswithinERCOTsserviceregion.
Section5:RiskAssessmentApproach&AssumptionsOverviewofoverallapproachand analyticaltoolsandalistofkeyassumptionsunderlyingBlack&Veatchsanalysis. Section6:RiskAssessmentResultsDiscussiononanalyticalapproach,scenarios examinedandtheresultsofriskassessment Finally,weincludeAppendicesthatprovidemoredetaileddescriptions,informationand resultsfromthestudy.
10
3.0ReviewofHistoricalCurtailments
AnunderstandingofERCOTshistoricalexperiencewithnaturalgascurtailmentsisan importantfirststepwhileexaminingtheriskofanypotentialfuturedisruptionstonatural gassupplytoelectricgeneratorswithinERCOTsserviceregion.Weundertookareviewof availablehistoricaldataonnaturalgascurtailmentincidentsinordertocollateandexamine theexperiencetodatewithnaturalgascurtailmenttoelectricgenerators. Itshouldbenotedthatthetermcurtailmenthasdifferentdefinitionsdependingonthe industryandtheagencythatutilizesit.TheFederalEnergyRegulatoryCommission(FERC), NationalEnergyTechnologyLaboratory(NETL)andtheRailroadCommissionofTexas (TRRC)eachhasadifferentdefinitionandunderstandingofthetermcurtailmentasitis appliedwithintheirjurisdictions.Forthepurposeofthisstudy,theworkingdefinitionfor curtailmentthatisLossofnormallyexpectedgasdeliveryasaconsequenceofsupplyor transportationinterruptionscausedbyweatherdriven,contractualoroperationalissues. Black&Veatchconductedresearch,usingpubliclyavailableinformationsources,togather factsabouthistoricalcasesofnaturalgasdeliveryinterruptionswithinTexasthathave impactedgasfiredelectricpowergeneration.Itshouldbenotedthatgassupply interruptionsalsocanoccurduetocontractualprovisions,TRRCdefinedregulations requiringdisruptionsofgassupplytopowergenerators,aswellasnondeliveryof contractedsupply5. Black&VeatchalsoworkedwithERCOTtolocateeventdatathatisrelevanttonaturalgas supplyreliability.HistoricalERCOTMonthlyOperationsReports6,NERCSystem DisturbanceReports7,variousFERCissuedreportsandhistoricalpipelineoperational informationweresourcesoftimelineinformation.Inaddition,ERCOTissuedasurvey questionnairepreparedbyBlack&Veatchtothenaturalgasfiredelectricgeneratorswithin itsserviceregionseekinginformationonnaturalgascurtailmentsexperiencedbythe generatorsduringtheiroperationalhistory.Theinformationgatheredfromthesevarious sourceswerereviewedtocompilechronologicaltimelinesforeventsinvolvingcurtailments orotherdisturbancesofnaturalgassuppliestogenerationfacilities.Althoughthefocusof thestudywasontheERCOTregion,gasrelatedincidentselsewherewerereviewedtothe extentthattheyofferinsightsintoissuesrelevanttoERCOT. Foreachoccurrenceofnaturalgasinterruptionthatwasidentified,Black&Veatch examinedthecausalfactorsleadingtothegasinterruption.Itshouldbenotedthatgapsin dataavailabilityandhistoricalrecordkeepingplacedconstraintsonexaminingand accuratelydeterminingthecauseofeveryincidentofcurtailmentthatwasreviewed. Causalfactorsthatwereinvestigatedinclude: SeverecoldweatherconditionsinERCOT Severecoldweatherconditionsinregionsofcompetinggasdemand
5
TRRC Gas Curtailment Plan of 1973. Oil and Gas Docket, Gas Utilities Division, No. 20-62, 505, Docket No. 489, January 5, 1973. http://www.rrc.state.tx.us/meetings/dockets/docket489.php 6 ERCOT Operations Monthly Reports. http://www.ercot.com/mktinfo/reports/omr/ 7 NERC System Disturbance Reports. http://www.nerc.com/page.php?cid=5|66
BLACK&VEATCH|3.0ReviewofHistoricalCurtailments
11
Operationalinterruptionscausedbypipelineoutages Tropicalcyclones(hurricanes,tropicalstormsandtropicaldepressions) Other Black&Veatchexaminedthecommonthreadslinkingtheinstancesofnaturalgas interruptionidentifiedandtheircausestoidentifylessonsthatcanbelearnedbyERCOT fromthesehistoricexperiences.
3.1DATAAVAILABILITY&SOURCES
Historicalrecordsofnaturalgascurtailmenttoelectricgeneratorswerefoundduringour reviewtobelimited.Ourreviewfoundthatmostofthedataavailablewasforthelast decaderatherthanforprevioustimeperiods,reflectingbetterrecordkeepinginmore recentyears.Theprimarydatasourcesthatwereexaminedaspotentialsourcesofrecords ofhistoricalnaturalgascurtailmentaresummarizedinTable1.
Table1Sourcesofcurtailmentinformation.
SOURCENAME
ERCOTGasCurtailmentSurvey
AVAILABLE STARTING DATE

9/13/1994 (Earliest Curtailment Reported)
AVAILABLE ENDINGDATE
4/1/2011(Latest Curtailment Reported)
NOTE
Responsestosurvey senttonaturalgas firedelectric generatorswithin ERCOT'sserviceregion aspartofthisstudy OperatorLogs providedbyERCOT filteredusingthekey wordsGas CurtailmentandGas Restriction FocusedonOperating ConditionNotice FocusedontheMajor ElectricDisturbances andUnusual Occurrences TRRCresponsetodata requestsentaspartof thisstudy
ERCOTOperatorLogs
Dec2002
Aug2011
ERCOTMonthlyOperationsReports NationalEnergyTechnologyLaboratory (NETL)ElectricDisturbanceEvents(OE 417)AnnualSummaries
Jan2004 Year2000
Jul2007 Year2011
RailroadCommissionofTexas(TRRC) PipelineIncidentReportsandseparate responsetoERCOTDataRequest
12/12/1983
2/2/2011
SecondarysourcesofdatathatwereexaminedandutilizedarelistedinAppendixAData Sources.
12
Therewaslimitedoverlapbetweencurtailmentordisruptiondataavailablethrough naturalgasfocusedandpowerfocusedentities.NETLandothersourcesofcurtailment datafrompowerfocusedentitiesplacedlimitedornoemphasisoncapturingorreporting thenaturalgasfuelaspectofrecordedeventsand,atbest,naturalgascurtailmentcould onlybeinferredforsomeofthoseincidents.Pipelineelectronicbulletinboardsandother naturalgasfocusedsources,inturn,didnotcaptureimpactsofgascurtailmenteventson electricgeneratorsindetailalthoughsuchimpactswereinferredbyBlack&Veatchwhere possible.ERCOTsoperatorlogsweremostdirectlyapplicableofthevariousprimarydata sourcesreviewed.Documentedgascurtailmentsoutsideofcontractualagreementswere relativelyrareamongtheincidentsreviewedwithmostcurtailmentincidentsreviewed appearingtobecontractuallypermitted.
3.2SUMMARYOFHISTORICALCURTAILMENTS&CAUSES
Inall,216incidentrecordswereidentifieduponreviewofthevariousdatasourcesthat wereexamined.ThemajorityofhistoricalcurtailmentincidentsreportedforERCOTwere winteroccurrencesassociatedwithfreezingweatherasshowninFigure2.Akeyfindingof thoseincidnentsisthatthemajorityofhistoricalcurtailmentstoelectricgeneratorswithin ERCOTsserviceregionduringfreezingweatherappeartohavebeencontractually permittedandtriggeredbyatemperaturethreshold.Asmallnumberofcoldweather relatedincidentswere GasCurtailmentIncidents&Causes attributedtophysical 120 disruptionofupstream 108 supplyor 100 infrastructure.AFERC NERCreport8,for 80 example,attributeda majorityofthe 60 February2011 54 generationlossto 40 problemswith winterizationrelatedto plantoperationsand 20 10 withasmallerportion 2 attributedtogassupply 0 GASCURTAILMENT/ GASCURTAILMENT/PIPELINE GASCURTAILMENT/ GASCURTAILMENT/ lossfromwellhead FREEZINGWEATHER OPERATION TROPICALCYCLONE UNKNOWNCAUSE freezeoffsandfield Figure2Numbersofdocumentedgascurtailmentincidentsstudied. levelinfrastructure failures.Figure3showsafishbonediagram9outlingpossiblecausesandeffectsleadingto gassystemfailurerelatedtofreezingweather.Inafailuremodesandeffectsanalysis
8
Report on Outages and Curtailments During the Southwest Cold Weather Event of February 1-5, 2011, Federal Energy Regulatory Commission (FERC) and North American Electric Reliability Corporation (NERC), August 2011, 357 p. 9 A fishbone diagram (also known as an Ishikawa diagram) is a tool used to identify failure pathways in a failure mode and effects analysis (FMEA). In the current study, fishbone diagrams are used to summarize
NumberofIncidents
13
(FMEA),thesearepossiblecauseandeffectstringsthatcanaffectgassystemperformance, basedongeneralhistoricalexperience.Theprecisecauseandeffectstringisnotalways expresslypublishedforeverycurtailmentevent.Thepotentialfactorsleadingtogassupply disruptionsduetofreezingweatherare1)freezingofonshoregaswellheads,2)onshore powergridstripandpipelineslosepressureasgascompressorsand/orSupervisory ControlandDataAcquisition(SCADA)systemslosepowerand3)contractualprovisions withgassuppliers/transportersthatallowcurtailmentofgassupplytopowergenerators basedontemperaturethresholds.
Figure3Fishbonediagramforpossiblefreezingweathercausesofgascurtailments.
Pipelineoperationsrepresentedthenextlargestdriverofnaturalgascurtailmentincidents historically.Thoseincidentswerecausedbyunscheduledmaintenanceandlineruptures. Therewere10reportedincidentsofgascurtailmentsrelatedtopipelinedisruptionsinthe datareviewed.Inaddition,54incidentsofgascurtailmentwerereportedwithoutany specifiedcausealthoughourfurtherresearchshowedthatnonewerelinkedeitherto freezingtemperaturesinwinterortropicalcycloneoccurrencesinsummer.Sincethose

how causative agents might lead to gas curtailments but without identifying likelihood of the alternative pathways.
14
incidentswerenotweatherrelated,theywereassumedtobeinfrastructurerelatedand groupedtogetherwithpipelinedisruptions.Figure4showsafishbonediagramexamining thecauseandeffectleadingtogassystemfailurerelatedtopipelinedisruptions.
Figure4Fishbonediagramforpossiblepipelinerelatedcausesofgascurtailments.
Only2incidentsofgascurtailmentsdrivenbytropicalcycloneswereobservedinthe revieweddata10.Figure5showsafishbonediagramexaminingthepossiblecausesand effectsleadingtogassystemfailurerelatedtotropicalcyclones.Thethreemainfailure pathsdrivenbytropicalcyclonesare1)shuttingofoffshoreplatformsduetoastorminthe GulfofMexico(GOM);2)onshorefloodingcausedbyexcessiverainfallthatimpactsgas processingfacilities;and3)highwindsassociatedwithtropicalstormsknockdownpower linesandcutoffpowertogaspipelinecompressorsand/orSCADAsystems.
Weather-related incidents in the ERCOT Operator Logs dated from 2002 and later. Major tropical cyclone landfalls and coastal flooding events occurred in 1989 and 2001 prior to first records in the ERCOT Operator Logs.
10
15
Figure5Fishbonediagramforpossibletropicalcyclonerelatedcausesofgascurtailments.
3.3BESTPRACTICES&LESSONSTOBELEARNED
Arelativelysmallnumberofcurtailmentincidentsoutsideofcontractualagreementswere observedoverallinthedatareviewedaspartofthisstudy.Thiswouldindicatethatnatural gassupplyhasproventobeareliablefuelsourceforpowergeneratorsoperatinginERCOT andthatmarketliquidityandcommercialagreementsappeartolargelybeeffectivein procuringnaturalgassupplyforelectricgenerators.Thegrowthofonshoreunconventional naturalgasresourcesinTexasmaybeexpectedtohelpmakenaturalgassupplyevenmore readilyavailableforERCOTgenerators. SurveyresponsesindicatethatsomeelectricgeneratorsintheDallasFortWorthregion haveenteredintocontractualagreementsthatallowcurtailmentoftheirnaturalgassupply intheeventofextremecoldweatherwhichisdriveninpartbycurtailmentpriorities definedbytheTRRC.AppendixDofthereportincludestheCurtailmentPlanrequirements oftheTRRCinmoredetail.Inadditiontoregulatoryrequirements,contractualagreements alsocanreflectatradeoffbetweenthecostoffirmsupplyandthecostsforcontractual interruptionbasedonhistoricalexperiencethatnaturalgassupplyisavailablewhen neededduringmostdaysofoperation. Switchingtooilwasobservedinhistoricaldataasamitigationmeasurewhengas curtailmentswereineffectduetocontractualterms.Itshouldbenotedthattheeconomics ofswitchingmayplacerestrictionsontheabilitytoswitchtooilgoingforward.
16
Connectivitytomultiplepipelinesortostoragefacilitieswouldprovidebothsupply flexibilitytominimizedeliveredgassupplycostsandfuelsupplyredundancyforgenerators whencurtailedbyonepipeline. Increasedcoordinationbetweennaturalgasandpowerindustryregulatingagenciescould helpensurecrosscaptureofinformationastheroleofnaturalgasasafuelsourcefor powergenerationcontinuestogrow.IfERCOTisexpectedtomonitorfuelimpactsonthe reliabilityoftheelectricgrid,betterdatacaptureofcurtailmentincidentsisneeded.This studyrecommendsthefollowingmeasurestobettercaptureinformationrelatedtonatural gassupplyandcurtailmentstoelectricgenerators: TrainingofERCOToperatorstoimprovetheirfamiliaritywiththenaturalgas infrastructurewillhelptoincreasethedataaccuracyofoperatorlogs.Asidentifiedinthis study,theoperatorlogscomprisedthemostcompetedatasourcerecordingthe disruptionofnaturalgassupplytoelectricgeneratorswithintheERCOTserviceregion. Addingstandardizedquestionsongasdeliveryrelatedissuesintoannualreports submittedbytheelectricgeneratorswillallowERCOTtotrackandassessanytrends associatedwithnaturalgassupplydisruptionsthatelectricgeneratorsexperience.Itwill alsohelpERCOTtounderstandandmanagegassupplyrelatedrisks. ContinuedandgrowingcoordinationbetweenERCOTandtheTRRCindevelopmentof reportsforcapturingandsharinginformationongassupplydeliveryissuesimpacting electricgenerators.Coordinatedactionscanfosterbetterdatacaptureforboth organizations. Reviewofgassupplyagreementsandgascurtailmentpoliciescouldhelpdetermine whethernewpoliciesorregulationsarerequiredtoincreasethereliabilityofERCOT generation.Inadditiontocostconsiderations,contractualagreementsthatrequire curtailmentofgassupplytogeneratorsormandatorycurtailmentpoliciesasdefinedby theTRRCmayinhibitapowergeneratorsabilityandmotivationtoacquirefirmgas supply.
17
4.0NaturalGasInfrastructure&Market
TexasisthelargestproduceraswellasconsumerofnaturalgasintheU.S.,contributing aboutonethirdofthetotalproductionintheU.S.andconsumingoneseventh(withover 85%ofitbeingconsumedintheindustrialandelectricitygenerationsectors)11.Asa consequence,TexasenjoysoneofthemostrobustnaturalgasmarketsinNorthAmerica withwelldevelopedinfrastructurethatincludesnaturalgasproductionfacilities,natural gasprocessingfacilities,interstateandintrastatenaturalgaspipelinesandnaturalgas storagefacilities. TexasleadsallstatesintheU.S.inthenumberofpipelinemileswithmorethan21,000 milesofinterstatenaturalgastransmissionpipelinesandmorethan130,000milesof intrastatenaturalgastransmissionanddistributionpipelinesmakingitoneofthebest connectedandservedmarketsintheU.S.12
4.1INTERSTATEPIPELINES
AmongthemajorinterstatepipelinesservingelectricgeneratorswithinERCOTsservice regionareTexasEasternTransmission,CenterPointEnergy,ElPasoNaturalGas,Natural GasPipelineCompanyofAmerica,TennesseeGasPipeline,andTranscontinentalPipeline (Figure6).MostoftheseinterstatepipelinestransportproductionfromtheGulfCoast regionandflownorthtoservetheMidwestmarketandnortheasttoservetheEastCoast marketsoftheU.S.ElPasoNaturalGasmovesgasproducedinWestTexasfieldstoserve theWestCoast. SincethosepipelinesmovegasthatisproducedinandnearTexastoconsumersinthe Midwest,EastCoastandWestCoast,theothermarketdestinationscanbeconsideredas representingcompetitionfornaturalgassupplyforelectricgeneratorswithinERCOTs serviceregion.Thepotentialforgassupplydisruptiontoelectricgeneratorswithin ERCOTsserviceregionthatisposedfromcompetingdemandservedbythesepipelinesis oneoftheriskfactorsconsideredinthisstudyandisdiscussedindetailinSection5and Section6.
Natural Gas Annual Supply & Disposition by State, US Energy Information Administration. http://www.eia.gov/dnav/ng/ng_sum_snd_dcu_nus_a.htm 12 Texas Pipeline System Mileage, updated October 28, 2010,, Railroad Commission of Texas. http://www.rrc.state.tx.us/data/gasservices/vitalstats/mileage.php
11
BLACK&VEATCH|4.0NaturalGasInfrastructure&Market
18
Figure6InterstateNaturalGasPipelinesServingERCOTGenerators
4.2INTRASTATEPIPELINES
Texasholdsthedistinctionofhavingthelargestnumberaswellasthemostmilesof intrastatepipelinesintheU.S.Thosepipelinesgatherandtransportnaturalgasfrom supplybasinsinTexastolocalgasdistributioncompanies,electricgenerationand industrialandmunicipalconsumers,aswellastoconnectionswithintrastatepipelinesand interstatepipelinesthattransportthisgastoendusemarketsintheMidwest,EastCoast andWestCoast.ThemajorplayersintheintrastatepipelinemarketincludeAtmosEnergy Corporation,EnterpriseProductsPartners,L.P.,KinderMorganEnergyPartners,L.P.and EnergyTransferPartners,L.P.owningandoperatingmultiple,largeTexasintrastate pipelinesbetweenthem(Figure7).TexasintrastatepipelinesareregulatedbytheTRRC andaresubjecttoalternativeregulationscomparedwiththoseofFERCregulated interstatepipelines.TheTRRCsoversightoverintrastatepipelinesislargelyfocusedon safetyandpipelineintegritywithlessoversight,whencomparedtoFERCregulated pipelines,relatedtocommercialissues.Thiscanresultinlesstransparencyaboutthe availablecapacityandthetransportationcostsassociatedwithintrastatepipelineswhen comparedtointerstatepipelines.Itshouldbenoted,however,thattheintrastatepipeline
19
marketinTexasishighlycompetivewhenmultiplepipelineorsupplyalternativesare availabletoanenduser.
Figure7IntrastateNaturalGasPipelinesServingERCOTGenerators
4.3NATURALGASSTORAGEFACILITIES
Naturalgasiscommonlystoredinundergroundrockformationssuchasdepletedoiland gasreservoirsorleachedcavernsinsaltdomes.Naturalgasstoragehelpstomatchthe relativelyconstantproductionprofileofnaturalgaswithitshighlyseasonalconsumption patternbycreatingflexibilityinthemarketandallowingparticipantstostoragelarge volumesofnaturalgasinsummerwhenthetraditionalheatingloadistypicallylowandto usethisstoredgasinwinterwhentheheatingloadincreases.Texasstandsfourthinthe U.S.intotalundergroundnaturalgasstoragecapacitywithover783Bcfofstorage capacity13.Figure8showstheundergroundnaturalgasstorageassetswithinERCOTs serviceregion.
Underground Natural Gas Storage Capacity, as of December 2010, updated December 29, 2011, US Energy Information Administration. http://www.eia.gov/dnav/ng/ng_stor_cap_a_EPG0_SAC_Mmcf_a.htm
13
20
Inadditiontohelpingbalancetheseasonaldemandwithrelativelyconstantproduction, naturalgasstoragealsooffersshorttermflexibilitytothenaturalgasmarketbybeinga sourceofsupplywhendemandishigherthananticipatedandbeingabletoabsorbsupply whendemandislowerthananticipated.Itisthisattributeofnaturalgasstoragethatmakes itattractivetoelectricgeneratorsseekingtomanagethedaytodayvolatilityintheirgas supplyneeds.Naturalgasstorageofferselectricgeneratorstheabilitytoquicklyaccess supplywhentheirgenerationneedsrampuporanalternatedestinationforsurplusnatural gassupplywhengenerationneedsrampdown.Highdeliverabilitystorageorstoragewith theabilitytoinjectorwithdrawhighvolumesofgaseachdayrelativetothetotalstorage capacityofthefieldoffersthemostflexibilitytoswingwiththedailygassupplyneedsof electricgenerators. StorageassetsinTexasincludebothregulatedassetsthatarepartofnaturalgaspipeline systemsaswellasstandalonestorageassetsmanagedbyindependentoperators.
Figure8NaturalGasStorageAssetsinERCOTsServiceRegion
4.4ROLEOFGASCOMPRESSORS
Gasproductionfields,storagefieldsandbothintrastateandinterstatepipelinesdepend upongascompressiontechnologiestosustaintheiroperations.Asignificantlossof
21
compressioncaninterruptpipelineflowsandthreatencurtailmentofgasdeliveriesto customers. Gascompressorsarebuiltoneitherreciprocatingorcentrifugaltechnologiesandwith eithercombustionpoweredorelectricpowereddrivedrivertechnologies.Combustion drivencompressionhistoricallyhasusedgasprovidedbyapipelineandtherebyhasoffered asignificantlevelofselfsufficiencyforpipelineoperations.Incontrast,electricdrive compressorsdependuponelectricalpowerwhichispurchasedfromanoutsidesource(not controlledbythepipeline)whichrepresentsariskfactorbeyondthecontrolofthepipeline. BaseduponBlack&Veatchresearch,Table3summarizestheproportionsofgasand electricdrivecompressorsinstalledinTexas.AlthoughthenumbersinTable3arenot representedasacomprehensiveinventory,themostsignificantmessageisthatabout18% ofalltransmissionpipelinecompressorsareelectricdriveandthereforeatrisktopower outages.However,pipelineoperationsoftenaredesignedtobeabletocontinuewith limitedcompressoroutageswhethergasfiredorelectricdrive.
Table2IndicativenumbersofnaturalgascompressorsservingtheTexasgaspipelineinfrastructure.
COMPRESSOR TYPE
GasCombustion Electric Total
GASFIELD
4 1 5
TRANSMISSION PIPELINE
498 111 609
UNDERGROUND STORAGE
34 2 36
TOTAL
536 114 650
Sincethe1990s,thegeneraltrendamonggaspipelineshasbeentowardselectionof electricdrivecompressorsbasedonbenefitsoflowermaintenancecosts,lowernoise emissionsandlowerairemissions14.Anycorrespondingincreaseinrisksofpoweroutages generallyhasbeenconsideredanacceptabletradeoff.
4.5SURVEYRESULTSOFNATURALGASINFRASTRUCTURESERVING ERCOTGENERATORS
Aspartofthisstudy,Black&Veatchconductedasurvey,throughERCOT,ofthenaturalgas firedelectricgeneratorswithinERCOTsserviceregiontoassessthenaturalgas infrastructureservingtheirfacilities.Thesurveyrequestedinformationonthepipelines, localdistributioncompanies(LDCs)andstoragefacilitiesservingeachelectricgenerator. Theinformationprovidedthroughsurveyresponseswassupplementedbyanumberof datasourcestocreateacompilationofthenaturalgasinfrastructureservingelectric generatorswithinERCOTsserviceregion.ThedatasourcesutilizedincludeFERC,TRRC, pipelineelectronicbulletinboards(EBBs),theUSEnergyInformationAdministration(EIA), Black&Veatchsproprietarydatabaseunderlyingourlargebodyofworkinnaturalgas marketanalysisandthirdpartyvendordata.Whiletheindividualsurveyresultsare confidential,wesharethefollowingobservationssummarizingthesurveyresponses:
Factors That Influence the Selection of Electric Motor Drives For Natural Gas Compressors, Prepared for The INGAA Foundation, Inc. by Southwest Research Institute, SwRIProject 18-2090, April 1999, 58 p.
14
22
Thesurveyonnaturalgasinfrastructurewassentto109gasfiredelectricgenerators withinERCOTsserviceregionand82%ofelectricgeneratorsfullyorpartiallyresponded tothesurvey.Thesurveyresultssummarizedbelowareapplicabletothispopulationof respondentsalone. Thereisdiversityinthenaturalgasinfrastructureservingtheelectricgenerators surveyedwithmultiplepipelinesservingthesegenerators,namely,44differentnatural gaspipelinesystemsdelveringpowergenerationfuelwithinERCOTsserviceregion.Of these44pipelines,7areinterstatenaturalgaspipelinesand37areintrastatenaturalgas pipelines.Figure9showsthetop10pipelinesservingtheelectricgeneratorsinERCOTs serviceregion. Approximately60%ofthegeneratorsthatrespondedtothesurvey(correspondingto 51,550MWofnameplatecapacity15)haveaccesstomorethanonenaturalgaspipeline interconnectwhichcancreateredundancyinnaturalgassupplyalternatives(Figure10).
NaturalGasPipelinesServingERCOT ElectricGenerators
30
25
NumberofGeneratorsServed
20
15
10
Figure9NaturalGasPipelinesServingERCOTElectricGenerators
15
23
NumberofPipelineInterconnects ForEachElectricGenerator
40
37
35 30
27
NumberofGenerators
25 20
16
15 10
6
5 0 1 2
3 NumberofPipelineInterconnects
Figure10NumberofPipelineInterconnectsforEachElectricGenerator
Allthegeneratorsthatprovidedinformationontheircapacityandpeakneedsnotedthat theyhadadequatepipelinecapacitytomeettheirpeakdemand.Over65%ofthese generators(correspondingtoover39,400MWofnameplatecapacity16)indicatedthat theyhadaccesstocapacityinexcessof150%oftheirpeakneeds.Figure11showsthe levelofredundancyinpipelinecapacitythatwasreportedbythesurveyrespondents.As seeninthishistogram,manyelectricgeneratorshaveaccesstosubstantialexcess pipelinecapacitythatcanbeexpectedtoincreasetheirreliabilityofsupplyandoffsetthe impactsofanysupplyorpipelinedisruptions. Accessto,orcontractsfor,gasstorageappearstobelimited,althoughstorageisusedona dailybasisbygassuppliersandinterstateandintrastatepipelinestomanageflowson theirsystems.Only23%oftherespondentsreportedinformationonnaturalgasstorage aspartoftheirsupplyportfolio.
16
24
HistogramShowingPipelineCapacityas%ofPeakNeeds
25 23
20
NumberofGenerators
15 13 11 10 7 6 5 5 4
0
100%149% 150%199% 200%249% 250%299% 300%349% 350%399% >400%
Capacityas%ofPeakDemand
Figure11PipelineCapacityasPercentageofPeakNeeds
Overall,basedontheresponsesbygeneratorstothesurvey,itappearsthatERCOTs electricgeneratorscreatereliabilityandredundancyofgassupplycapabilitythroughtheir interconnectionswithmultiplepipelinesandaccesstoalevelofcapacitythatiswellin excessoftheirpeaknaturalgasneeds.
25
5.0RiskAssessmentApproach&Assumptions
5.1SUMMARYOFAPPROACH
Black&Veatchapproachedtheriskassessmentasacombinedeconomicandquantitative analysiswiththefinalobjectivebeingdevelopmentofriskbasedlikelihoodsofnaturalgas curtailmentsthatcouldaffectgasfiredgenerationforscenariosthatarespecifictoERCOT. OurworkeffortforDeliverable3wasfocusedonthreemainanalyticalefforts: A. IdentificationofScenarios B. ProbabilisticAnalysisofScenarios C. FundamentalAnalysisofScenarios
A.IdentificationofScenarios
Thisstudyutilizedascenariobasedapproachtoassesstheriskofgassupplycurtailmentto electricgeneratorswithinERCOTsserviceregion.Black&Veatchsreviewofhistorical curtailmenteventsprovidedthebasisforselectingandshortlistingpotentialriskscenarios forERCOTtobeanalyzedinthisstudy.AsdiscussedinSection3,freezingweatherwas foundtobethemostsignificantriskfactordrivingnaturalgassupplycurtailmenttoelectric generatorswithinERCOTsserviceregion.Over60%oftherecordedincidentsofgas supplycurtailmentstoelectricgeneratorsthatwerereviewedweredrivenbyafreezing weatheroccurrence,includingsomedrivenbycontractualprovisionswhichstipulated temperaturemilestonesintheircurtailmentschedules.Otherriskfactorsthatwerefound duringourreviewofhistoricalcurtailmentswerepipelinedisruptionsandtropical cyclones.Accordingly,thescenariosshortlistedforthestudyareprimarilyweatherdriven orinfrastructuredrivenandlistedbelow: 1. FreezingweatherinTexasandoutsideTexas 2. Pipelinedisruptions 3. Tropicalcyclones Foreachgivenscenario,thestudyexaminedafamilyofoccurrencesofincreasingseverity tofacilitateunderstandingoftheshapeoftheriskprofileassociatedwithagivenriskfactor asopposedtoapointestimateoftherisk. Notablehistoricalcurtailmentswhereavailablewereutilizedasbenchmarkswithinthe scenariosanalyzed.
B.ProbabilisticAnalysisofScenarios
Thenextanalyticalstepwastheprobabilisticanalysisofeachofthescenariostodetermine theriskassociatedwiththeiroccurrence.Thoseanalysesadoptedanempiricalapproach whichdistinguishedfrequenciesofpotentialcausaleventsfromfrequenciesofdocumented curtailmentevents17.Mostnotably,frequenciesofoccurrenceofproblematicalweathercan
17
A causal event is an environmental or operational factor which, based on historical experience, could cause a gas curtailment event. For events associated with weather, it is possible to derive causal-event statistics which are independent of curtailment-event data.
26
BLACK&VEATCH|5.0RiskAssessmentApproach&Assumptions
becalculatedforyearswhererecordsforcurtailmenteventsdonotexist.Butthe informationofgreatestinterestremainsinthecurtailmenteventreports.Accordingly,the approachadoptedinthisstudyemphasizedanalysisofcurtailmenteventdatadirectly whereverpossible. Theprobabilistic(stochastic)methodologyemployedthefollowingsequenceofactions: Compilecurtailmenteventdataforeachscenarioasdefinedbyacausalrelationship(for example,freezingtemperature,tropicalcyclone,pipelinefailure) Foreachscenario,differentiatethecurtailmenteventdataintosubpopulationsif possible(forexample,curtailmentsassociatedwithfreezingtemperaturesorhigh heatingdegreedaynumberseitherinTexasorelsewhere) Foreachpopulation(orsubpopulation)ofcurtailmenteventsineachscenario,employ statisticalanalysissoftwaretoderiveabestfitprobabilitydistributionfunction(PDF) thatdescribesfrequencyofeventoccurrence Totheextentthatdocumentedreportsallowed,derivePDFsthatdescribefrequencyof lostgenerationbysize(MW)ineachscenario(Thiswaspossibleforfreezingweather andpipelineoutagescenarios.) Asnecessary,mapovercausaleventPDFsontoselectedcurtailmentthresholds expressedinunitsofgeneration(MW).(Thiswasnecessaryfortropicalcyclones.) EmploythePDFs,alongwithscalingfactorsforgrowthordeclineofgasdependencies,to deriveprobabilitiesofoccurrenceofthesubjecthazard(curtailmentevent)atselected timelinethresholds(forexample,5and10year). Therobustnessofprobabilisticresultsforcausaleventswasstrongestforweatherdata whichcomprisedlarge,continuousdatasets.Probabilisticresultsforcurtailmentevent datacarriedmuchlargeruncertaintiesassociatedwiththemuchsmallerandless continuousnatureoftheirdata.Fordailyweatherdatacompiledforwintermonths (December,January,February)overtheperiodofJanuary1981throughFebruary2011,the datasetavailableforeachstationtypicallycomprised2,766measurements.Incontrast, curtailmenteventdataweretypicallylimitedtofewerthan100incidentreports(Table3). Afterincidentswereanalyzedtodefinediscreteevents,andespeciallyassubcategories weresoughtamongthetypesofevents,thedataavailabletodefineasubscenariowere reducedto25orfewerexamplesinmanycases.Forcomparison,scienceandengineering analysescommonlyfindthattheminimumnumberofsamplesrequiredforapplicationof distributionfunctionstatisticsfallsintherangeof155018which,inthecurrentstudy,is matchedbythefreezingweatherandpipelineoutageincidentreportsbutnotbythe tropicalcycloneincidentreports(Table3).Accordingly,analysesforfreezingweatherand pipelineoutageeventsproceededdirectlyusinglossreports(typicallyMWratherthan Bcf/d,basedonrelativenumbersofavailablereports)butfortropicalcycloneincidentsit
The minimum sample size depends on the distribution function chosen but the minimum number generally increases as the function differs from a Normal (Gaussian) distribution. See, for example, Meyer S. L. (1975) Data Analysis for Scientists and Engineers, John Wiley & Sons, Inc., New York, 413 p..
18
27
wasnecessarytomodelindirectlyusingfrequencyofoccurrenceoftropicalcycloneactivity andimpliedimpactsongassupplieswhichthenweretranslatedtoequivalentMWlossesin ERCOT.Theeffectsofdifferentsamplesizesongoodnessoffitandonuncertainties(error bars)forrisklevelsisillustratedinAppendixBWeatherAnalysis.

Table3.Sizesofcurtailmentincidentdatasetsavailablefordefinitionofeventsandprobabilisticrisk analyses.
FREEZINGWEATHER(1) PERIOD OF RECORD Incl. MW Loss Reports 62 Incl. Bcf/d Loss Reports 7 TROPICALCYCLONE(2) Incl. MW Loss Reports 1 Incl. Dth/d Loss Reports 1 PIPELINE(3) Incl. MW Loss Reports 46 Incl. Dth/d Loss Reports 0
Total
Total
Total
2011 2002 2011 1987
106
64
(1) Excludestwootherevents(Dec1983,Dec1989)forwhichMWandDth/dlossdatawerenotavailable.Includes incidentscausedbycontractualprovisions. (2) Excludestwootherlandfallandfloodingevents(1989,2001)forwhichERCOTrecordsdonotexist. (3) Includes combination of events documented as pipeline plus other events documented as unknown but whereapipelineinvolvementwasinferred.
C.FundamentalAnalysis
Foreachscenarioidentified,Black&Veatchusedafundamentalsupplydemandmodelto examinethesufficiencyofthenaturalgasinfrastructureandnaturalgassupplytoimpact onnaturalgasservicetoelectricgeneratorsintheERCOTregion.Thisanalyticalapproach incorporatesanetworkrepresentationofthephysicalcapabilitiesofthenaturalgas infrastructureinservingelectricgeneratorsratherthanthecontractualobligationsonthe naturalgasfacilities.Althoughtheremaybefinancialimplicationstoprocuringthegas supplyneeded,naturalgasserviceisavailabletoelectricgeneratorssubjecttothe regulatoryandphysicalconstraintsofthesystem.Inaddition,procuringallthebilateral contractsrequiredtocomprehensivelycapturethecontractualobligationswithinERCOTis asignificant,ifnotimpossible,undertakingthatiscomplicatedbythelackofpublicly availableinformation. Black&Veatchestimatedthenaturalgasdemandorsupplyimplicationsassociatedwith eachofthescenariosandusedthesemodifieddemandandsupplyassumptionsasinputsto thefundamentalmarketmodel.Theanalysisexaminedanyresultingconstraintswithinthe system(causedeitherthroughincreaseddemandordecreasedsupply)thatimpactedthe availabilityofnaturalgassupplytoelectricgeneratorswithintheERCOTregion. Thefundamentalanalysisisintendedtosupplementtheprobabilisticriskanalysisby definingspecificforwardlookingscenariosthatexaminethesufficiencyofpipeline infrastructureandnaturalgassupplytomeettheneedsofelectricgeneratorsinERCOTs serviceregion.
28
5.2TOOLSANDSOFTWARE
Black&Veatchutilizedacombinationoftoolstoanalyzenaturalgasmarketsand infrastructurerelatedtoERCOTsGasCurtailmentRiskStudy.
ProbabilisticRiskModeling
ProbabilisticriskanalyseswereperformedusingthePalisadeDecisionToolsProfessional 5.0softwarepackagewhichincludesthemodule,@Risk,forstochasticsimulationthrough MonteCarloandLatinHypercubealgorithms.Foreachdatasetanalyzed,theempiricaldata werepassedthroughthe@RiskbestfitfunctionsusingAndersonDarlingcriteria19to identifythetopcandidatesfordescribingthepopulationasamathematicalfunction. Becausethesubjectdatarepresentedphysicalphenomena20,forwhichnegativevalues werenotphysicallypossibleinsomeattributes21,analysestookcareasappropriateto overridethedefault@Risksettingswhichallowdistributionswithbothnegativeand positivenumbersintheoutput.The@Risksettingswereadjustedasnecessarytoavoid negativetailswheretheywerephysicallyimpossible. Asiscommonwithphysicalphenomena,thebestfitdistributionfunctionstendedtofavor LogNormal,LogLogisticorWeibulldistributionsandlesscommonlyaNormal(Gaussian) distribution.TheWeibullandotherlogbaseddistributionsareespeciallyapplicableto reliabilityanalyses22.Foragivendataset,thebestfitasindicatedbyAndersonDarling criteriawasadoptedforfurtheranalysisalthoughthetopthreedistributioncandidates wereusedtoestimateuncertainties(errorbars)intheadopteddistribution.
NaturalGasInfrastructureAnalysis
Black&VeatchutilizedRBACsGPCMTMmodelasabasistoanalyzetheERCOTand surroundingregionsnaturalgasmarketinfrastructure.TheGPCMTMmodeloperatesusing analgorithmtosolveforoptimalequilibriumpriceandquantitiesbybalancingmultiple demandandsupplynodesinthemarket.Asanetworkmodel,GPCMTMnodesrepresent productionregions,pipelines,storagefacilities,andendusecustomergroups.Black& VeatchsupportsGPCMTMwithadetaileddatabaseofproprietaryandpublicsourcesthat wasmodifiedtosupporttheassumptionsandscenariosforthisstudy. TheGPCMTMmodelbalancessupplyanddemandfromalltheregionstofindanequilibrium solutionthatmaximizesproducerprofitandminimizesconsumercost.BasedonNobel PrizewinningeconomistPaulSamuelsonstheory,theeconomicallyefficient,market clearingsolutionwilldispatchlowercostsuppliesbeforemoreexpensiveonesand customerswillingtopaymorewillbeservedbeforethosewillingtopayless.Asshownin Figure12,quantity(Q)suppliedtomarketgrowsasprice(P)risesfrompointofproduction
Anderson-Darling is one of several commonly applied tests for measuring the goodness-of-fit of distribution functions applied to real data. Compared with alternative methods, Anderson-Darling has been found to provide better performance for distributions with extensive tails. 20 Physical phenomena studied here included both integer and decimal numbers. Integer representations included presence/absence of an incident or event. Decimal numbers included temperature, wind speed, heating-degree days or system impacts such as Dth/d or MW lost. 21 Negative values are possible for temperature but not for other attributes studied, including wind speed, HDDs, Dth/d, MW and numbers of incidents or events. 22 See Meyer S. L. (1975), op cit.
19
29
(Ps)topointofconsumption(PD)untilthecostoftransportationexceedsmarketpriceand supplyretracts.Namely,suppliesfromthesupplyregionwillcontinuetobetransportedto theconsumptionregionsuntileitherthepricedifferentialsbetweenthetworegionsdrops belowthetransportationcostorthetransportationcapacitybetweenthetworegionsis exhausted.Theresultingprices,consumptionandproductionquantitiesrepresentmarket equilibrium.

P
D S
PD PS
Transportation Costs
DemandRichRegion
Figure12SupplyDemandFundamentals.
SupplyRichRegion
Oneofthechallengesofunderstandingtheriskofgascurtailmenttoelectricgenerators withinERCOTistodeterminethedemandplacedonthepipelinesservingtheseelectric generatorsbyothersourcesresidential,commercial,andindustrialdemandwithin ERCOTsregionaswellasresidential,commercial,industrialandelectricdemandfrom outsideERCOTsregionthatareservedbythesamepipelines.Byrepresentingtheentire naturalgasinfrastructurewithinNorthAmerica,theGPCMTMmodeloffersanefficientand effectivemethodologytomodeltheimpactofthetotaldemandonthepipelinenetwork fromothersourceswithinandoutsideofERCOTsregion.Thefundamentalmodel representsbothinterstateandintrastatepipelinesegments. Black&VeatchutilizedGPCMTMtoassesstheconstraintsonthenaturalgasinfrastructure, representedasanetworkwithinthesupply/demandmodel,inrespondingtodemandfrom theelectricgenerationsectorwithinERCOTunderthedifferentdefinedscenarios.Foreach scenario,acorrespondingestimateofdemand,supplyandanyapplicablescenariospecific infrastructureconstraintsweredefined.
IntegratedMarketModeling
Black&VeatchhasdevelopedanIntegratedMarketModeling(IMM)processwhichisused toprepareitsintegratedlongtermviewonenergymarkets,theEnergyMarketPerspective (EMP).Inordertoarriveatthismarketview,Black&Veatchdrawsonanumberof commercialdatasourcesandsupplementsthemwithourownviewonseveralkeymarket drivers,forexample,powerplantcapitalcosts,environmentalandregulatorypolicy,fuel basinexplorationanddevelopmentcosts,andgaspipelineexpansion.
30
Figure13Black&VeatchIntegratedMarketModelingProcess
EMPisanintegratedviewofnaturalgasandpowermarketsacrossNorthAmerica,andthe northernportionofBajaCalifornia,Mexico,thatiselectricallyinterconnectedtotheU.S. Thestudyperiodof10yearsismarkedbyexpectationsofsignificantgrowthintheuseof naturalgasforelectricgenerationinNorthAmericadrivenbyenvironmentalpoliciesand resultingcoalretirementsandthecostcompetitivenessofnaturalgastechnologywith otherfuelsourcesonafixedandvariablecostbasis.Byprovidingacarefulconsiderationof themultiplicityoffactorsimpactingtodaysenergymarkets,theBlack&VeatchEMPuses anintegratedmarketanalysisprocesstoarriveatacomprehensiveviewofhowtheenergy worldcanevolvefromtodaysstartingpoint,providingasoundframeworkfordecision making.TheEMPwasutilizedtoprovideunderlyingassumptionsforthisstudy.
5.3GLOBALASSUMPTIONS
ToevaluaterisksofgascurtailmentswhichcouldimpactpowergenerationwithinERCOT, Black&Veatchmadeassumptionswhichwerenecessarytoenableobjectiveanalyses withinareasonablescope.Assumptionswhichapplytoallaspectsofthestudywereas follows: NaturalgasmarketsinTexasoperateefficientlyandeconomicallyduringthe analysisperiodandmarketliquidityormandatedcurtailmentsdonotcomprise limitingfactorscontributingtoriskofcurtailmentofgassupplytoelectric generators.AppendixEprovidesadetailedreviewoftheliquidityofthenaturalgas marketinERCOTtosupportthisassumption. NaturalgassupplyisprojectedtogrowduringtheanalysisperiodintheLower48 asshowninFigure14withgrowthinunconventionalnaturalgasproductionledby shalegasoffsettingdeclinesinconventionalnaturalgasproduction.
31
Lower48NaturalGasSupplyProjections
80
Conventional
70
Shale
CoalBedMethane
LNG
60
50 Bcf/d
40
30
20
10
0 2008 2010 2012 2014 2016 2018 2020
Figure14Lower48NaturalGasSupplyProjection
NaturalgassupplyinTexasisprojectedtoflattenwithdeclinesinconventional productionbeingoffsetbygrowthinunconventionalproduction,primarilyfromthe BarnettShaleandEagleFordshaleplaysasshowninFigure15.

TexasNaturalGasSupplyProjections
20 18 16 14 12 Bcf/d 10 8 6 4 2 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Conventional
Barnett
EagleFord
Haynesville
GraniteWash
GOM&StateWaters
Figure15TexasNaturalGasSupplyProjections
NaturalgasdemandintheLower48isprojectedtogrowovertheanalysisperiodas showninFigure16.Growthingasdemandforelectricgenerationistheprimary
32
driverforgrowthinnaturalgasdemandasenvironmentalregulationsandlower gaspricesleadtoanincreasedsharefornaturalgasintheelectricgenerationmix.
70
Lower48NaturalGasDemand Projections
Residential Commercial Industrial Electric
60
50
40 Bcf/d 30 20 10 0 2008 2010 2012 2014 2016 2018 2020
Figure16Lower48NaturalGasDemandProjection
NaturalgasdemandinTexasisprojectedtoincreaseasdemandfornaturalgasfor electricgenerationincreasesasshowninFigure17.Gasfiredgenerationcapacity withinERCOTisprojectedtoincreasebyover15,000MWinthenext10yearsand naturalgasshareofelectricgenerationwithinERCOTisprojectedtoincreaseto 50%overthistimeperiod.
33
TexasNaturalGasDemandProjections
10
Residential Commercial Industrial Electric
9 8 7 6 Bcf/d 5 4 3 2 1 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Figure17TexasNaturalGasDemandProjection
Naturalgaspipelinesandstoragefacilitiesarerepresentedindetailinthe fundamentalsupplydemandmodelusedinthisstudy.Inordertoexaminethe sufficiencyofthepipelinegridtoservethedemandofelectricgeneratorswithin ERCOTsserviceregion,electricgenerationfacilitiesweregroupedtogetheronthe basisofthenaturalgaspipelinesservingthemandtheirlocationsandlinked(as demandnodes)tothepipelinenetwork. Accuracyandprecisionofstatisticalanalysesarelimitedbyavailablecurtailment eventdata.Thedifferentcurtailmentscenariosconsideredeachoffereddifferent levelsofdataavailabilityandallowedvaryingprecisionintheanalyticaleffortof thisstudy. Thisstudytakesaconservativeviewontheriskofgascurtailmenttoelectric generators.Nomitigatingmeasureshavebeenincorporatedindevelopingthe resultspresentedhere.Inreality,whennaturalgassupplyordeliveryisimpacted, theredundancyandinterconnectednessinthenaturalgasmarketgenerally providesconsumers(includingelectricgenerators)withalternatesourcesand routesfornaturalgassupplytopartiallyorfullyservetheirneeds.Pipeline linepack,naturalgasstorageanddisplacementofsupplyfromothermarketscould allcontributetomitigatetheriskofdisruptionofnaturalgassupplytoelectric generatorswithintheERCOTserviceregionthatarepresentedinthisstudy.
34
6.0RiskAssessmentResults
6.1IMPLICATIONSFROMFREEZINGWEATHER
6.1.1.ProbabilisticAnalysis AnalysisMethodology
EachERCOTWeatherZonewasrepresentedbyaweatherstationforasignificant populationcenterwithalongandcontinuousrecordofdailyhighandlowtemperatures (Table4).Allstationsarepartoftheclimatereferencenetworkforwhichdataare maintainedbyNCDC(AppendixADataSources).Additionaldataincludedprecipitation and(since1996)winddata.AnalysesofdailyweatherforJanuary1981throughFebruary 201123weremadeforthefourWeatherZonescomprisingtheheaviestpowerloadswithin ERCOT:NorthCentral,SouthCentral,CoastandSouth.TheremainingfourWeatherZones (East,FarWest,WestandNorth)wereanalyzedatthegranularityofmonthlydataforthe same19812011period.Usingheatingdegreedays(HDDs)asasampleattribute,itisclear thatthefourheavyloadWeatherZonesarestronglycorrelatedwitheachother(Table5) andthattheNorthCentralWeatherZonecanbeusedasaproxyforERCOTinthecontextof freezingweather,includingcorrelationswithothergasdemandregions(Table6).
Table4.WeatherstationsusedforfreezingweatheranalysesofERCOT.
ERCOTWEATHER ZONE Coast East FarWest NorthCentral North SouthCentral South West WEATHERSTATION Name HoustonIntclAirport TylerPoundsField MidlandIntlAirport DallasFtWorthAirport WichitaFallsMunicipalAirport SanAntonioIntlAirport CorpusChristiIntlAirport AbileneRgnlAirport WMO/WBANID 72243/12960 (None)/13972 72265/23023 72259/03927 72351/13966 72253/12921 72251/12924 72266/13962
Table5.Winter(Dec,Jan,Feb)dailyHDDcorrelationsamongthefourheavyloadWeatherZones.
NorthCentral SouthCentral Coast South NORTH CENTRAL 100% 87.7% 83.9% 79.7% SOUTH CENTRAL 100% 93.6% 92.0% COAST 100% 91.9% SOUTH 100%
23
In support of a detailed analysis of the December 1983 freezing-weather event, historical weather data were analyzed back to January 1950. See Appendix F December 1983 Event Simulated For 2011-2012.
35
BLACK&VEATCH|6.0RiskAssessmentResults
Table6.Winter(Dec,Jan,Feb)dailyHDDcorrelationsbetweenERCOTandothergasdemandregions.
ERCOT ChicagoIL AtlantaGA NewYorkNY WashingtonDC ERCOT 100% 65.4% 51.7% 30.9% 36.6% CHICAGOIL 100% 59.2% 57.0% 60.6% ATLANTAGA 100% 62.0% 74.3% NEWYORKNY 100% 91.7% WASHINGTONDC 100%
Thesignificanceofhighwindsduringfreezingepisodeswasexaminedusingdataforthe NorthCentralWeatherZonebecauseitistheheavyloadregionwhichismostlikelyto experiencesuchconditions.Althoughhighwindsalsocandamageordisableelectric transmissiongrids,whichisanentirelyseparaterisk,inthecontextofgascurtailments,the roleofwindisexpectedtobelimitedtowindchilleffectsonunshieldedgaswellheador pipelineinfrastructure.Windeffectswerefoundtobelessimportantrelativetophysical temperature(AppendixBWeatherAnalysisandAppendixFDecember1983Event SimulatedFor20112012)anddidnotplayaroleintheriskprojections.TheFebruary 2011curtailmenteventinERCOTwasunusualwithregardtooccurrenceofhighwindsat thesametimeasextremelowtemperatures.Indeed,theFebruary2011datacanbe regardedasoutliers24fromthelargertrendwhichshowsdecliningwindscorrelatedwith decliningwinterlowtemperatures.IfFebruary2011dataareomitted,thereisno statisticalcaseforwindsbecomingstrongerastemperaturefallsindeedtheopposite trendprevails.EveniftheFebruary2011winddataareincludedasaworstcasescenario, theconvolvedfreezewindPDFimpliesalevelofwindchillriskwhichisnomoreimportant thantheriskofsubfreezingphysicaltemperaturesintherangeof2530F. Thesensitivityofgasproductiontofreezingweatherwasevaluatedbycomparing productiondatafortheBarnettShale(northcentralTexas),asobtainedfromtheTRRC, withrecordsofextremedailylowtemperaturesintheNorthCentralWeatherZone(see detailsinAppendixFDecember1983EventSimulatedFor20112012).Thecausative phenomenawouldbefreezingofwaterintoiceorcondensationofnaturalgasliquids (NGLs)intheproductstreamofwellheadswithoutthermalprotection(Figure3). EventRisksforfreezingweatherwereapproachedintwoways: Calculateannualizedprobabilitiesforoccurrenceofextremelowtemperatures(causal events)inordertounderstandfrequencyofconditionswhichwouldfavorwellhead freezeoffsandthereforecurtailnormalgasproduction. CalculateannualizedprobabilitiesforoccurrenceofextremehighHDDvalues(causal events)inordertounderstandfrequencyofconditionswhichwouldfavorunusuallyhigh demandforgas.
24
For the current study, outlier is used to describe a point on the long tail of a PDF, i.e., an event with very low statistical probability.
36
Inbothapproaches,PDFswerecomputeddirectlyfromweatherdataforindividual locations;detailedresultsareprovidedinAppendixBWeatherAnalysis. PowerOutageRisksforfreezingweatherweredevelopedbyderivingPDFsforpower(MW) lossreports(curtailmentevents)wherefreezingweatherwascitedasthecausewhether fromsupplydisruptions,regulatorymandatedcurtailmentsorcontractuallydefined curtailments.Totheextentpossible,dataweresubdividedtoexaminewhethersub categoriesoffreezingweathereventspresenteddifferentlevelsofrisk.Butasdiscussed elsewhere(andillustratedintheAppendixBWeatherAnalysis)subdividingdata sometimesledtomajorincreasesinuncertaintiesoftheresults.Therefore,morereliance wasplacedonuseofundifferentiatedeventdata25whereallfreezingweatherevents weretreatedasasinglepopulation. Allanalysessharedthefollowingassumptionsaboutdataadequacy: Incidentstatisticsfor20022011andfor19872011arerepresentativeoftherespective populationsofincidentrates;informationmissingfromearlieryearswillnotmaterially affecttheanalyses WeatherstatisticsforJan1981Feb2011arerepresentativeofthepopulationsof weatherrelatedrisks;futureweatherrelatedriskswillfollowthesamestatisticsasfor 19812011anddirectionalclimatechangesduring20122021areassumedtobe negligible
ResultsandInterpretations
GiventhelimitednumberoffreezingweathercurtailmenteventsdocumentedforERCOT, theundifferentiatedsetprovidesthemoststatisticallyreasonablebasisforderivingevent frequency.Theresultspresentedastheriskduringagivenwinterimplicitlyincludeevent statistics(AppendixBWeatherAnalysis)whichshow: Dailyprobabilityof9.3%fordisruptivefreeze(lowT25F) PDFmode(mostlikely)valueof8.8disruptivefreezedaysperwinter PDFmode(mostlikely)valueof3.9disruptivefreezeeventsperwinter(whereanevent isasuccessionofoneormoredaysdefinedbyaparticularweatherepisode)
Undifferentiated means keeping a sample whole for input into an analysis rather than dividing it into sub-samples for separate analyses. Differentiation (sub-division) can be acceptable if the sub-samples are fundamentally different from each other and remain large enough for statistically meaningful analyses.
25
37
ErrorbarsarederivedfromvariationsamongalternativePDFsfortheundifferentiated curve.Theonestandarddeviationerrorisfoundtobe120MWatthemodalpoint(55th percentile)onthePDFcurve26andsmallerathigherprobabilities( Figure18).Butasoutageprobabilitiesdecrease,theerrorenveloperapidlywidenssuch thatatthe1%probabilitymark,thepredictedoutagemagnitudeof5,300MWfallswithin anerrorenvelopeof2,7009,800MW(Figure18). Inthenearterm(1Yearhorizon),inanygivenwinter,thereisan18%probabilityofsupply disruptionfromlackofgassupplyorcontractual/regulatorydefinedcurtailment impactingabout2,000MWgenerationcapacityanda91%probabilityofimpactingabout 350MW.
26
ThemodalpointormodeofaPDFisthepeakofthefrequencydistribution.ForaNormal(bell shaped)distribution,itcoincideswiththemean(average)or50thpercentileonacumulativedescending PDFcurvesuchas Figure18.ButforanonNormal,logbaseddistribution,asiscommoninreliabilitymodelsandasapplies here,themodeusuallyoccurssomewherebetweenthe5570thpercentilesonacumulativedescending PDFcurve.In Figure 18, the mode occurs at the 55th percentile.
38
Figure18PowerOutageRiskcurve(freezingweather)annualized,includingerrorenvelopebeginningat the55thpercentileofprobability(modeorpeak)oftheriskdistribution.
Thelowendtailoftheriskcurve(probabilitieslessthan10%)in Figure18ispoorlyconstrainedbythelackofquantitativehistoricaldataforlargecurtailments duringextremefreezingweatherevents.AllofthecandidatePDFsforthefreezingweatherrisk curveimplyasteepriseofthecurvetoward5,000MWorhigherforoutageshavingprobabilities of19%inagivenwinter.AseparateanalysisoftheextremefreezingeventofDecember1983 (AppendixFDecember1983EventSimulatedFor20112012),whichhasanassociatedprobabilityof lessthan0.5%perwinter,impliedaworstcaseoutageof11,000MWifnomitigationswereapplied. The11,000MWmarkwouldfallclosetotheupperboundoftheerrorenvelopein
Figure18. ThetemperaturedependencyofwellheadfreezeoffsisshowninFigure19whichwas derivedfromanalysisofBarnettShalegasproductionascorrelatedwithhistoricalfreezing weatherevents.AsdiscussedintheAppendix(AppendixFDecember1983Event SimulatedFor20112012),theproductionlossfunctionderivedfortheBarnettShaleis indicativeforfreezingrelatedgasproductionrisksastheypertaintothegassourcesupon whichERCOTgeneratorsdepend.Nodataareavailableforgasproductionlossesduring themilestonecurtailmenteventsofDecember1983andDecember1989.Butthe productionlossfunctioninFigure19predictslossesapproaching30%ormorewhichis consistentwithreportsofproductionlossesofnearly40%acrossTexasduringthose episodes27.
27
FERC-NERC (2011) report, op cit.

39
Figure19.Lossofonshoregasproductionduringextremefreezingevents.
The5and10yearriskcurvesshowninFigure20werederivedfromthe1yearcurve usingtwotypesofscaling.First,theincreaseininstalledgasfiredgenerationcapacityin ERCOT,asprojectedbyBlack&Veatch,wasusedtoscaletheMWaxisonthepremisethat theMWatriskmetricisproportionaltothenumberofMWinthegasfiredgeneration portfolio.Second,theprogressiveincreaseinuseofonshoregas(withparalleldeclineof offshoreGOMgas),asprojectedbyBlack&Veatch,wasusedtoscaletheprobabilityaxison thepremisethattheamountofgasatriskoffreezingrelatedlossesisproportionaltothe fractionofthetotalgassupplywhichisbasedonshore.Uncertaintiesscaledupward accordingtoshiftsoftherespectivePDFsandtheerrorenvelopesforthe5and10year riskhorizons,respectively,generallyfollowedtheshapedefinedbytheerrorenvelopefor the1yearriskhorizon(Figure18),namely,expandingwidelyatprobabilitieslessthan 10%.Forthe10yearriskhorizon,thereisa1%probabilityofa13,300MWoutageeach winterintheabsenceofanymitigations(Figure20).
40
Figure20PowerOutageRiskcurvesforfreezingweatherwithprojectedfuturetrends
Itisimportanttounderstandthattheupwarddirectionalityofthe5and10yearrisk curvesinFigure20assumesthatrisksscalewithgrowingexposuretoknowncausalevents butwithoutanyassociatedmitigationsapplied.Namely,thermalprotectionofwellheads againstfreezeoffsremainsathistoricalstandardsasdotheprioritiesandrationalefor contractualcurtailmentsinitiatedbyfreezingweather.Infact,bothwellheadthermal protectionandalternativecontractualprovisionsofferopportunitiesforassuringgreater reliabilityofgasdeliveriesduringwinterandtherebyreducingtheMWatriskmagnitude.
6.1.2FundamentalAnalysis DescriptionofScenario
ColdweatherwasfoundtobetheleadingriskfactordrivingcurtailmentswithinERCOTs serviceregion,duetogassupplydisruptions,TRRCmandatedcurtailments,orcontractual drivencurtailments.Inadditiontofreezedriveninterruptionofsupplies,coldweather increasesthecompetitivedemandfornaturalgassupplyforheatingfromthetraditional residentialandcommercialsectormarkets.InterconnectivityoftheTexasnaturalgas marketwiththelargerNorthAmericannaturalgasmarketthroughthenaturalgas interstatepipelinegridimpliesthattheTexasmarketisimpactedwhenextremecold weatherisexperiencedinotherpartsofNorthAmerica.Thisisparticularlytrueofthe marketsintheMidwestandEastCoast,whichareservedbytheinterstatepipelines transportingnaturalgassupplyoutofTexas.Inordertounderstandtheexposureto extremecoldweatherinTexasandthoseinterconnectedmarkets,thisstudyexaminedthe followingscenarios: A. ExtremecoldweatherinTexasalone(ColdTexasonly)
41
B. ExtremecoldweatherinTexasaswellastheMidwestmarkets(ColdTexas&Midwest) C. ExtremecoldweatherinTexas,theMidwestmarketsaswellastheEastCoastmarkets (ColdTexas&OutsideMarkets) Theextremecoldweatherconsideredforeachscenarioassumedthecoldendofaverage dailywintertemperaturescorrespondingtothe95thpercentileforeachregioni.e.,thereis onlya5%probabilitythatthetemperatureintheregionwillbelowerthantheassumed extremecoldtemperature.Foreachscenarioexamined,acorrespondingassumptiononthe increaseddemandfornaturalgaswasdeveloped.Aregressionanalysisofcoldweather (commonlymeasuredinheatingdegreedays,HDDs)28againstconsumptionwasperformed todeterminethesensitivityofnaturalgasconsumptiontoweather.Asexpected,natural gasconsumptionintheresidentialandcommercialsectorscorrespondingtotheirheating needsexhibitshighcorrelationswithcoldweather.Powergenerationdemandand industrialdemandwereassumedtobelessimpactedbynaturalgasdemandandthiswas corroboratedbytheregressionanalysisperformed.Theregressionanalysisbetween weatherandnaturalgasconsumptionwasperformedonaregionalbasistocapture consumptioncharacteristicsuniquetoeachofthethreeregionsbeinganalyzed. Figure21showstheincrementaldailydemandassumptionsinthethreescenarios consideredrelativetonormalweatherdemand29.Thisincrementaldemandwasdistributed betweenTexas,theMidwestandtheEastCoastdependingonthescenarioanalyzed.
This study used HDD calculated as the difference between the daily average temperature and 65o Fahrenheit for every day where the daily average was colder than the 65 F reference. Although choice of reference temperature sometimes varies with geography, the 65 F reference was used both for Texas and locations outside Texas. 29 Normal gas demand assumed normal HDD values for each location, respectively. See Appendix B Weather Analysis for details.
28
42
IncrementalDailyDemandbyScenario
ColdTexasOnly ColdTexas&Midwest ColdTexas&OutsideMarkets
14.0
12.0
10.0
8.0
Bcf/d
6.0
4.0
2.0
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Figure21.IncrementalDailyDemandByScenario.
TheanalysisinthisstudylookedathistoricalfreezeoffsconsideringdatafromtheBarnett Shaleasthebestavailablesourceofrecenthistoricaldataforsignificantonshore productioninTexas.Thehistoricalwellheadfreezeoffinformationwasusedtodetermine whatpercentageoftheGulfregiononshoreproductioncouldbeassumedaslostduringan extremecoldweathereventduetowellfreezeoffsasshowninFigure22. ThelevelofGulfregionproductionlostbyfreezeoffswasdeterminedusingtheresultsof theanalysisaboveforagivenlowtemperature.For95thpercentilecoldweatherinTexas, thelevelofonshorenaturalgasproductioncurtailmentimpliedforTexasandLouisianais showninFigure22.
43
OnshoreGulfCoastProduction BaseCasevs.ScenarioWithProductionLossDuetoFreeze Offs 30

BaseCase ScenariowithProductionLossDuetoFreezeOff
25
20
Bcf/d
15
10
0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Figure22.OnshoreGulfCoastProductionandImpactsfromWellheadFreezeoffs.
RiskAssessment
Thestudyexaminedtheadequacyofnaturalgaspipelineinfrastructuretomeetdemandin scenariosofextremecoldweather.Studyresultsrevealedthatnaturalgaspipeline infrastructure,asrepresentedwithinthefundamentalnetworkmodel,appearstobe adequateanddoesnotactasaconstraintduringtheextremeweathereventsexamined.It shouldbenotedthatlocalizedandisolatedincidentsofconstraintscanoccuronoccasionat theutilityorpipelinelevel.
Belowareaseriesofchartsthatshowpipelineutilizationalongthemaincorridorsofnaturalgas transportationwithinERCOT.Theutilizationonintrastatepipelinesisshownheresincetheyservethe majorityofloadinTexas.Asseenintheseresults,theutilizationoftheintrastatenaturalgaspipelinesin aggregateremainsbelow70%inthescenariosexamined.Thoseresultsincludeanalysesofgashauls alongtransportationpathsfromHoustontoBeaumont(
44
Figure23),fromNorthTexastoHouston(Figure24),fromWestTexastoNorthTexas (Figure25)andfromSouthTexastoHouston(Figure26).Thisanalysisappliestothemajor gaspipelinesanditshouldbenotedthatindividualpipelinescouldperiodicallyexperience constraintsduringperiodsofhighdemandfromconsumers.Eachpipelinecorridor, however,hassufficientcapacitytodelivernaturalgastomeettheincreaseddemand.
45

PipelineUtilization(%) 60% 80% BaseCase
ProjectedIntraStatePipelineUtilization:Katy/HSCtoBeaumont
ColdTexasOnly ColdTexas&Midwest ColdTexas&OutsideMarkets
70%
50%
40%
30%
20%
10%
0% 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Figure23ProjectedIntrastatePipelineUtilization,HoustontoBeaumont
ProjectedIntraStatePipelineUtilization:NorthTexastoKaty/HSC
BaseCase 80% ColdTexasOnly ColdTexas&Midwest ColdTexas&OutsideMarkets
70%
60% PipelineUtilization(%)
50%
40%
30%
20%
10%
0% 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Figure24.ProjectedIntrastatePipelineUtilization,NorthTexastoHouston.
46
ProjectedIntraStatePipelineUtilization:WestTexastoNorthTexas
70%
50%
40%
30%
20%
10%
0% 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Figure25.ProjectedIntrastatePipelineUtilization,WestTexastoNorthTexas.
ProjectedIntraStatePipelineUtilization:SouthTexastoKaty/HSC
70%
50%
40%
30%
20%
10%
0% 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Figure26.ProjectedIntrastatePipelineUtilization,SouthTexastoHouston.
47
6.2IMPLICATIONSFROMPIPELINEDISRUPTION
6.2.1.ProbabilisticAnalysis Analysismethodology
Researchrevealedonly10incidentreportswherepipelineissues30werecitedasthecause oflossofgasvolumesorgasfiredpowergeneration.Butanother54incidentreports,with nospecificcausesidentified,wereclassifiedasUnknowncausesbutinferredtobe pipelinerelated31(Figure27).Thereforethecombineddataset,whentreatedasasingle undifferentiatedsampleofthepopulation,wasnumericallysufficienttosupportanalysis intermsofpoweroutages.GascurtailmentincidentsreportedasMMBtu/d(forexample, righthandchartinFigure27)wereconvertedtopowergenerationlosses(MW)32although attributiontospecificpipelinesgenerallywasnotpossible.Somegascurtailments attributedtopipelineinterruptionswerereportedexplicitlywithpower(MW)impactsbut manypipelinerelatedincidentreportsquotedgasvolumescurtailed(MMBtu/d).Inthis case,Black&Veatchfounditnecessarytoconvertgastopower(usingknown characteristicsofERCOTgasfiredgeneration)toderivetheimputedimpactongeneration. Oneaspectofthatconversionprocessistheimplicitassumptionthatthecurtailedgaswas requiredforpowergenerationandthatnoalternativesupplywasavailable.Itdoesnot allowforfuelswitchingorforredundancyinpipelineservice.Inthatcontext,thepipeline outageriskcurvesmightbeconsideredasconservativeinthesensethattheyestimate towardthehighendofarguableriskmagnitudes.
Figure27.Definitionofthepipelineincidentsavailableforriskanalysis.
Resultsandinterpretations
Ona1yearhorizon,thereisa5%chancetolose500MW(about1%ofERCOTgasfired generation)asaconsequenceofpipelineoutages(Figure28).Errorbarswerederivedfrom
Incident reports cited a variety of different occurrences including line ruptures, compressor repairs and other maintenance. Specific pipelines were mentioned in some, but not all, cases. 31 Curtailments where cause wasUnknown (i.e., not identified in the incident report) were checked against weather conditions on their respective dates. Especially for summer incidents, where neither tropical cyclones nor severe thunderstorms occurred, pipeline-related factors were the most likely default explanations. 32 To convert gas (MMBtu/d) to power generation (MW), assumptions included a heat rate of 7.5 MMBtu/MWh, 8 hours of generation during a day and a total gas-fired capacity of 47 GW.
30
48
variationsamongalternativePDFs.Onaonestandarddeviationbasis,theuncertaintyis 112MWataprobabilityof10%and677MWat0.5%probability.
Figure28.PowerOutageRiskcurveforpipelineinfrastructureissues.
Goingforward,thepremiseadoptedwasthattherearenonetchangestorisksatthe5year and10yearhorizons(i.e.,directionalfactorsforriskchangeareassumedtobemutually offsetting)aginginfrastructuremightincreaserisksbutmorestrenuousregulations(and systemupgrades)areexpectedtodecreaserisks.Althoughpipelineengineersrecognize thatfailureratesscaleupwardwithlossofpipelineintegrity(predominantlythroughaging) andwithgrowthoftotalpipelinemileage33,improvedpracticesforinspectionandcorrosion controlaresignificantmitigationsagainstpipelinefailures.Asdiscussedbelow,thereare significantinitiativesunderwaythatfocusonimprovingthesafetyandreliabilityofthe naturalgaspipelinegridandinthatcontext,the5Yearand10Yearpipelineoutagerisk curvesmightbeconsideredasconservativeinthesensethattheyestimatetowardthehigh endofarguableriskmagnitudes. EffectiveFebruary14,2004,USDOTPipelineandHazardousSafetyAdministration (PHMSA)putintoeffectitsrevisedpipelineIntegrityManagementPlan(IMP)requirements fortheoperatorsofnaturalgastransmissionpipelines.PHMSA'sgoalwastoimprovethe overallintegrityofpipelinesystemsandreducerisks.Toadequatelyevaluaterisk,itis necessarytoidentifyandevaluatethephysicalandoperationalcharacteristicsofeach individualpipelinesystem.andtothatend,IMPprogramswerecreatedwiththefollowing objectives:
Crawley F. K., Lines I. G. and Mather J. (2003). Oil and gas pipeline failure modeling, Trans IChemE, Vol 81, Part B,, January 2003, p. 3-11.
33
49
Ensuringthequalityofpipelineintegrityinareaswithahigherpotentialforadverse consequences(highconsequenceareas); Promotingamorerigorousandsystematicmanagementofpipelineintegrityandriskby operators; Maintainingthegovernment'sprominentroleintheoversightofpipelineoperator integrityplansandprograms;and Increasingthepublic'sconfidenceinthesafeoperationofthenation'spipelinenetwork. OperatorsofthetransmissionpipelineswereoperatingundertheirindividualIMPswhen, in2010,aseriesofnaturalgasincidentsthatresultedindeathand/orpropertydamage raisedtheNationsdiscussionregardingpipelinesafetytonewheights. ThelevelofscrutinyofpipelineoperatorsincreaseddramaticallyatboththeFederaland Statelevel. Forexample,onJanuary10,2011,PHMSAissuedanadvisorybulletin(ADB1101)to naturalgaspipelineoperatorsinwhichitinstructedoperatorstotakeappropriateactions toensureitsrecordsfortransmissionpipelinemaximumoperatingpressure(MAOP)are traceable,verifiableandcomplete. InApril2011,theAmericanGasAssociation(AGA)anditsmemberssupportedthiseffortby developingandpublishingawhitepaperwhichservedtwoprimarypurposes: 1. EnlighteningallpartiessothatthereisabetterunderstandingofhowMAOPswere originallydeterminedbypipelineoperatorsandwhattypeofrecordsareusefulin verifyingthisdetermination;and 2. Providingguidanceforwhatdocumentationisreasonabletoexpectanaturalgas pipelineoperatortohaveinrespondingtoconcernsidentifiedinthePHMSAadvisory bulletin. OnAugust25,2011PHMSAissuedaproposedrulemakingconsideringwhetherchanges areneededtotheregulationsgoverningthesafetyofgastransmissionpipelines.In particular,PHMSAisconsideringwhetherintegritymanagementrequirementsshouldbe changed,includingaddingmoreprescriptivelanguageinsomeareas,andwhetherother issuesrelatedtosystemintegrityshouldbeaddressedbystrengtheningorexpandingnon IMrequirements.AmongthespecificissuesPHMSAisconsideringconcerningIM requirementsiswhetherthedefinitionofahighconsequenceareashouldberevised,and whetheradditionalrestrictionsshouldbeplacedontheuseofspecificpipelineassessment methods. AndonNovember29,2011PHMSAproposedtomakemiscellaneouschangestothe pipelinesafetyregulations.Theproposedchangeswouldcorrecterrors,address inconsistencies,andrespondtorulemakingpetitions.Therequirementsinseveralsubject matterareaswouldbeaffected,includingtheperformanceofpostconstructioninspections; leaksurveysofTypeBonshoregasgatheringlines;therequirementsforqualifyingplastic pipejoiners;theregulationofethanol;thetransportationofpipe;thefilingofoffshore
BLACK&VEATCH|6.0RiskAssessmentResults 50
pipelineconditionreports;thecalculationofpressurereductionsforhazardousliquid pipelineanomalies;andtheodorizationofgastransmissionlaterallines. InadditiontowhatishappeningattheFederallevel,discussionsaretakingplacewithin individualStatesbetweentheStatePublicServiceCommissionsandthegasutilitiesthat theyoverseeregardingpotentialchangesinpipelineintegrityrulesandrequirements.
6.2.2.FundamentalAnalysis DescriptionofScenarios
Pipelinedisruptionswerethesecondmostcommondriversofgascurtailmentincidents reviewedinthehistoricalcurtailmentdata.Inthefundamentalanalysisofpipeline disruptions,weexaminedtheabilityoftheinterconnectedgaspipelinegridtosupply naturalgastoelectricgeneratorsintheeventofanunexpectedfailureonagivenpipeline. Disruptionofschedulednaturalgaspipelineservicecanoccurduetocausessuchas corrosion,outsideforcedamage(includingexcavation),andunscheduledmaintenance. Redundancyinthepipelinecapacityservingagivengenerationfacilitycanhelpmitigatethe riskofgassupplycurtailmentcausedbypipelinedisruption. Asastresstestinthefundamentalanalysis,thisstudyexaminedtheimpactofapipeline disruptionofincreasingseverityonthepipelineservingthelargestnumberofelectric generationfacilitieswithinERCOTsserviceregion.Basedontheresultsofthesurveyof electricgeneratorsthatwasconductedaspartofthisstudy,twentyfourelectricgenerators areservedbytheKinderMorganTejasPipeline.Ouranalysisreducedthecapacityonthis pipelineby10%,20%and40%successivelytoexaminetheflexibilityinthenaturalgas pipelinegridaswellasintheelectricgeneratorssupplyportfoliostobeservedinthe absenceofthiscapacity.Figure29showsthecurtailedvolumesassumedforeachofthe scenarios.
51
PipelineCapacityComparisonAcrossPipelineDisruptionScenarios
BaseCase Pipelinedisruption10% Pipelinedisruption20% Pipelinedisruption40%
0.90
0.80
0.70
PipelineCapacity(Bcf/d)
0.60
0.50
0.40
0.30
0.20
0.10
0.00 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Figure29PipelineCapacityComparisonAcrossPipelineDisruptionScenarios
RiskAssessment
Apipelinedisruptionisrepresentedinthefundamentalmodelbyreducingapartofthe statedcapacityofthepipeline.Redundencyinthenaturalgaspipelinegridandin transportationoptionsavailabletoanelectricgeneratorleadtotheresultthatother pipelines(primarily,KinderMorganTexasPipelineinthescenariosanalyzed)experience increasedutilizationastheyworktoservethegasdemandneedsofthecustomersstranded byfailureoftheoriginalpipeline.Curtailmentofnaturalgassupplywasnotobservedin thisscenario.Figure30showstherampupofvolumetransportedonKinderMorganTexas toservecustomersrequiringnaturalgassupply. Althoughthefundamentalmodelindicatesseamlesstransitioninthemarkettoadifferent pipelinethatiscapableofservingthemarket,itshouldbenotedthatcommercial arrangementsandmarketinefficienciescouldcreatechallengesinachievingthistheoritical rerouting.
52
KMTexasPipelineUtilizationatHoustonShipChannelComparisonAcrossPipelineDisruptionScenarios
BaseCase Pipelinedisruption10% Pipelinedisruption20% Pipelinedisruption40%
120%
100%
80%
PipelineUtilizaiton(%)
60%
40%
20%
0% 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Figure30.IndicativePipelineUtilizationAcrossPipelineDisruptionScenarios.
AsnotedinSection4,thesurveyofelectricgeneratorswithinERCOTthatwasconductedas partofthisstudyrevealedthat87%ofsurveyrespondentshaveaccesstonaturalgas supplyfrommultiplepipelines.Thosepipelineinterconnectsenableredundancyinsupply withover65%oftherespondentsindicatingaccesstopipelinecapacityequivalenttomore than150%oftheirpeakneeds.Theaccesstomultiplepipelinesandinterconnectcapacities equivalenttomultiplesofestimatedpeakneedscontributetoreliabilityforelectric generatorsintheeventofdisruptiononanindividualpipeline.
6.3IMPLICATIONSFROMTROPICALCYCLONES
6.3.1.ProbabilisticAnalysis Analysismethodology
Unlikethesituationforfreezingweatherevents,therewereonlytwodocumentedcasesof gascurtailmentstoelectricgeneratorscausedbytropicalcyclones34.Therefore,thedirect developmentofaPDFforPowerOutageRiskwasnotpossible.Thealternativepathway wastofirstdevelopEventRiskstatisticsfortropicalcyclonesandthentranslateintoriskof GOMgassupplylossesandequivalentpowergenerationlosses(5.1Summaryof Approach).
Additional tropical cyclone causal events occurred during the period of analysis but they fell outside the span of ERCOT curtailment records. See 5.1 Summary of Approach.
34
53
Black&Veatchfounditnecessarytoconvertgastopower(usingknowncharacteristicsof ERCOTgasfiredgeneration)35toderivetheimputedimpactongeneration.Oneaspectof theconversionprocessistheimplicitassumptionthatthecurtailedgaswasrequiredfor powergenerationandthatnoalternativesupplywasavailable.Itdoesnotallowforfuel switchingorforredundancyingassupply.Inthatcontext,thetropicalcycloneriskcurves mightbeconsideredasconservativeinthattheyestimatetowardthehighendofarguable riskmagnitudes. Fortheanalysisperiodof19812011,therewereatotalof111tropicalcycloneswith25 makinglandfallinTexas.Disruptionofgasinfrastructurebycoastalflooding,whichisan additionalknownrisk,wasnotquantitativelyanalyzedinviewofsparsedatainthe availablespanofrecordsfordocumentedgascurtailments.
Figure31ObservedfrequencyoftropicalcyclonesandtheirimpactsongasproductionintheGulfof Mexico
ResultsandInterpretations
ComparedwiththetotalvolumeofgasrequiredforERCOTpowergeneration,the proportionofgasobtainedfromGOMoffshoreproductionissmall.Black&Veatch estimatedthatlessthan5%ofthetotalERCOTgasconsumptiondependsonGOM production.Therefore,tropicalcycloneimpactsonERCOTspowergenerationare relativelysmall(Figure1). Goingforward,the1yearriskcurvewastheinitialmodelforlongbaselineadjustments. Downwardadjustmentsweremadeforexpectedshifttowardonshoregassupplies; therefore,thelikelihood(probability)elementtrendeddownward.Upwardadjustment wasmadeforexpectedgrowthofgasfiredcapacity;portfolioexposurethereforetrended upward.Overall,theriskoflosinggasfiredgenerationdependentonGOMgasdeclines becauseshifttoonshoregashappensfasterthangrowthofgasfiredcapacity.Thereisa 13%probabilityoflosing1,000MWofgenerationinYear1butonlya3%probabilityof losing1,000MWofgenerationinYear10.
To convert gas (MMBtu/d) to power generation (MW), assumptions included a heat rate of 7.5 MMBtu/MWh, and 8 hours of generation during a day.
35
54
ErrorenvelopeswerederivedfromvariationsamongalternativePDFs.Onaonestandard deviationbasis,uncertaintiesofgenerationlossesatthelevelof5%probabilitywere derivedas209MW(1Year),166MW(5Year)and105MW(10Year)inanygivenAtlantic Basintropicalcycloneseason(JunethroughNovember).
Figure32.PowerOutageRiskcurvesderivedforannualizedtropicalcyclonefrequencies.
Tropicalcyclonerisksfurtheraremoderatedinawaythatdistinguishestropicalcyclones fromfreezingweather.Namely,landfallofamajortropicalcyclonecancausetemporary demandlossaswellassupplyinterruption.Themostconspicuousexampleisfrom HurricaneIkewhichmadelandfallatHoustononSep13,2008(Figure33).CenterPoint Energyrequired18daystofullyrestorepowertocustomerswhereaspipelinedisruptions werecorrectedwithin10dayssogassupplycamebackbeforepowerformanyusers. MajorindustrialimpactsatHoustonShipChannelimpliedthatwithoutelectricpower,the abilitytousegaswasimpactedandgasdemandduringtheeventwasreduced.
55
Figure33.TemporarygasdemanddestructioncausedbyHurricaneIkein2008.Data fromEnergyInformationAdministration.
6.3.2.FundamentalAnalysis DescriptionofScenarios
Thefundamentalanalysisoftheriskofdisruptionofnaturalgassupplytoelectric generatorswithinERCOTsserviceregioncausedbytropicalcyclonesexaminedtheimpact ofproductionshutinsintheGulfofMexicodrivenbytropicalcyclones.Thelevelof productionshutinthatwasexaminedwasbasedupontheprobabilisticanalysisofthelevel ofproductionlossesexperiencedhistoricallyduetotropicalcyclones.Asnotedinthe probabilisticanalysis,fortheanalysisperiodof19812011,therewereatotalof111 tropicalcycloneswith25makinglandfallinTexas.Figure34showsthegasshutinrisk assessmentoftheimpactoftropicalcyclonesonGOMoffshoreproduction.Forexample,in anygivenyear,atsometimeduringthetropicalcycloneseason,thereisa45%chanceof losing10%ofGOMgasproductionandapproximatelya5%chanceoflosingroughly50%of GOMgasproduction.Basedonhistoricaldata,thehighestlevelofexpectedlosswouldbeat about80%ofGOMproductionbutwithalikelihoodofonlyabout0.1%.
56
Figure34.GulfofMexicoGasProductionAffectedbyTropicalCyclones.
ThestudyexaminedthreescenariosofGOMoffshoreproductionshutinscorrespondingto the90th,95thand99thpercentileoftheeventriskanalysisshown,respectivelycurtailing 34%,46%andasmuchas68%oftheGOMoffshoreproduction.Thefundamentalanalysis examinedthemarketreponsetothelossofthislevelofsupplyandimplicationsforTexas consumers.Figure35showstheoffshoreproductiondisruptiondrivenbyshutinsdueto tropicalcyclones.
57
GOMandStateWaterOffshoreProductionAcrossCycloneProductionDisruptionScenarios
BaseCase CycloneProductionDisruption (P90) CycloneProductionDisruption (P95) CycloneProductionDisruption (P99)
6.00
5.00
4.00
Bcf/d
3.00
2.00
1.00
0.00 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Figure35.LossofGasProductionAnticipatedforTropicalCycloneastheCausalEvents.
Itshouldbenotedthattheimpactofonshorefloodingisnotconsideredinthisanalysis. Onshorefloodingduetoexcessiverainfallwhentropicalcyclonesmakelandfallmay decreaseavailablegassupplyifnaturalgasprocessingfacilitiesareimpactedbyflooding andthereforeunavailabletoproducepipelinequalitygas.Onshorefloodingcanalsohave theimpactofdecreasingdemand,especiallyintheindustrialsectorattheHoustonShip Channel.
RiskAssessment
Theprimaryresultofthefundamentalanalysisisthatthereisminimaldisruptionofgas supplywithinTexasbecausemuchofTexasdemandisservedbylocalonshoreproduction. Offshoreproductionisonlybetween2%4%ofthetotalproductioninTexasandlossofthis volumeofnaturalgasdoesnotconstrainaccesstosupplyforTexasconsumers.The scenariosoftropicalcyclonesexaminedinthefundamentalmodelshowedsuficiencyof bothpipelineinfrastructureaswellasnaturalgassupplytofullymeetthedemandsofall consumersincludingelectricgeneratorswithinTexas.
58
Appendices
APPENDIXADATASOURCES
FigureA1summarizestheoverallprocessofcollectingandsortinginformationaboutgas curtailmentsaffectingERCOT.Detailsofeachdatasourcearedescribedinthefollowing paragraphs.Asshownintheprocessflow,theresearchbeganbroadlytoassurethat informationrelevanttoERCOTwascapturedfromawidevarietyoflikelysources.The filteringprocesspaidattentiontowhetheranincidentreportstatedunambiguouslythatgas curtailmentwasinvolvedandwhetheraspecificcausewascitedforthecurtailment. IncidentreportswhichlandedinthefilteredbinlabeledasYeswereretainedfor subsequentanalyseswhereasthoselandinginthefilteredbinlabeledasMaybewere excludedfromtheriskanalyses.WithintheYesbin,causesofcurtailmentsweretallied accordingtothecausesstatedintheincidentreportsor,ifnocausewasexplicitlystated,by inferencebasedon(a)crosscheckingindependentweatherreportsforpossibleweather causes,and(b)comparisonwithdocumentedcausesinotherincidentreportsfromclosely relateddatesandplaces.
FigureA36:Processusedtocollectandsortinformationaboutgascurtailments.
BLACK&VEATCH|Appendices
59
ERCOT.ThreesourcesofinformationfromERCOTwereused.First,Operatorlogs providedbyERCOT,fortheyears20022011,werereviewedwithspecialattentiontothe "Comments"fieldtodeterminetheroleofgascurtailmentineachlogentry.Black&Veatch eliminated(fromthepoolofincidentstobeanalyzed)logentrieswheregascurtailment waslocallyisolated(forexample,failedgasvalvesatpowerplant)orwhereaforecasted gascurtailmentlaterwascanceled.Forlogentriesnoteliminatedbythosecriteria,incident reportsweretranslatedintoeventsbycombininglogentriesforsuccessivedateswhere commentsindicatedacontinuousstringofgascurtaileddaysrelatedtoacommoncausal episode. Second,informationwasgatheredfromresponsestodatarequestsreturnedbyERCOT PowerGenerationEntitiesinOctober35,2011.Attentionwasfocusedononthe "Curtailment"sectionofeachresponsetodeterminewhetheraspecificcausewascitedor whethercontextallowedaninferenceofcause.Mostattributionsofcauseswerebriefand usuallylackinginspecifics.ExamplesincludedFuelsupplyproblemsofLackoffuel. Third,ERCOTMonthlyOperationsReports(EMORs),forJanuary2004toJuly2007,were reviewedwithfocusedattentionongasrelatedcomments.Isolatedreportsofgas curtailmentswerementionedinthereportsandnotedinthedatabase. NERC.NERCSystemDisturbanceReports,fortheyears19922009,werereviewedfor informationaboutelectricgenerationcurtailmenteventsintheUSA.Duringreview,the focusofattentionwasonoutagesatgasfiredgenerators. NETL.NETLElectricDisturbanceEvents(OE417Reports),fortheyears20002011,were reviewedwithfocusedattentiononanyincidentsinERCOT,includingbutnotlimitedtogas curtailments.Therecordsalsoweresearchedspecificallyforincidentsinvolvinggas curtailments(eitherERCOTorotherregions). NOAA.Allweatherdatausedinthisstudywereacquireddirectlyfromagencieswithinthe USNationalOceanicandAtmosphericAdministration(NOAA),includingtheNational ClimaticDataCenter(NCDC),NationalHurricaneCenter(NHC)andStormPredictionCenter (SPC)whicharerecognizedasthekeepersoftheirrespectivedatatypesforofficialUS records.SPCdatawereusedtocrosscheckoutagereportswhichreferencedsevere weatherasthecauseofsomepowersystemoutages.NHCdata(qualitycontrolledHURDAT format)wereusedtoconstructeventfrequenciesfortropicalcyclones(hurricanes,tropical stormsandtropicaldepressions)whichaffectnaturalgasproductionfromtheGulfof Mexicoaswellascoastalfloodingthreatstoenergyinfrastructures.NCDCdatafor1981 2011werekeytoderivingprobabilitiesforextremefreezingeventsinTexas(including relationshipsbetweenwindspeedandtemperature)aswellasingasdemandcenters outsideofTexas,includingtheMidwest(representedbyChicagoIL)andtheAtlanticCoast (representedbyNewYorkNY,WashingtonDCandAtlantaGA).Qualitycontrolleddata includedRCOandQCLCDdataformatsmaintainedbyNCDC.Alltemperatureswere analyzedindegreesFahrenheit(F)andallheatingdegreedays(HDDs)werecalculatedto thenearest0.5unitforareferencetemperatureof65F.Windsspeedswereanalyzedin milesperhourandprecipitationinliquidequivalentinches.
60
PHMSA.USDepartmentofTransportation(DOT)PipelineandHazardousMaterialSafety Administration(PHMSA)Data&Statisticswerereviewedwithfocusongaspipelines. TRRC.TheRailroadCommissionofTexas,inresponsetoadatarequestfacilitatedby ERCOT,provided(Oct2011)abriefsummaryofgascurtailmenteventsrecognizedbythe TRRC.
61
APPENDIXBWEATHERANALYSIS
SubFreezingTemperaturesandHeatingDegreeDays(HDDs).Thefollowingcharts summarizethetabularformsofPDFsderivedforwinterweatherinERCOTandfordemand centersoutsideofTexas:
62
63
CombinedEffectsofSubFreezingTemperaturesandStrongWinds.Thefollowingcharts summarizeanalysisoftheERCOTNorthCentralWeatherZonewithregardtostrongwinds duringextremefreezingevents:
TheFebruary2011curtailmenteventinERCOTwasunusualwithregardtooccurrenceof highwindsatthesametimeasextremelowtemperatures.Indeed,theFebruary2011data canberegardedasoutliers24fromthelargertrendwhichshowsdecliningwindscorrelated withdecliningwinterlowtemperatures.IfFeb2011dataareomitted,thereisnostatistical caseforwindsbecomingstrongerastemperaturefallsindeedtheoppositetrendprevails. EveniftheFebruary2011winddataareincludedasaworstcasescenario,theconvolved freezewindPDFimpliesalevelofwindchillriskwhichisnomoreimportantthantherisk ofsubfreezingphysicaltemperaturesintherangeof2530F.
64
65
TropicalCyclones. NHCrecordswereanalyzedtocompiletropicalcycloneoccurrencesintheGulfofMexico (GOM)duringtheyearsof19812011.Thosedatawereusedintheprobabilisticrisk analysesasdescribedin5.1SummaryofApproach.Focuswaslimitedtocorrelationof tropicalcyclonesactivitywithshutinofGOMgasproductionasalinktounderstandinggas supplycurtailments.Coastalflooding,anditspossibleimpactsononshoregasprocessing facilities,wasconsideredinitiallybutexcludedfromquantitativeanalysis.Nonetheless, datawerecompiledforfloodingeventsinHoustonandCorpusChristitodocumentthe frequencyofoccurrenceoffloodingasaprospectivecausalevent.Inbothcharts,alldata barswhichstandtallerthantheexcessiverainfallthreshold(horizontaldashedline) representfloodevents.ThefollowingchartsshowtimelinesforfloodingeventsatHouston andCorpusChristi,respectively.Duringthe20022011periodcoveredbytheERCOT OperatorLogs,therewereatleast8potentialfloodingeventsatHoustonand7atCorpus ChristialthoughtheLogsdidnotidentifyfloodingascontributingtoagascurtailment.
66
67
APPENDIXCSTATISTICALDETAILS
Riskfrequencieswereapproachedfortwodifferentframeworks: EventRisk.Theprobabilitythatagivencausativeagentwilloccurwithinanygiven winter(freezingweather),hurricaneseason(tropicalcyclones)oryear(pipeline outages). PowerOutageRisk.Theprobabilitythatagivenlevelofloss(MWorpercentageof totalgenerationportfolio)willoccurforERCOTpowergenerationwithinanygiven winter,hurricaneseasonoryearinresponsetocausativeevents.
EventRiskforfreezingweatherorfortropicalcyclonescanbedoneindependentlythrough statisticalanalysisofhistoricalweatherdata.Becausetheweatherdatasetsfor19812011 arecontinuousandcomplete,thederivedstatisticscanbeconsideredrobustand confidenceintheirapplicationtoriskpredictionisconsideredstrong.Thesituationfor pipelinerisksismuchlessassuredbecausedetailedrecordsforgascurtailments attributabletopipelineproblemsareneithercompletenorcontinuous.Soforpipeline events,predictedfrequenciesofeventriskwillnecessarilycarrylargeruncertainties. PowerOutageRiskdependscruciallyoninformationabouthowcausativeagentsimpact powergeneration.Specifically,eacheventmustbedocumentedwithregardtohowmuch gasflow(MMBtu/d)orpowergeneration(MW)waslostintheevent.Asfoundinthe currentstudy,meaningfulanalysesofPowerOutageRiskarelimitedbyrelativelyfewand incompleterecordsfortheamountsofgasorpowerlostinanyindividualevent.Because powerlossreportsweremorenumerousthangaslossreports(Table3),directanalysisof eventfrequencywaspossibleintermsofpowerloss(MW)forfreezingweatherevents.For pipelineoutages,anearlydirectanalysiswaspossibleexceptthat,becausemostimpactdata werereportedasgaslosses(MMBtu/d),anadditionalstepwasnecessarytoconvertgas lossestopowerlosses(MW)basedoncharacteristicofERCOTgasfiredgenerators.For tropicalcyclones,PowerOutageRiskwasapproachedindirectlyinathreestepprocess:(1) DeterminefrequencyoftropicalcycloneeventsthatcurtailGulfofMexico(GOM)gas production;(2)DeterminetheproportionofERCOTgasneedsrepresentedbythelostGOM production;(3)Translatethegaslossintoequivalentlossofgasfiredpowergeneration. Clearly,PowerOutageRiskshouldbethemetricofmostobviousinteresttoERCOT althoughEventRiskalsoisusefulinunderstandingtherelativethreatsposedbydifferent causativeagents.EventRisksbecomeespeciallyimportantinappreciatingtheimpactsof freezingweatherwhensucheventsoccurbothinTexasaswellasinothergasdemand regions. Thefollowingfigureillustratestheeffectsofsamplesizeontherobustnessofstatistics derivedbyfittingdistributionfunctionstorealdata.Inthelefthandchart(LoTatDallas Ft.Worth),wheretheanalysisissupportedby2,766datapoints,thespreadaroundthe mode(mostlikely)valueis28%.Intherighthandchart(MWofgasfiredgeneration curtailedduringfreezingweatherevents)thesamemeasureofspreadis124%wherethe analysisrestsononly32datapoints.
68
LoTRelativeModalSpread=(StdDev/Mode)=10.1/36.5=27.7% MWRelativeModalSpread=943.7/758,2=124.5%
Theimportantmessageisthateventdatasetswithonlyafewmembers(examples)carry largerdegreesofuncertaintyintheanalyticalresults.Attemptstofurtherdifferentiate (subdivide)smalldatasetsinsearchofsubscenariosinevitablyinflatetheuncertainties relativetoanalysisofundifferentiateddatasetsforagivencurtailmentcause. Asafurtherexampleofstatisticalsensitivitiesrelatedtosamplesize,thefollowingfigure showstheeffectofdifferentPDFfunctionswhenappliedtothesamesmalldataset.The choiceofPDFisassociatedwithadifferenceofabout4%inthekeyattributesofmode, modalspreadand90thpercentilevalues.Inthecurrentstudy,suchvariationsamongthe topthreePDFsforeachdataset(asjudgedfromAndersonDarlinggoodnessoffit)were usedtoestimateerrorsintheresultsderivedfromprobabilisticanalyses.
69
70
APPENDIXDTEXASRAILROADCOMMISSIONCURTAILMENTPLAN
OILANDGASDOCKETGASUTILITIESDIVISION NO.2062,505DOCKETNO.48936 ORDER RELATINGTOTHEAPPROVALBYTHECOMMISSIONOFCURTAILMENTPROGRAMSFOR NATURALGASTRANSPORTEDANDSOLDWITHINTHESTATEOFTEXAS AfterduenoticetheRailroadCommissionofTexasonthe30thdayofNovember,1972, heardtestimonyandrequestedwrittencurtailmentprioritiesfromrepresentativesof investorownedandmunicipalgasutilitiescompanies,privateindustryconsumersand othersresponsiblefordirectingavailablenaturalgassuppliestotheconsumersofnatural gasintheStateofTexas. WHEREAS,pursuanttotheauthoritygrantedtotheRailroadCommissionofTexasinArticle 6050to6066,inclusive,R.C.S.,asamended;and WHEREAS,theCommissionhasdeterminedtheneedforacurtailmentprogramtoassure effectivecontroloftheflowofnaturalgastotheproperdestinationstoavoidsufferingand hardshipofdomesticconsumers;and WHEREAS,theCommissionhasdeterminedaneedtomakenaturalgasavailabletoallgas consumersonareasonablebutlimitedbasisduringtimesofneededcurtailmenttotheend thatthepublicwillbebestserved;and WHEREAS,theCommissionhasdeterminedthatthetransportationdeliveryand/orsaleof naturalgasintheStateofTexasforanypurposeotherthanhumanneedconsumptionwill becurtailedtowhateverextentandforwhateverperiodstheCommissionmayfind necessaryfortheprimarybenefitofhumanneedscustomers(domesticandcommercial consumption)andsuchsmallindustriesascannotpracticallybecurtailedwithoutcurtailing humanneeds. ITISTHEREFORE,ORDEREDBYTHERAILROADCOMMISSIONOFTEXASthatthefollowing rulesrelatingtotheapprovalbytheCommissionofcurtailmentprogramsforgas transportedandsoldwithintheStateofTexasshallapplytoallpartiesresponsiblefor directingavailableandfuturenaturalgassuppliestotheconsumersofnaturalgasinthe StateofTexas. RULE1. Everynaturalgasutility,asthattermisdefinedinArticle6050,R.C.S.ofTexas,asamended, intrastateoperationsonly,shallfilewiththeRailroadCommissiononorbeforeFeb.12, 1973,itscurtailmentprogram.TheCommissionmayapprovetheprogramwithouta hearing;setthematterforapublichearingonitsownmotionoronthemotionofany affectedcustomerofsaidutility. Thecurtailmentprogramtobefiledshallinclude,inverifiedform,thefollowing information: A.Volumeofgasreservesattachedtoitssystemtogetherwithabriefdescriptionofeach separatesourceofgasreservessettingforththefollowing: 1.thenameofthesupplier, 2.thetermofeachcontractinyears,andtheyearsremainingonsaidcontract, 3.thevolumeofrecoverablereservecontractedfor,and 4.rateddeliverabilityofsuchreservesinMCF.
TRRC Gas Curtailment Plan of 1973. Oil and Gas Docket, Gas Utilities Division, No. 20-62, 505, Docket No. 489, January 5, 1973. http://www.rrc.state.tx.us/meetings/dockets/docket489.php. Incorporated into Texas Administrative Code, Title 16, Part 1, Chapter 7, Subchapter C, Rule 7.305.
36
71
B.Capacityandlocationofundergroundstorage,ifany,attachedtoitssystemwitha statementofwhetherthecompany'sstoragebalanceisaboveorbelowitsdesiredlevelfor thistime,and,ifbelow,whatplanshasthecompanymadetorestorethebalance. C.Peakdayandaveragedailydeliverabilityonanannualbasisofitswells,gasplantsand undergroundstorageattachedtoitssystem. D.Peakdaycapacityofitssystem. E.Forecastofadditionstoreservesforeachofthenexttwosucceedingyears. F.Locationandsizeofthelinepipes,compressorstations,operatingmaximumline pressures,andamapshowingdeliverypointsalongthesystem. G.Dispositionofallgasenteringitssystem,withnamesofallcustomersotherthan residentialcustomersandvolumesdeliveredtoeachduringthepastcalendaryear.Identify thosecustomersusing3,000MCFgasperday,ormore,whichareunderaservicecontract, andifsuchcontractincludesan"InterruptibleService"clause,andifso,attachareproduced copyoftherelevantprovisionsofsuchcontract. H.Stepstakeninpastyears,beingtakenatthepresent,andtobetakentoalleviate curtailments. RULE2. UntilsuchtimeastheCommissionhasspecificallyapprovedautilitiescurtailmentprogram, thefollowingprioritiesindescendingordershallbeobserved: A.Deliveriesforresidences,hospitals,schools,churchesandotherhumanneedscustomers. B.Deliveriesofgastosmallindustrialsandregularcommercialloads(definedasthose customersusinglessthan3,000MCFperday)anddeliveryofgasforuseaspilotlightsorin accessoryorauxiliaryequipmentessentialtoavoidseriousdamagetoindustrialplants. C.Largeusersofgasforfuelorasarawmaterialwhereanalternatecannotbeusedand operationandplantproductionwouldbecurtailedorshutdowncompletelywhengasis curtailed. D.Largeusersofgasforboilerfuelorotherfueluserswherealternatefuelscanbeused. Thiscategoryisnottobedeterminedbywhetherornotauserhasactuallyinstalled alternatefuelfacilities,butwhetherornotanalternatefuel"could"beused. E.InterruptiblesalesmadesubjecttointerruptionorcurtailmentatSeller'ssolediscretion undercontractsortariffswhichprovideineffectforthesaleofsuchgasasSellermaybe agreeabletosellingandBuyermaybeagreeabletobuyingfromtimetotime. RULE3. EachgasutilitythathasobtainedCommissionapprovalofacurtailmentprogramshall conductoperationsincompliancewithsuchprogram. SolongasanygasutilitywhichhasobtainedCommissionapprovalofacurtailment programcontinuestocurtaildeliveriestoitscustomers,exceptasprovidedbycontractor thosecustomersincludedinPartEofRule2above,it(a)shallfileonorbeforeApril1of eachyear,underoath,theinformationcalledforinRule1,forthepreceedingyear,and(b) shallnot,withoutCommissionapproval,makesalesofgastoanynewcustomersor increasevolumessoldtoexistingcustomers,exceptthoseneworexistingcustomers definedinPartsA&BofRule2above. ITISFURTHERORDEREDthatthiscausebeheldopenforsuchotherandfurtherordersas maybedeemednecessary. ENTEREDATAUSTIN,TEXAS,this5thdayofJanuary,1973.
BLACK&VEATCH|Appendices 72
APPENDIXELIQUIDITYINTEXASNATURALGASMARKET
Naturalgasfiredelectricgeneratorshaveexposuretoriskarisingfromlackofliquidityin thenaturalgasmarkets.Naturalgassupplycontractsenteredintobygasfiredelectric generatorsthatrelyuponshorttermandflexibleobligationshaveagreaterexposureto changesinmarketliquidity.Thisliquidityriskcanbeespeciallyexacerbatedduringtimes ofstressforthenaturalgasmarketssuchassevereweatherorinfrastructuredisruptions. Electricgeneratorsthatrelyuponlongertermfirmsupplytransactionshaveexposureto liquidityriskwhensupplydisruptionsoccurbutoverallthelikelihoodfordisruptionand exposuretoliquidityriskisgenerallylowerfortermsupplyagreementswhencomparedto spotsupplyagreements.Anylimitationsintheliquidityofthenaturalgasmarketcould posetheriskofgassupplycurtailmenttoelectricgeneratorsinitsregionregardlessof contractterm.ThissectionexaminestheliquidityofthenaturalgasmarketinTexasto betterunderstandtherisksofgassupplycurtailmenttoelectricgeneratorswithinERCOTs serviceregion. Texasisthelargestproducerandconsumerofnaturalgasandalsohasthedistinctionof havingthemostnumberofmilesofnaturalgaspipelinesintheU.S.Asaresult,Texas enjoysaveryrobustnaturalgasmarketwithmultipleparticipantsandwelldeveloped infrastructurethatincludesnaturalgasproductionfacilities,naturalgasprocessing facilities,interstateandintrastatenaturalgaspipelinesandnaturalgasstoragefacilities. ThestudyexaminestheliquiditywithinTexasbylookingatthefollowingindicatorswithin thenaturalgasmarket: Regulatoryframeworkforpipelines StandardizationofbilateraltransactionsviaNAESBcontracts Evolutiontotheuseofshorttermgassupplycontracts FERCpricereportingrequirements OverviewofTexaspricinglocationsandmarketliquidity Recenthistoryofdailyspotmarketliquidityduringuniqueevents A.NaturalGasPipelineRegulatoryFramework NaturalgasmarkettransportationinTexasiseitherregulatedbytheFederalEnergy RegulatoryCommission(FERC),forpipelinesinvolvedininterstatecommerce,orthe RailroadCommissionofTexas(TRRC),forpipelinesservingintrastatemarkets.These regulatorybodiescreateaframeworkofopenaccesstotransportationcapacitywithinthe Texasmarket.Eachregulatespipelinetransportationcapacityusingdifferentstructures, withtheFERCbeingviewedbyindustryasenforcingmoredetailedopenaccessandtariff regulations.Theextensivepipelinenetworkandassociatedregulatoryoversightcreates thefoundationwithinTexasfortransparentandliquidnaturalgasmarkets. InterstateRegulation TheFERCregulatesallservicesprovidedbyinterstatepipelinesthroughthe implementationoftheNaturalGasActof1938andNaturalGasPolicyActof1978.FERC A. B. C. D. E. F.
73
requiresthatinterstatepipelinesprovidenondiscriminatoryopenaccesstopipeline services.Thesetermsofconditionsforthepipelineservicesmustbedelineatedinthe pipelinesFERCGasTarifforStatementofOperatingConditions(SOC).Anaturalgas pipelinemustconsistentlyimplementitstariffincompliancewiththeregulations.The purposeofthissectionistoreviewthekeycomponentsofthetariffandSOC. ThelargeFERCregulatedpipelinesservingERCOTpowergeneratorsincludeTexasEastern Transmission,CenterPointEnergy,ElPasoNaturalGas,NaturalGasPipelineCompanyof America,TennesseeGasPipeline,andTranscontinentalPipeline. TheFERCsopenaccessrequirementsservetoenhanceshippersaccesstophysicalpipeline capacity.Primarily,apipelinemustprovideserviceonanotundulydiscriminatorybasisto anyprospectiveshipperwillingtopaythemaximumratespecifiedinapipelinestariff. Furthermore,pipelinesofferingfirmservicearerequiredbytheFERCtoalsooffer interruptibleservice,whichisofparticularsignificancetopowergeneratorsthatrequire accesstointermittentgassupplieswhenservingpeakdaydemand. Inadditiontoprovidingshippersopenaccesstointerstatepipelines,FERCregulationsalso providetransparencywithintheinterstatepipelinemarket.FERCregulationsensurethat shippersarefullyawareofthetransportationservicesofferedbyinterstatepipelines becauseaninterstatepipelinemayonlyprovidetheserviceswhichareapprovedbythe FERCandwhicharepartofitstariff.Furthermore,servicesofferedoninterstatepipeline tariffsmustincorporateNorthAmericanEnergyStandardsBoard(NAESB)standards helpingtofacilitateuniformityoftermsandservices. TheFERChaspromulgatedvarioussignificantorderswhichhaveproducedthepipeline servicesthatexisttoday.ThroughOrder436,Order636,andOrder637,theFERC fundamentallychangedtheservicesthatpipelinesprovidetocustomers.Theprinciples establishedinthesekeyOrderscontinuetobereflectedintheFERCsorderstodayasthey applytothenaturalgasindustry. Order436.WiththeissuanceofOrder436,FERCmandatedopenaccess, nondiscriminatorytransportation,i.e.,thatpipelinesmusttransportgasonafirstcome, firstservedbasisforanylocaldistributioncompanyorshipperrequestingservice,tothe extentthatcapacityisavailable.Theimplementationofthisorderpermittedgasusersto buygasdirectlyfromgasproducersandmarketersandtotransportthegasonaninterstate pipeline.Pipelineswererequiredtodesignratesthatrationedcapacityduringpeakperiods andmaximizedthroughputduringoffpeakperiods. Order636.Inthisorder,FERCrequiredpipelinestounbundleorseparatesalesand transportationservicesatupstreampointsonthepipelinesystemsasneartoproductionas possible.Pipelineswererequiredtooffervarioustransportationservicessuchas nonoticeservice,unbundledstorageserviceandinterruptibletransportationservice. PipelinesweredirectedtodesignratesontheStraightFixedVariablemethod37.
Under straight fixed variable rate design, all fixed costs associated with transportation service (including return on equity, taxes, and depreciation) are recovered through fixed reservation charges.
37
74
Significantly,FERCmodifiedtheexistingcapacitybrokeringprograms,insteadcreatinga capacityreleasemodelwherepartiesthatheldexcesstransportationcapacitycould releasethiscapacitytootherpartiesinterestedinacquiringit.Theorderalsoaddressed theappropriateallocationofpipelinecapacity. Order637.Order637revisednumerousservicefeaturesbypermittingtermdifferentiated rates;temporarilywavingthepriceceilingonshorttermreleasedcapacity;revised regulationsaddressingnominationsscheduling,capacitysegmentation,penaltychargesand rightoffirstrefusal. IntrastateRegulation TheTRRCistheprimaryregulatorofintrastatenaturalgaspipelines.TheTRRCischarged withimplementingandenforcingStandardsofConduct.Themandatetoensurereliability ofservicewasfirstintroducedwiththeCoxActof1920whichprohibiteddiscriminating againstshippersinservicesorcharges.TheTRRCdefinesthestandardsofconduct governingtheprovisionofgastransportationservicesinordertopreventdiscrimination. Asbackground,thelargerTRCCregulatedpipelinesservingERCOTpowergenerators includeAtmosEnergyCorporation,EnterpriseProductsPartners,L.P.,KinderMorgan EnergyPartners,L.P.andEnergyTransferPartners,L.P.: TheTRRCrulesprovidethatanytransporterthatprovidestransportationservicesforany shippershall: Applyanytarifforcontractprovisionfortransportationserviceswhichprovidesfor discretionintheapplicationoftheprovisioninasimilarmannertosimilarly situatedshippers; Enforceanytarifforcontractprovisionfortransportationservicesifthereisno discretionstatedinthetarifforcontractintheapplicationoftheprovisionina similarmannerorsimilarlysituatedshippers Notgiveanyshipperpreferenceintheprovisionoftransportationservicesoverany othersimilarlysituatedshippers; Processrequestsfortransportationservicesfromanyshipperinasimilarmanner andwithinasimilarperiodoftimeasitdoesforanyothersimilarlysituated shipper;andmaintainitsbooksofaccountinsuchafashionthattransportation servicesprovidedtoanaffiliatecanbeidentifiedandsegregated
TheTRRCderivesitsauthoritytoregulatethegatheringandtransportationofnaturalgas byintrastateentitiesfromthreeprimarystatutes:TheCoxActof1920,theCommon PurchaserActof1930,andtheGasUtilityRegulatoryActof1983. TheCoxAct.TheCoxActof1920resultedfromtheinabilityofNorthTexascitiestosecure adequate gas supplies during the winters of 1919 and 1920. The Act applies to any gas utilitywhichisdefinedasany"personwhoowns,manages,operates,leases,orcontrolsin thisstatepropertyorequipmentorapipeline,plant,facility,franchise,license,orpermitfor
75
a business". Under the Cox Act the TRRC is authorized to regulate rates for sale and transport of gas and to set rules for control and supervision of pipelines. Gas Utilities, as defined by the Cox Act are prohibited from engaging in discrimination in services and charges.Specifically: Apipelinegasutilitymaynotdiscriminateinfavoroforagainstanypersonorplace in:apportioningthesupplyofnaturalgas;orchargingfornaturalgas;or directly or indirectly charge, demand, collect, or receive from anyone a greater or lesser compensation for a service provided than the compensation charged, demanded,orreceivedfromanotherforasimilarandcontemporaneousservice. Common Purchaser Act. The Common Purchaser Act was passed in reaction to huge discoveries of oil in East Texas in 1930, plummeting prices, control of pipelines by big producersandcivilunrestandmartiallaw.TheactdefinesCommonPurchasersas: "everyperson,gaspipelinecompany,orgaspurchaserthatclaimsorexercises the right to carry or transport natural gas by pipeline or pipelines for hire, compensation, or otherwise within the limits of this state or that engages in the business of purchasing or taking natural gas, residue gas, or casinghead gas." TheTRRCexercisesauthorityundertheActandisauthorizedtoenforcecomplianceand makerules"necessarytopreventdiscrimination,orderpipelineextensionsandratable purchasesthatwillpreventdiscriminationandissueshowcauseorderstocommon purchasers. GasUtilityRegulatoryAct.OriginallyenactedaspartofthePublicUtilityRegulatoryActit wasseparatedin1983.ThisActdefinesaGasUtilityasapersonthatownsoroperatesfor compensationinTexasfacilitiestotransmitordistributenaturalgasforsaleorresaleina mannernotregulatedbytheFERC.TheActprovidesthatgasutilitiesmaynotestablishor maintain "an unreasonable difference" concerning rates or services between places or customerclasses".Italsoprovidesthatgasutilitiesmaynot"engageinapracticethattends torestrictorimpair"competition. OilandGasDocketGasUtilitiesDivisionNo.2062,505DocketNo.489.In1972the TRRCcreatedregulationsthatrequireacurtailmentplanfornaturalgasutilitieswitha definedsequenceforgasdeliverycurtailments.Naturalgaspipelinescantheoreticallyfall outsidetheseregulationsiftheyarenotclassifiedasautility.Asapracticalmattermost pipelinesareclassifiedasutilitiesandmustadheretotheseregulationsandcurtailment programs. Rule1oftheregulationsrequiresthateverynaturalgasutility,asthattermisdefinedin Article6050,R.C.S.ofTexas,asamended,intrastateoperationsonly,willfilewiththeTRRC itscurtailmentprogramthatissubjecttoreviewandapprovalbytheTRRC. Rule2oftheregulationsdefinethefollowingprioritiesofserviceandcurtailmentorder. Thefollowingisalistingofprioritiesindescendingorder:
76
A. Deliveriesforresidences,hospitals,schools,churchesandotherhumanneeds customers. B. Deliveriesofgastosmallindustrialsandregularcommercialloads(definedasthose customersusinglessthan3,000MCFperday)anddeliveryofgasforuseaspilotlights orinaccessoryorauxiliaryequipmentessentialtoavoidseriousdamagetoindustrial plants. C. Largeusersofgasforfuelorasarawmaterialwhereanalternatecannotbeusedand operationandplantproductionwouldbecurtailedorshutdowncompletelywhengas iscurtailed. D. Largeusersofgasforboilerfuelorotherfueluserswherealternatefuelscanbeused. Thiscategoryisnottobedeterminedbywhetherornotauserhasactuallyinstalled alternatefuelfacilities,butwhetherornotanalternatefuel"could"beused. E. InterruptiblesalesmadesubjecttointerruptionorcurtailmentatSeller'ssole discretionundercontractsortariffswhichprovideineffectforthesaleofsuchgasas SellermaybeagreeabletosellingandBuyermaybeagreeabletobuyingfromtimeto time. Asdiscussedabove,incrementalregulatorydevelopmentsoverthecourseofmanydecades havecontributedtoaregulatoryregimethatprovidesoversightandfacilitatesopenaccess andconsistentpracticesinacquiringtransportationcapacityonnaturalgaspipelines operatingwithinTexas.Electricgenerators(andotherconsumersofnaturalgas)benefit fromthemechanismsthatareinplacetofacilitatetheefficientfunctioningofthenatural gastransportationcapacitymarketwithinTexas. B.StandardizationofBilateralTransactionsviaNAESB TheNAESBisagroupcomprisedofenergyindustryparticipantsthataimstodevelopbest businesspracticesforthenaturalgasandelectricmarkets.Originallyfoundedin1994as theGasIndustryStandardsBoard(GISB),theorganizationexpandedinJanuary2002to cover,inadditiontotheretailnaturalgasmarket,issuespertainingtowholesalenatural gas,wholesaleelectric,andretailelectricmarkets.NAESBstandardsarewidelyrecognized bygovernmentagencies,astheorganizationhaspublicprivatepartnershipswiththeFERC, DepartmentofEnergy,DepartmentofTransportation,statecommissions,theMexican governmentregulatoryagencytheComisionReguladoradeEnergia(CRE),andthe CanadianregulatoryagencytheNationalEnergyBoard.Someregulatoryagencieshave chosentoadoptNAESBstandards.Forexample,theFERCrequiresnaturalgaspipelines underitsjurisdictiontoincorporatewholesaleNAESBstandardsintotheirtariffs. TheNAESBhasbeenhighlyinfluentialbystandardizingacontractforwholesalenaturalgas transactions.Thisstandardizedcontracthasservedtofacilitatethesaleandpurchaseof naturalgasinatransparentandefficientmanner,whichthereforeenhancesmarket liquidity.NAESBwholesalenaturalgascontractsfollowafourpartstructure:(1)thebase contract,(2)generaltermsandconditions,(3)atransactionconfirmation,and(4)aspecial provisionsaddendum.Thegeneraltermsandconditionsofeachcontractallowfor continualbilateralagreementstobereached,whilespecialprovisionscanbemadefor individualagreementsasnecessary.
77
TheNAESBBaseContractforSaleandPurchaseofNaturalGashasmateriallycontributedto theeaseofsaleandpurchasetransactionsinthenaturalgasindustry.UsingtheNAESB contractasablanketcontractallowscounterpartiestoenterintotransactionswitheach otherwithshortnoticewithoutthedelaysassociatedwithnegotiatinglegalandcommercial termsonabilateralbasisforeachtransaction. UseofaNAESBagreementisnotrequiredbynaturalgasmarketparticipantsand, specifically,electricgenerators.HowevertheuseofaNAESBagreementdoesallowelectric generatorstocreatearobustgroupofgassupplierstoacquirenaturalgasfuelfromona shortandlongtermbasis.WhiletheNAESBcontractdoesnotcreateoreliminateliquidity, itdoesfacilitatetheabilitytoquicklytransactwithmultiplecounterpartiesonabilateral andexchangebasistomeetsupplyneedsduringuniquemarketevents. C. EvolutiontotheUseofShortTermGasSupplyContracts Thenaturalgasmarkethasevolvedfromoneofregulatedsupplyandpricestoa deregulatedmarketforpricesandamuchmorerobust,andmarketsensitive,marketfor transportationservices.PriortoFERCOrder436,themajorityofgassales/supply agreementsininterstatecommerceweremultiyearcommitmentsbetweenthepipeline andbuyer.Thiswasdue,inpart,tothelackoflocalsupplyalternativesforbuyersandthe requirementsthatgassalesininterstatecommercebesubjecttopriceregulationsunder theNaturalGasAct.Gassales/purchasesinintrastatecommerceinTexasweresubjectto alternativeregulations.HowevercontractingpracticesintheTexasintrastatemarket commonlymirroredthoseininterstatecommerceandtendedtobemultiyearsales/ purchaseagreements. Withthederegulationoftheinterstatemarket,forbothpriceandpipelineopenaccess,the shorttermmarketbegantoemergeasavehicletomanageshorttermfluctuationsin supplyanddemand.Theshorttermmarkethasbeencommonlycalledthespotmarket. Contracttermsforspotsupplytypicallyrangefromonedaytoonemonth.Currentlyprices fornaturalgasaregatheredbyFERCandthirdpartiesandreportedinvariouspublications /reports.Forphysicalgasdelivery,thepricesarecommonlyreportedfordayahead transactionsandmonthlytransactions.Wereviewthemarketreportingrequirementsin moredetailinthefollowingsection. Thereportingactivityhascreatedsubstantialtransparencyandliquidityintheshortterm orspotU.S.naturalgasmarket.Thisinturnhasleadtoanincreasedconfidenceinliquidity andutilizationofthespotmarketforbuyingandsellingnaturalgas.Thisisespecially beneficialforconsumerssuchaselectricgeneratorswhorequireflexibilityinthedaily amountofnaturalgassupplytheysource.Longertermtransactionsstillremainbuttendto bepricedoffofthespotmarketwithminimaldifferentiationinpricingbetweenspot transactionsvs.longerterm(multimonthtomultiyear)transactions.
78
D. UnderstandingFERCsPriceReportingRequirementsforNaturalGasMarket Participants FERChasimplementedaregulatoryframeworktoensurethattransparentmarketprice indicatorsareavailableacrosstheUnitedStates,includingTexas.TheFERCrequiresthat anysellerofnaturalgasthatreportstransactionstoapublisherofnaturalgaspricesfollow minimumstandardsforreportingthoseprices.Theserequirementsareestablishedin FERCRegulation18CFR284.403andthe"PolicyStatementOnNaturalGasAndElectric PriceIndices",issuedonJuly24,2003,inDocketNo.PL033000.Thestatementexplains thatfirmsreportingtransactionstodevelopersofindexpricesarerequiredtoadheretothe followingguidelines: Createaclearcodeofconducttobefollowedbyitsemployeeswhenbuyingor sellingnaturalgasorelectricity.Asimilarcodeofconductistobeupheldwhen reportingthesetransactionstoentitiesthatreportindexprices. Tradedatashouldbereportedanditsaccuracyverifiedbyadepartmentofthe companythatisnotinvolvedintradingoperations. Reportallbilateralandarmslengthtransactionsexecutedinthephysicalmarket betweenallnonaffiliatedfirmsatalltradinglocations.Thisdoesnotinclude transactionsexecutedinfinancialmarkets,suchashedgesorswaps. Retainalldatarelevanttoreportedtradesforathreeyearperiodandhavethe gatheringandsubmissionofthisdataindependentlyauditedatleastonceayear. Theresultsofindependentauditsaretobemadeknowntotheentitytowhichindex pricesarereported.
Theserulesaddressingpricereportingwerespecificallydesignedtopreventmanipulation ofthenaturalgasmarketthroughanypotentialinaccuratepricereportingbehaviorandto ensuregreatertransparencyinnaturalgasprices.Theserulescreatemoreoversight relatedtopricereportingandcontributetogreaterpricetransparencyinthenaturalgas marketduetotherequirementthatmarketparticipants,whichmeetspecificcriteria,are obligatedtoreportfixedpricetransactionstoFERC.Thisinturnfacilitatesthereportingof transactionstoindustrypublicationswhichcanbeanalyzedtounderstandoverallmarket activity,numberoftransactions,andimplicationsformarketliquidity. E.OverviewofTexasPricingLocationsandMarketLiquidity Purchasersandsellersofnaturalgasbenefitfromamarketthathasmultiplebuyersand sellerswhichcreatesatransparentmarket.Buyerandsellerparticipationcanvaryby location,producttype(i.e.termofthetransactionsuchasdailyspotoryearlyterm)and thetypeofservicerequired(i.e.firmorinterruptible).Multipleparticipants,onboththe purchaseandsalesside,createmarketliquiditywhichallowsamoreefficientmeansof pricediscovery.Whenthenumberofmarketparticipantsissmall,liquidityisreduced whichmakesitmoredifficulttobuy/sellthenaturalgasservicesrequired.Thelackof participationcanbeduetomanydifferentreasonssuchasbuy/salelocation,unavailability ofnaturalgasduetosupplydisruptionsortermsthatareoutsidethenorm. TheTexasnaturalgasmarkethashistoricallyenjoyedhighliquiditywithmultiplemarket participants.Texas,thehomeofseveralsupplybasinsandseveralmajordemandareas,
79
containsmorethanadozenpricingpointswherenaturalgasisboughtandsold.FigureE1 showsamapofthesepricingpoints.
ElPaso,PermianBasin Transwestern,PermianBasin WahaHub CarthageHub TexasEastern,EastTexas
NGPL,Texok Katy Transco,Zone1
Houston ShipChannel
TexasEastern,SouthTexas AguaDulce NGPL,SouthTexas Tennessee,Zone0
FigureE37:TexasNaturalGasPricingPoints.
TradedvolumesofnaturalgassoldunderfixedpricearrangementsrecordedbyPlatts38 providesarobustsetofdatapointswhichmaybeusedtoassessthehistoricalliquidityof theTexasmarket. Oneapproachtounderstandthecomparativeliquidityofagivenpricingpointformonthly purchase/saletransactionsisreviewingthethreetiersystemappliedbyPlattssince2004 whichgroupstradingpointsrecordedinitsmonthlysurveybasedontheirmonthlytraded volumesorFirstofMonth(FOM)volumesandthenumberoftrades.Criteriaforthesetier rankingsaresummarizedinFigureE2.
Platts is a division of The McGraw-Hill Companies (NYSE-MHP), a global financial information and education company, whose other brands include Standard & Poors, McGraw-Hill Education, J.D. Power & Associates, Aviation Week, and McGraw-Hill Construction.
38
80
Tier1 Tier2 Tier3
VolumeRequirement(MMBtu/day) RequiredTrades 100,000andgreater 10andgreater 25,000to99,999 5andgreater lessthan25,000 lessthan5
FigureE38:CriteriaforPlattsTierRankingsforNaturalGasPricingPoints.
FigureE3demonstratestheaveragetierassessedforeachofthetradinglocations,for monthlytransactions,withinTexasduringthe20042011timeperiod.Asshowninthis table,mostTexasnaturalgastradinglocationsenjoyTier1or2statuswithonlyafew locationsassessedasbeingTier3.Thetierrankingsformonthlypurchase/sale transactionsprovideaninsightintothemarketliquidityinTexasnaturalgasmarketand theexistenceofmultiplemarketparticipants.

PricingPoints AguaDulceHub CarthageHub ElPaso,Permian HoustonShipChannel Katy NGPL,SouthTexas NGPL,TexokZone Tennessee,Zone0 Transco,Zone1 Transwerstern,Permian TexasEastern,EastTexas TexasEastern,SouthTexas Waha HistoricalTier(Since2004) FOMvolumesnotreported FOMvolumesnotreported 1 1 2 1/2 1 1 2 2/3 2/3 1 1
FigureE39:HistoricalPlattsTierRankingsforTexasPricingPoints
ReviewofdailyspotmarketliquidityforTexaspricinglocations Understandingtransactionactivity,andthereforemarketliquidity,onadailybasisprovides greaterinsightintoamarketsliquidityforshorttermpurchasesandrisksthatabuyerorseller facesinobtainingatransparentmarketprice.FigureE4providesanoverviewofdailytraded volumesofnaturalgasinTexasasreportedbyGasDaily,aPlattspublicationthatisgenerally consideredtheleadingsourceofreportednaturalgaspricedata.Dailytradedvolumesofnatural gasfellacrossNorthAmericainthe20022003timeperiodfollowingtheexodusoftradingand marketingfirmsthatoccurredasaresultofthefalloutofthecollapseofEnron.Subsequently, changeswereenactedbyFERCinpricereportingpractices/requirementsthatimprovedthe transparencyandaccuracyofnaturalgasprices.AsseeninFigureE4,thevolumestradedin Texashaverecoveredandexhibitedrobustvolumesaveragingapproximately4.4Bcf/dinthe 20102011period.Asapointofreference,thetotaldailyconsumptionofnaturalgasinTexasin 2010wasapproximately3Bcf/d.
81
12 HoustonShipChannel ElPaso,Permian Tennessee,Zone0 TexasEastern,EastTexas CarthageHub
y
NGPL,TexokZone NGPL,South Texas Transwestern,Permian AguaDulceHub
Katy Waha Transco,Zone1 TexasEastern,SouthTexas TotalNumberofDeals
25
10
20
15
TradedVolumes(Bcf/d)
10
4
5
2
0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
0
Source:Platts
NumberofDeals(Thousands)
FigureE40:TradedVolumesandDealsofNaturalGasReportedatTexasPricingPoints:MonthlyAverages ofDailyVolumes.
F.RecentHistoryofDailySpotMarketLiquidityDuringUniqueEvents Withanunderstandingoftheliquidityrelatedtodailytransactions,whichareoftenrelied uponbynaturalgasmarketparticipantstomanagedaytodayvariationsindemand,we canassesshowthemarketliquidityisaffectedduringeventsthatimpacttheoverallNorth Americanmarketandspecifically,theTexasmarket.Thesectionbelowexaminesthe liquidityimpactoffivemajoreventsimpactingtheNorthAmericanandTexasnaturalgas marketthathaveoccurredsince2001. September11,2001 TheattacksofSeptember11,2001precipitatedamarketpanicthatledtoasubstantial reductioninTexasmarketliquidity,withreportedvolumesbottomingouttoapproximately 400MMcf/dontheflowdateofSeptember12,2011.However,asshowninFigureE5,the reductioninliquiditywasveryshortandthemarketquicklyrecoveredbythenextday, September13,2001.Inaddition,thelackofmarketliquiditydidnotresultinsignificant curtailmentsinsupply.Rather,gascontinuedtoflowintotheU.S.pipelinenetworkeven duringthedropinreportedtransactions.
82
12
HoustonShipChannel ElPaso,Permian Tennessee,Zone0 TexasEastern,EastTexas CarthageHub
Katy Waha Transco,Zone1 TexasEastern,SouthTexas
NGPL,TexokZone NGPL,SouthTexas Transwestern,Permian AguaDulceHub
10
Bcf/d
0 9/1/2001
9/8/2001
9/15/2001
9/22/2001
9/29/2001
FigureE41:DailyTradedVolumesReportedatTexasNaturalGasPricingPoints:September2001.
83
February2003ColdFront ColdweatherinearlyandlateFebruary2003impactedgasdemandandhadimplications forfreezinggassupply.Itdidnothaveameaningfulimpactonmarketliquidityforvolumes tradedatTexaspricinglocations(Fig.E6).Thisimpliesthatarobustandliquidmarket remainedinplaceforbuyersandsellersofgasduringthiscoldfront.

HoustonShipChannel ElPaso,Permian Tennessee,Zone0 TexasEastern,EastTexas CarthageHub Katy Waha Transco,Zone1 TexasEastern,SouthTexas NGPL,TexokZone NGPL,SouthTexas Transwestern,Permian AguaDulceHub
4.0 3.5 3.0 2.5

Bcf/d
2.0 1.5 1.0 0.5 0.0 2/1/2003
2/6/2003
2/11/2003
2/16/2003
2/21/2003
2/26/2003
FigureE42:DailyTradedVolumesReportedatTexasNaturalGasPricingPoints:February2003.
84
HurricanesKatrinaandRita(AugustSeptember2005) ThelandfallofHurricaneKatrina(lateAugust2005)hadminimalimpacttotradedvolumes andmarketliquidity.However,HurricaneRita(midSeptember2005)ledtoasignificant dropintradedvolumesinTexasofapproximately1Bcf/dtowardstheendofSeptember 2005.Thiswasdueinparttothehurricanespathandtheshutinofoffshoreproduction thatoccurredwithHurricaneRita(especiallywhencomparedtominimalsupply disruptions/shutinsduringHurricaneKatrina).Tradedvolumeswereespeciallylower forpointsinSoutheasternTexas(Fig.E7).However,marketliquiditywassustainedat otherlocationsinTexas.Transactionalactivityquicklyreturnedtonormalpatternsby September28,2005.
HoustonShipChannel ElPaso,Permian Tennessee,Zone0 TexasEastern,EastTexas CarthageHub Katy Waha Transco,Zone1 TexasEastern,SouthTexas NumberofDeals NGPL,TexokZone NGPL,SouthTexas Transwestern,Permian AguaDulceHub
60
50
40
30
20
10
0 8/1/2005
0 8/15/2005 8/29/2005 9/12/2005 9/26/2005 10/10/2005 10/24/2005
NumberofDeals
FigureE43:DailyTradedVolumesReportedatTexasNaturalGasPricingPoints:AugustthroughOctober 2005.
85
HurricaneIke(September2008) SimilartoHurricaneRita,thelandfallofHurricaneIkerequiredasubstantialamountof offshoreproductiontobeshutin.Inaddition,afterthehurricanemovedonshore,itwas discoveredthatHurricaneIkecreatedsubstantialdamagetooffshoreproductionfacilities initsgeneralpath.Thiseventledtoasignificantdropofapproximately3Bcf/d,intraded volumesinTexasinmidSeptember2008(Fig.E8).Tradedvolumeswereespeciallylowfor pointsinSouthandSoutheasternTexaswhilemarketliquiditywassustainedatlocationsin WestandNorthTexas.TradedvolumesrevertedtonormalpatternsbySeptember17,2008 followingthisdisruption.

HoustonShipChannel ElPaso,Permian Tennessee,Zone0 TexasEastern,EastTexas CarthageHub Katy Waha Transco,Zone1 TexasEastern,SouthTexas NumberofDeals NGPL,TexokZone NGPL,SouthTexas Transwestern,Permian AguaDulceHub
80
70
60
4 40 3 30 2 20 1
10
0 9/1/2008
0 9/8/2008 9/15/2008 9/22/2008 9/29/2008
NumberofDeals
50
FigureE44:DailyTradedVolumesandDealsReportedatTexasNaturalGasPricingPoints:September 2008
February2011ColdFront AbnormallycoldweatherexperiencedinFebruary2011hadtheoppositeeffectwhencompared toothercoldweatherevents.MarketliquidityforvolumestradedinTexasjumpedtolevelsof5 to7Bcf/dduringthefirstweekofFebruary(Fig.E9).
86
HoustonShipChannel ElPaso,Permian Tennessee,Zone0 TexasEastern,EastTexas CarthageHub
Katy Waha Transco,Zone1 TexasEastern,SouthTexas NumberofDeals
NGPL,TexokZone NGPL,SouthTexas Transwestern,Permian AguaDulceHub
80
70
60
40
30
20
10
0 Jan2011
0 Feb2011 Mar2011
NumberofDeals
50
FigureE45:DailyTradedVolumesandDealsReportedatTexasNaturalGasPricingPoints:January throughMarch2011.
Overall,regulations,industrypractices,andmarketevolutionhavecreatedarobustand liquidnaturalgasmarketinTexastomeettheneedsofbuyersandsellers.Asshowninthis Appendix,evenduringtimesofstressresultingfromuniqueevents,naturalgasmarket activitycontinuedandquicklyrecoveredtopreeventlevels.Itshouldalsobenotedthat naturalgascontinuedtoflowonpipelinestoserveconsumersevenduringperiodsoflower transactionalactivityinthemarket.Thisindicatesthatrelianceontheshorttermnatural gasmarket,forshorttermsuppliesorreplacementsuppliesundertermagreements, createsarelativelylowriskforgasgeneratorsinERCOTthatemployprudentgas procurementpractices.
87
APPENDIXFDECEMBER1983EVENTSIMULATEDFOR20112012
December1983asaStressTest.Becausehistoricalinformationshowsthatfreezing weatheristhemostsignificantthreattoERCOTsgassupplies,itisimportanttounderstand themagnitudeofriskpresentedbymajorhistoricalfreezingweathereventsifthehistorical basedcurtailmentrelationshipswereappliedtothecurrentinfrastructureinERCOT.This analysisexaminesthecoldweathereventofDecember1983anditspotentialimpacton naturalgasproductionandelectricgenerationcapacitywhenappliedtothecurrentnatural gasandelectricgenerationinfrastructurewithinERCOTsserviceregion.Aswiththe remainderofthisstudy,ouranalysisresultspresentedhereassumenomitigationfrom naturalgasstorage,pipelinelinepackordisplacementflowsfromotherregionsthatwould reducethelevelofgassupplycurtailmentsandelectricgenerationcapacityimpacted. Therefore,theriskassessmentshouldbeviewedasaconservativescenariotofacilitate ERCOTplanning. ManycoldwintershaveaffectedERCOT,especiallysincethe1970s(FigureF46),butthe severityusuallywasgreatestforeventswherefreezingtemperaturesprevailedformany consecutivedays.Mosteventshavepersistedforonlyabout24daysbutinDecember 1983thefreezingconditionspersistedfor11consecutivedays(FigureF47).
FigureF46.NotablycoldwintersaffectingERCOTsince1950.
88

FigureF47.LengthsoffreezingweathereventsaffectingERCOT.
InnorthTexas,temperaturesremainedatorbelowfreezingfromDecember19through December29,1983(FigureF48).Furthermore,thedistributionoftheArcticairmassin December1983alsowasspreadmoreevenlyacrossERCOTthaninsomeoftheother notablehistoricalfreezingweathereventswiththepossibleexceptionoftheshorter December1989event(FigureF49).
89
FigureF48.DailytemperaturesinnorthTexasduringDecember1983
FigureF49.FreezingtemperaturepatternsinmajorhistoricaleventsaffectingERCOT.
90
AnalysesPerformed.ToevaluatethepossibleconsequencesoftheDecember1983weather conditionsappliedtotheERCOTnaturalgasinfrastructureof20112012,historicalwinter weatherdatawereanalyzedtoderivefreezingweatherriskstatistics,includinglikelihood oftheDecember1983eventinhistoricalcontext.Additionalanalyseswereperformedto imputeimpactsonERCOTgassuppliesanddeliverabilityunderDecember1983weather conditions,includingwellheadfreezeoffsandresiliencyofthegaspipelineinfrastructure. HistoricalweatherdatafromNCDCwereanalyzedforfiverepresentativeTexasweather benchmarks(FigureF50):Dallas(DFWandNBE),Houston(HOUandIAH),SanAntonio (SAT),Midland(MAF)andBrownsville(BRO).Foreachstation,probabilitydistribution functionsweredevelopedfordailylowtemperaturesanddailyaveragewindspeedsduring winter(January,February,December)overtheyears19502011.Windwasincludedto accommodatepossibleeffectsofwindchill39incontributingtofreezeoffeffects.
FigureF50.WeatherstationsusedfortheDecember1983analysesacrossERCOT.
NaturalgasproductionwasanalyzedfortheBarnettShale(northTexas),EagleFordShale (southTexas)andHaynesvilleShale(eastTexas)playsusingdatafromtheTRRC.Although noneofthoseplaysweresignificantgasproducersduring1983,andtheinformationtodate concerningproductionvariabilityduetofreezingweatherdoesnotincludeanextreme wintersimilarto1983,allaresignificantwithinthe20112012infrastructuresoitis insightfultounderstandtheirpossibleresponsestoaprolongedfreezingweatherepisode assevereasforDecember1983.Thefocusofcorrelatedproductionweatheranalyseswas onestimatingproductionlossesduringrecentfreezingweatherevents.
Wind chill is an apparent temperature calculated from wind speed and real physical temperature. It is a theoretical index designed to guide decisions about human exposure to cold environments. Wind chill is only defined for temperatures at or below 50 F and wind speeds above 3 mph. Bright sunshine may increase the wind chill temperature (i.e., make it less severe) by 10-18 F. http://www.nws.noaa.gov/om/windchill/
39
91
PipelineinfrastructuredatawerethosecompiledbyBlack&VeatchforuseintheGPCM equilibriumflowmodel.Naturalgasdemandforresidentialandcommercialuserswas modifiedtoreflecthigherheatingloadscorrespondingtotheextremecoldweatherbeing modeled.Simultaneously,naturalgassupplywasreducedtoreflecttheimpactof productionwellfreezeoffscausedbytheextremelylowtemperaturesasdescribedbelow. WellheadFreezeOffEffects.Freezingweathercanreducegasflowatthewellheadthrough abnormalaccumulationsofliquidsoricewhichbecomeproblematicalonlyatcold temperatures(FigureF51).Theproductstreamfromthewellgenerallycontainsrawgas mixedwithvariousamountsofwaterandoilcondensateswhichmustbepromptly separatedbeforethegascanbeplacedinagatheringsystempipelineandsenttoa processingplant.Directfreezeoffeffectsincludeblockageofgasflowthrough(1)water frozeninthepipeandvalvetree(ChristmasTree)atopthewellhead;(2)waterfrozenin thescrubber/separatorwhichsplitstheproductstreams;(3)naturalgasliquids(NGLs)or hydratescondensedbeforethegascanexittothegatheringsystem.Indirectfreezeoff effectsmostcommonlyarebreakdownsinthefieldservicesneededtokeepthewellhead processesoperational,including(4a)removalofseparatedwaterandoilcondensatefrom limitedonsitestorage;(4b)replenishmentofconsumablechemicals(hydrateandcorrosion inhibitors)whichcomprisethefirstlineofgastreatmenttopreventcondensationin gatheringpipelines.ModernwellheadsystemsincludeautomatedSCADAsystemswhich normallyareprogrammedtorecognizeempty/fulltankconditionsandshutoffproduct streamflowatthetreetopreventlargerproblemsofspillageorlineclogging.Interruptions tofieldservicescommonlyarerelatedtoaccessproblemscreatedbyinclementweather conditions.
92
FigureF51.Freezeoffrisksatanonshorenaturalgaswellhead.
Basedonprinciplesofthermodynamics,windchillincreasestherateatwhichanobject losesheattotheenvironment(FigureF52).Underinfluenceofastrongwind,thermal conductivecoolingisimportantwhereasundercalmconditionscoolingislimitedby thermalradiation.Nonetheless,thephysicallowtemperaturenotwindchillultimately determineswhetherfreezingoccurs. WindchillvaluesinDecember198340variedregionallyacrossERCOT(FigureF53)and wereincludedinanalyseswhichsoughtcorrelationsbetweenfreezingweatherattributes andwellheadfreezeoffproductionlosses.Butbasedonthelimitsofthetheoretical definition,calculatedwindchillvalueshigherthan50Fareimmaterialandindeedwind chillvalueshigherthan32Faremostlyirrelevant.SoforDecember1983windchillvalues fordatesearlierthanaboutDecember13areuninformative.
Daily extreme wind chill values were calculated from average wind speed and the minimum physical temperature for the day.
40
93
FigureF52.Significanceofphysicaltemperaturerelativetowindchill.
FigureF53.DailywindchillvaluesacrossERCOTduringDecember1983.
94
FreezingofwaterandcondensationofNGLsaredifferentproblemswhichvaryaccordingto thecompositionoftheproductstreamfromeachwell.Associatedgaswhichisproduced fromoilwellsgenerallywillflowgreaterproportionsofwaterasthewellages.Therefore, olderconventionalgaswellstendtobeatgreaterriskofwaterrelatedfreezeoffs. Unconventionalgas,suchasfromshalesorothertightformations,willbeat comparativelygreaterriskofwaterrelatedfreezeoffsifthewellsarerelativelyyoung(i.e., completedwithinthelastfewmonths)becausetheflowbackofhydraulicfracturingwater probablystillisinprogress.NGLcontentswillbeatriskforcondensateformationbothin conventionalandunconventionalwellsandtheriskswillincreaseastheNGLcontents increase.Therefore,risksofwellheadfreezeoffsareexpectedtoexistforalltypesofgas fieldsalthoughspecificrisksforanyparticularfieldwilldependonthetypesandagesofthe wellsinthefield. GasproductiondatashowthattheFebruary2011freezingweathereventinvolved productionlossesfortheBarnettShale,EagleFordShaleandHaynesvilleShalefields (FigureF54).Furthermore,therelativeproportionsoftheproductionlossesscale accordingtotherelativeNGLcontentsoftherespectivefields.Namely,therichgasEagle FordwasmostaffectedandthedrygasHaynesvillewasleastaffected.
FigureF54.NaturalgasproductionlossesduringtheFebruary2011freezingweatherevent.
95
TheBarnettShalerepresentsthemajorgassourceinthe20112012timeframewiththe longestbaselineofproductiondata.Accordingly,empiricalmodelsforproductionlosses duringfreezingweathereventswerefocusedontheBarnettShaledatawiththepremise thattheBarnettlossfunctionscanbeusedasproxiesforothergasfieldswhichsupply ERCOT. Empiricalproductionlosscurvesweredevelopedbothforphysicaltemperatureandfor windchillusinghistoricalproductionandweatherdata(FigureF55).Bothlinearandnon linearregressionswerecalculatedbasedonanalysisofhistoricalproductionlossesversus historicalweatherforthesixmajorfreezingweathereventscapturedintheERCOT OperatorLogs(20022011;soliddotsinFigureF55).Lossfunctionsforwindchillare statisticallystronger(higherR2values)butlossfunctionsforphysicaltemperaturepredict thehighestproductionlosses.Bothfortemperatureandwindchillbasedfunctions,the nonlinearmodelsappeartobestaticallymorerobust(higherR2values).Therefore,to estimateworstcasefreezeofflosses,themodelchosenwasthenonlinearProduction Lossvs.PhysicalLowT(F)fromthelefthandchartinFigureF55.
FigureF55.Empiricalproductionlossmodelsbasedonproductionweatherdataregressions.
Inapplyingthefreezeofflossfunctionmodel,adjustmentsweremadeforrelativeNGL contentsofdifferentgasfields.Theadjustmentscomprisedscalarsappliedtothe productionlosscalculatedfromthetemperaturebasedlossfunctionusingoneofthree values:AverageNGLcontent(Barnett)=1.0;richgasorhighNGLcontent(EagleFord)= 1.4;drygasorlowNGLcontent(Haynesville)=0.7. ThegassourcesembeddedintheGPCMmodelforERCOTincludedalltenoftheTRRC Districtsplusspecificplaysofnote,includingBarnett,EagleFordandHaynesville.Foreach dayoftheDecember1929,1983event(FigureF48),wellheadproductionlossesfrom freezeoffwerecalculatedfordailygasproductionexpectedin20112012fromeachTRRC Districtandeachfeaturedfield.Theindextemperatureappliedtoeachcalculationwasthat reflectedbythegeographicallyappropriateweatherstation(FigureF50).Thesummation ofallproductionlossesbyday,relativetonormalanticipatedproduction,indicatedtheday bydaywellheadsupplylossthroughthecourseofthe11dayevent(FigureF56).
96
FigureF56.TheoreticalgasproductionlossesinFeb2012underDec1983weatherconditions.
Onthemodeldaywiththemostseveresubfreezingtemperatures(December25,1983), thetheoreticalimpactsofwellheadfreezeoffsinFebruary2012wouldequatetoan availabledailygasproductionof12.4millionMMBtu,comparedwithanormalexpected productionof16.4millionMMBtu,oranapparentdailysupplylossof23.9%.Forthe11 daymodelperiod(December1929),thesmallestprojecteddailylossis8.4%andthe averagedailylossis15.2%.Ofcourse,alloftheaforementionedfiguresaretheprojected lossesfromfreshwellheadsuppliesandtheydonottakeintoaccountothersourcesofback upsuppliessuchasundergroundstorageorpipelinelinepack. StatisticalLikelihoodoftheDecember1983Event.Resultsofthestresstestdescribed aboveshowthatrepetitionoftheextremefreezingweathereventofDecember1983could seriouslyimpactavailabilityofwellheadproducedgasrequiredbythecurrentpower generationportfolioinERCOT.Butbecausetheriskassessmentmustconsidernotonlythe consequencesofaneventbutalsothelikelihoodoftheevent,itisimportanttounderstand thatthesubjecteventwasoneofverylowlikelihood. Basedonanalysisofhistoricalweatherdatafor19502011,FigureF57showsdailywinter freezeriskmodelsforrepresentativepointsacrossERCOT,includingMidland(MAF), DallasFt.Worth(DFW),SanAntonio(SAT),Houston(HOU)andBrownsville(BRO).Risks ofseverefreezing(forexample,20Forcolder)aregreatestfornorthernandwesternparts ofERCOTwithdailyprobabilitiesofabout37%onanygivenwinterday.Risksof20F temperaturesarelowerelsewherebutstillcanapproach1%insouthcentralandcoastal partsofERCOT.TheDecember1983eventwasastatisticallyunlikelyoccurrencesinceits magnituderepresentedadailyriskofonlyabout0.020.5%,dependingontheregionof Texaschosenastherisklocation(FigureF57).
97
FigureF57.DailywinterfreezerisksacrossERCOTcomparedwithDecember1983event.
FigureF58showsdailywinterwindriskmodelsforthesamerepresentativepointsacross ERCOTasshownforfreezingtemperatureinFigureF57.Whentheroleofwindis addressedinfreezingweatherevents,asignificantmilestoneisthatasustainedwindof20 milesperhourappliedtoaphysicaltemperatureof32Ftranslatestoanapparentwind chilltemperatureof20Fwhichisakeyphysicaltemperatureforhardfreezeeffects.So eventhoughphysicaltemperature,ratherthanwindchill,istheultimatedeterminantof whetherfreezingoccurs,astrongwindchillfactorcanacceleratecoolinguntilthephyiscal lowtemperatureisreached.Historicalweatherdatashowthat,eventhoughwindgustscan bestronger,sustainedwindsacrossERCOTduringwinterarelessthan20mphfor95 99.9%ofthetimeonanygivenwinterday.Duringtheseverefreezingweathereventof December1983,windswereskewedtowardthehighendoftheriskcurves,comprising windspeedsatthe78th97thpercentilemarks(FigureF58)orabout712%likelytooccur onanygivenwinterday.Altogethertheriskmodelresultsconfirmthatextremlylow physicaltemperatures,ratherthanwindchillindexes,arethemostimportantfundamentals infreezingweatherrisks.Therefore,themostimportantriskattributeassociatedwiththe December1983eventwasthatbasedonextremelowtemperaturesasdiscussedabove.
98
FigureF58.DailywinterwindrisksacrossERCOTcomparedwithDecember1983event.
AssumingthatthefuturewinterclimateaffectingTexasisdescribedbythehistorically basedstatisticalmodelsdevelopedforthisanalysis,theprobabilitythattheextremelow temperaturesofDecember1983eventwillberepeatedinanygivenwinterisnomorethan 0.5%andmorelikelycloserto0.02%. Theprobabilitythatanextremefreezingweathereventwillpersistfor11consecutivedays, asoccurredinDecember1983,canbeestimatedfromthedatainFigureF47whichshows thattheDecember1983eventwasoneof47extremefreezingevents(Tmax32F)which lasted211consecutivedays.Thoseeventsaltogetherinvolved162daysfromahistorical sampleof5,564winterdays.Accordingly,an11consecutivedayeventoftheseverityof December1983representsaprobabilityofonly0.06%41. Onbalance,theprobabilityofoccurrenceoftheDecember1983eventinanygivenwinter canbeviewedasanindicativevalueof0.1%orless. EvaluationofPipelineDeliverability.IntheGPCMmodelforERCOT,theproductionlosses calculatedfromthefreezeofflossfunctionwereusedasinputinformationtomodify availablegassupplieswhiletheheatingdemandassociatedwithresidentialandcommercial sectorwasincreasedtoreflecttheexceptionallycoldweather.Ouranalysisindicatedthat,
41
(162/5,564)*(1/47) = 0.000619
99
overall,thenaturalgaspipelinecapacitybetweenthedifferentregionswithinTexasis adequatetomeetthehighernaturalgasdemandduringtheextremecoldweatherscenario. Thefundamentalsupplydemandmodelutilizedforouranalysisseeksequilibriumby displacingnaturalgasfromotherregionsasneededtomeetERCOTdemandand rebalancingthenaturalgasnetwork.Localizedpipelinecurtailmentsmaybeexperienced withinagivenregiondependingontheconstraintsofspecificdeliverysystems. PotentialLossofGenerationCapacity.Black&Veatchestimatedthelossinelectric generationcapacityassociatedwiththeprojectedlossinnaturalgasproductioncausedby projectionsofproductionwellfreezeoffs.Inordertodothis,weassumedthatresidential andcommercialnaturalgasneedsaremetfirstduringperiodofwellheadproduction freezeoffsandlowersupply.ThisisconsistentwiththeTRRCscurtailmentpoliciesthat placestheseloadsatahigherpriorityforsupplythanindustrialandelectricgeneration needs.Industrialandpowergenerationdemandarebothassumedtobeimpactedbythe decreaseinnaturalgassupplyandintheratiooftheirrespectivedemandsfornaturalgas. FigureF14showsthepotentiallossinelectricgenerationcapacitywithintheERCOTservice region.42Itshouldbenotedthatthisanalysisdoesnotassumeanymitigationineffectthat couldpotentiallyreducethelossinelectricgenerationcapacity.Inreality,various mitigationmeasureswouldbeavailableandeffectivewithinthenaturalgasmarket includingaccesstonaturalgasstorage,pipelinelinepackanddisplacementofflows intendedforothermarkets.Theseandothetmitigatingmeasureswoulddecreasethe effectivelossofnaturalgassupplytoelectricgeneratorsandconsequentlyreducethegas firedelectricgenerationcapacityaffected.
EstimatedAggregateLossofGenerationCapacitywithProgressionof December1983ColdWeatherEvent(MW)
12000
10000
LossofGeneration Capacity(MW)
8000
6000
4000
2000
0 Dec13,1983 Dec19,1983 Dec24,1983
42
To convert gas (MMBtu/d) to power generation (MW), we assumed a heat rate of 7.5 Dth/MWh.
100
FigureF59.EstimatedAggregateLossofGenerationCapacity
GLOSSARY
AGA(theAmericanGasAssociation):AGAisanorganizationfocusedonbeingan independentsourceofinformationresearchandprogramsonenergyandenvironmental issuesthataffectpublicpolicy,withaparticularemphasisonnaturalgas. Bcf/d(Billioncubicfeetperday):Bcf/disthecommonlyusedunitofmeasurementfor largeproductionratesofnaturalgas. DOT(USDepartmentofTransportation):TheDepartmentofTransportationwas establishedbyanactofCongressonOctober15,1966.DOTistaskedwithservingthe UnitedStatesbyensuringafast,safe,efficient,accessibleandconvenienttransportation system.
EBB(ElectronicBulletinBoard):EBBreferstoPipelineElectronicBulletinBoardswhich regulatednaturalgaspipelinesarerequiredtomaintaininordertomakeavailablekey informationabouttheiroperationstothepublic.PipelineEBBscontainpubliclyavailable informationsuchaspipelinecapacity,gasquality,indexofcustomers,notices,tariffs, pipelineimbalances,andpipelinesystemmaps. EMP(TheEnergyMarketPerspective):EMPistheBlack&Veatchsintegratedviewof naturalgasandpowermarketsacrossNorthAmerica,andthenorthernportionofBaja California,Mexico,thatiselectricallyinterconnectedtotheU.S. ERCOT(TheElectricReliabilityCouncilofTexas):ERCOTistheindependentsystem operatorforTexasandmanagestheflowofelectricpowerto23millionTexascustomers representing85percentofthestate'selectricload. FERC(TheFederalEnergyRegulatoryCommission(FERC):TheFederalEnergyRegulatory Commission(FERC)istheUnitedStatesfederalagencythatregulates,monitorsand investigatestheinterstatetransmissionofelectricity,naturalgas,andoil.FERCalso reviewsproposalstobuildliquefiednaturalgas(LNG)terminalsandinterstatenaturalgas pipelinesaswellaslicensinghydropowerprojects. GOM(GulfofMexico):GOMisaprolificnaturalgasandoilproducingareaborderedbythe UnitedStatestothenorthandeast(Florida,Alabama,Mississippi,Louisiana,Texas),and fiveMexicanstatestothesouthandwest. HDD(HeatingDegreeDay):HDDmeasuresthedemandforenergyneededtoheata residenceorbusiness.HDDiscalculatedasthedifferencebetweenthedailyaverage temperatureand65Fahrenheitforeverydaywherethedailyaveragewascolderthanthe 65Freference.Althoughchoiseofreferencetemperaturesometimesvarieswith geography,the65FreferencewasusedinthisstudybothforTexasandlocationsoutside Texas.
101
IMM(IntegratedMarketModeling):IMMistheBlack&Veatchmodelingprocesstoprepare itslongtermviewonenergymarkets.Black&Veatchdrawsonanumberofcommercial datasourcesandsupplementsthemwithitsownviewonseveralkeymarketdrivers,for example,powerplantcapitalcosts,environmentalandregulatorypolicy,fuelbasin explorationanddevelopmentcosts,andgaspipelineexpansion. IMP(IntegrityManagementPlan):IMPistheplandevelopedbyPipelineandHazardous SafetyAdministration(PHMSA)toprovideinformationaboutthePHMSARulesonPipeline IntegrityManagement.
MMBtu/d(Dekathermperday):MMBtu/disthecommonlyusedunitofmeasurementfor theheatcontentofnaturalgas.Onedekatherm(sometimesalsospelleddekatherm) equalsoneMMBtu. MMcf/d(Millioncubicfeetperday):Itisthecommonlyusedunitofmeasurementforlarge productionratesofnaturalgas. NCDC(theNationalClimaticDataCenter):Theofficialrepositoryforclimatedataacquired andtheUSgovernment.DatacollectedbytheNationalWeatherService,U.S.Navy,U.S.Air Force,theFederalAviationAdministration,andmeteorologicalservicesaroundtheworld, arehousedattheNCDCwhichisthelargestactivearchiveofweatherdataintheworld. NETL(theNationalEnergyTechnologyLaboratory):TheNationalEnergyTechnology Laboratory(NETL),partofDOEsnationallaboratorysystem,isownedandoperatedbythe U.S.DepartmentofEnergy(DOE).NETLsupportsDOEsmissiontoadvancethenational, economic,andenergysecurityoftheUnitedStatesandimplementsabroadspectrumof energyandenvironmentalresearchanddevelopment(R&D)programs. NHC(NationalHurricaneCenter):NHCisacomponentoftheNationalCentersfor EnvironmentalPredictiontoissuewatches,warnings,forecasts,andanalysesofhazardous tropicalweatherandincreaseunderstandingofthesehazards.Incollaborationwiththe NCDC,NHCalsofunctionsastherespositoryforhistoricaldataontropicalcyclonesinthe easternPacificandAtlanticbasins. NOAA(theUSNationalOceanicandAtmosphericAdministration):NOAAisafederalagency focusedontheconditionoftheoceansandtheatmosphere.Itistheparentorganizationof NCDC,NHC,SPCandotherweatherfocusedorganizationsoftheUSgovernment. NGL(NaturalGasLiquid):Naturalgasliquidsaredefinedastheheavierhydrocarbons(two ormorecarbonatomsinthemolecule)comprisingethane,propane,butane,andnatural gasolines,whicharefoundinnaturalgas.NGLsmustbeseparatedthroughtheprocessof absorption,condensation,adsorption,orothermethodsingasprocessingorcyclingplants beforetheresidual(methanerich)gascanbetransportedinnaturalgaspipelines.
maybeoperatedunderDepartmentofTransportation(DOT)regulations.
MAOP(maximumoperatingpressure):MAOPisthehighestpressureatwhichapipeline
102
Outlier:Anoutlierisamemberofasamplewhichisconspicuouslydifferentfromother membersofthesample.Thereisnoconsensusdefinitionofoutlieralthoughthetermis usedwidelyinreportsinvolvingstatisticalanalysis.Inexperimentalscience,anoutlier oftenisdimissedastheresultofunexplainedproceduralerrorortaggedasevidencethat thesamplewasdrawnfrommorethanonepopulation.Forthecurrentstudy,outlieris usedtodescribeapointonthelongtailofaPDF,i.e.,aneventwithverylowstatistical probabilityofoccurrence. PDF(ProbabilityDistributionFunction):PDFisamathematicaldescriptionofthe probabilityofoccurrenceofeachofmultipleoutcomeswithinafamilyofpossibilities.It usuallyisportrayedasatableorgraphwhichshowscumulativeprobabilityversuspossible valueofanoutcome.AnempiricallyderivedPDFisaprobabilitymodelwhichisbasedon historicaldata. PHMSA(PipelineandHazardousSafetyAdministration):PHMSAisoperatedbythe DepartmentofTransportation's(DOT)anditadministerstheDepartment'snational regulatoryprogramtoassurethesafetransportationofnaturalgas,petroleum,andother hazardousmaterialsbypipeline. SPC(StormPredictionCenter):SPCispartoftheNationalWeatherServiceandtheNational CentersforEnvironmentalPrediction(NCEP)toprovidetimelyandaccurateforecastsand watchesforseverethunderstormsandtornadoesoverthecontiguousUnitedStates.The SPCalsomonitorsheavyrain,heavysnow,andfireweathereventsacrosstheU.S.and issuesspecificproductsforthosehazards.IncollaborationwiththeNHC,SPCalsoservesas arepositoryforhistoricaldataonsevereweather. Undifferentiated:Thechoiceofkeepingasamplewholeforinputintoananalysisrather thandividingitintosubsamplesforseparateanalyses.Differentiation(subdivision)is acceptableifthesubsamplesarebelievedtobefundamentallydifferentfromeachother andifthesubsamplesremainlargeenoughforstatisticallymeaningfulanalyses.For example,inthisstudy,curtailmentsattributedtofreezingweathercouldbeconceivedas includingsubcategoriesof(a)wellheadfreezeoffs,(b)infrastructurefailuresor(c) contractualprovisions.Butattemptstosubdividecreatedsubsampleswhichweretoo smalltosupportrigorousstatisticalanalyses. TRRC(theRailroadCommissionofTexas):TheRailroadCommissionofTexasisthestate agencythatregulatestheoilandgasindustry,gasutilities,pipelinesafety,safetyinthe liquefiedpetroleumgasindustry,andsurfacecoalanduraniummining.
103

BV ERCOT Gas Study Report March 2012

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

BV ERCOT Gas Study Report March 2012

Uploaded by

Copyright:

Available Formats

GASCURTAILMENTRISKSTUDY

Naturalgaspipelineinfrastructureissufficienttomeetprojectedneeds NaturalgaspipelineinfrastructureservingERCOTgeneratorswasfoundtobeadequateto meetanticipatedpeakdemandduringtheanalysisperiodinthescenariosanalyzed.

ReferenceDatabaseof RealizedRisksand Consequences

A. Transmission B. LDCs C. Storage

MapoverofPipelines toGasFired Generators

A. ExogenousRisks B. Probabilistic Risk Analyses:5 and 10yrHorizons C. ErrorEstimations forProbabilistic RiskAnalyses

Probabilistic Analysis of Scenarios

Operationalinterruptionscausedbypipelineoutages Tropicalcyclones(hurricanes,tropicalstormsandtropicaldepressions) Other Black&Veatchexaminedthecommonthreadslinkingtheinstancesofnaturalgas interruptionidentifiedandtheircausestoidentifylessonsthatcanbelearnedbyERCOT fromthesehistoricexperiences.

AVAILABLE STARTING DATE

ERCOTMonthlyOperationsReports NationalEnergyTechnologyLaboratory (NETL)ElectricDisturbanceEvents(OE 417)AnnualSummaries

RailroadCommissionofTexas(TRRC) PipelineIncidentReportsandseparate responsetoERCOTDataRequest

incidentswerenotweatherrelated,theywereassumedtobeinfrastructurerelatedand groupedtogetherwithpipelinedisruptions.Figure4showsafishbonediagramexamining thecauseandeffectleadingtogassystemfailurerelatedtopipelinedisruptions.

Sincethe1990s,thegeneraltrendamonggaspipelineshasbeentowardselectionof electricdrivecompressorsbasedonbenefitsoflowermaintenancecosts,lowernoise emissionsandlowerairemissions14.Anycorrespondingincreaseinrisksofpoweroutages generallyhasbeenconsideredanacceptabletradeoff.

Overall,basedontheresponsesbygeneratorstothesurvey,itappearsthatERCOTs electricgeneratorscreatereliabilityandredundancyofgassupplycapabilitythroughtheir interconnectionswithmultiplepipelinesandaccesstoalevelofcapacitythatiswellin excessoftheirpeaknaturalgasneeds.

wasnecessarytomodelindirectlyusingfrequencyofoccurrenceoftropicalcycloneactivity andimpliedimpactsongassupplieswhichthenweretranslatedtoequivalentMWlossesin ERCOT.Theeffectsofdifferentsamplesizesongoodnessoffitandonuncertainties(error bars)forrisklevelsisillustratedinAppendixBWeatherAnalysis.

2011 2002 2011 1987

0 2008 2010 2012 2014 2016 2018 2020

NaturalgassupplyinTexasisprojectedtoflattenwithdeclinesinconventional productionbeingoffsetbygrowthinunconventionalproduction,primarilyfromthe BarnettShaleandEagleFordshaleplaysasshowninFigure15.

40 Bcf/d 30 20 10 0 2008 2010 2012 2014 2016 2018 2020

NaturalgasdemandinTexasisprojectedtoincreaseasdemandfornaturalgasfor electricgenerationincreasesasshowninFigure17.Gasfiredgenerationcapacity withinERCOTisprojectedtoincreasebyover15,000MWinthenext10yearsand naturalgasshareofelectricgenerationwithinERCOTisprojectedtoincreaseto 50%overthistimeperiod.

FERC-NERC (2011) report, op cit.

OnshoreGulfCoastProduction BaseCasevs.ScenarioWithProductionLossDuetoFreeze Offs 30

ErrorenvelopeswerederivedfromvariationsamongalternativePDFs.Onaonestandard deviationbasis,uncertaintiesofgenerationlossesatthelevelof5%probabilitywere derivedas209MW(1Year),166MW(5Year)and105MW(10Year)inanygivenAtlantic Basintropicalcycloneseason(JunethroughNovember).

PHMSA.USDepartmentofTransportation(DOT)PipelineandHazardousMaterialSafety Administration(PHMSA)Data&Statisticswerereviewedwithfocusongaspipelines. TRRC.TheRailroadCommissionofTexas,inresponsetoadatarequestfacilitatedby ERCOT,provided(Oct2011)abriefsummaryofgascurtailmenteventsrecognizedbythe TRRC.

CombinedEffectsofSubFreezingTemperaturesandStrongWinds.Thefollowingcharts summarizeanalysisoftheERCOTNorthCentralWeatherZonewithregardtostrongwinds duringextremefreezingevents:

ElPaso,PermianBasin Transwestern,PermianBasin WahaHub CarthageHub TexasEastern,EastTexas

NGPL,Texok Katy Transco,Zone1

TexasEastern,SouthTexas AguaDulce NGPL,SouthTexas Tennessee,Zone0

Tier1 Tier2 Tier3

VolumeRequirement(MMBtu/day) RequiredTrades 100,000andgreater 10andgreater 25,000to99,999 5andgreater lessthan25,000 lessthan5

12 HoustonShipChannel ElPaso,Permian Tennessee,Zone0 TexasEastern,EastTexas CarthageHub

Katy Waha Transco,Zone1 TexasEastern,SouthTexas TotalNumberofDeals

HoustonShipChannel ElPaso,Permian Tennessee,Zone0 TexasEastern,EastTexas CarthageHub

Katy Waha Transco,Zone1 TexasEastern,SouthTexas

NGPL,TexokZone NGPL,SouthTexas Transwestern,Permian AguaDulceHub

4.0 3.5 3.0 2.5

2.0 1.5 1.0 0.5 0.0 2/1/2003

0 8/15/2005 8/29/2005 9/12/2005 9/26/2005 10/10/2005 10/24/2005

0 9/8/2008 9/15/2008 9/22/2008 9/29/2008

February2011ColdFront AbnormallycoldweatherexperiencedinFebruary2011hadtheoppositeeffectwhencompared toothercoldweatherevents.MarketliquidityforvolumestradedinTexasjumpedtolevelsof5 to7Bcf/dduringthefirstweekofFebruary(Fig.E9).

HoustonShipChannel ElPaso,Permian Tennessee,Zone0 TexasEastern,EastTexas CarthageHub

Katy Waha Transco,Zone1 TexasEastern,SouthTexas NumberofDeals

NGPL,TexokZone NGPL,SouthTexas Transwestern,Permian AguaDulceHub

0 Dec13,1983 Dec19,1983 Dec24,1983

You might also like