EIA - The National Energy Modeling System: An Overview 2009-Natural Gas Transmission and Distribution Module

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The National Energy Modeling System: An Overview

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Natural Gas Transmission and Distribution Module

bullet gif Interstate Transmission Submodule

Pipeline Tariff Submodule

Distributor Tariff Submodule

Natural Gas Imports and Exports

Chapters in this Report:

Introduction/Overview of NEMS
Carbon Dioxide Emissions
Modules:
  Macroeconomic
  International Energy
  Residential Demand
  Commercial Demand
  Industrial Demand
  Transportation Demand
  Electricity Market
  Renewable Fuels
  Oil and Gas Supply
  Natural Gas Transmission & Distribution
  Petroleum Market Module
  Coal Market Module

Natural Gas Transmission and Distribution Module

The NGTDM of NEMS represents the natural gas market and determines regional market–clearing prices for natural gas supplies and for end–use consumption, given the information passed from other NEMS modules (Figure 14). A transmission and distribution network (Figure 15), composed of nodes and arcs, is used to simulate the interregional flow and pricing of gas in the contiguous United States and Canada in both the peak (December through March) and offpeak (April through November) period. This network is a simplified representation of the physical natural gas pipeline system and establishes the possible interregional flows and associated prices as gas moves from supply sources to end users.

Flows are further represented by establishing arcs from transshipment nodes to each demand sector represented in an NGTDM region (residential, commercial, industrial, electric generators, and transportation). Mexican exports and net storage injections in the offpeak period are also represented as flow exiting a transshipment node. Similarly, arcs are also established from supply points into a transshipment node. Each transshipment node can have one or more entering arcs from each supply source represented: U.S. or Canadian onshore or U.S. offshore production, liquefied natural gas imports, supplemental gas production, gas produced in Alaska and transported via pipeline, Mexican imports, or net storage withdrawals in the region in the peak period. Most of the types of supply listed above are set independently of current year prices and before NGTDM determines a market equilibrium solution.

Only the onshore and offshore lower 48 U.S. and Western Canadian Sedimentary Basin production, along with net storage withdrawals, are represented by short–term supply curves and set dynamically during the NGTDM solution process. The construction of natural gas pipelines from Alaska and Canada’s MacKenzie Delta are triggered when market prices exceed estimated project costs. The flow of gas during the peak period is used to establish interregional pipeline and storage capacity requirements and the associated expansion. These capacity levels provide an upper limit for the flow during the offpeak period.

Arcs between transshipment nodes, from the transshipment nodes to end–use sectors, and from supply sources to transshipment nodes are assigned tariffs. The tariffs along interregional arcs reflect reservation (represented with volume dependent curves) and usage fees and are established in the pipeline tariff submodule. The tariffs on arcs to end–use sectors represent the interstate pipeline tariffs in the region, intrastate pipeline tariffs, and distributor markups set in the distributor tariff submodule. Tariffs on arcs from supply sources represent gathering charges or other differentials between the price at the supply source and the regional market hub. The tariff associated with injecting, storing, and withdrawing from storage is assigned to the arc representing net storage withdrawals in the peak period. During the primary solution process in the interstate transmission submodule, the tariffs along an interregional arc are added to the price at the source node to arrive at a price for the gas along the arc right before it reaches its destination node.

Table describing NGTDM Outputs. Need help, contact the National Energy Information Center at 202-586-8800.

Figure 14. Natural Gas Transmission and Distribution Module Structure. Need help, contact the National Energy Information Center at 202-586-8800.

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Figure 15. Natural Gas Transmission and Distribution Module Network. Need help, contact the National Energy Information Center at 202-586-8800.

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Interstate Transmission Submodule

The interstate transmission submodule (ITS) is the main integrating module of NGTDM. One of its major functions is to simulate the natural gas price determination process. ITS brings together the major economic factors that influence regional natural gas trade on a seasonal basis in the United States, the balancing of the demand for and the domestic supply of natural gas, including competition from imported natural gas. These are examined in combination with the relative prices associated with moving the gas from the producer to the end user where and when (peak versus offpeak) it is needed. In the process, ITS simulates the decision–making process for expanding pipeline and/or seasonal storage capacity in the U.S. gas market, determining the amount of pipeline and storage capacity to be added between or within regions in NGTDM. Storage serves as the primary link between the two seasonal periods represented.

ITS employs an iterative heuristic algorithm, along with an acyclic hierarchical representation of the primary arcs in the network, to establish a market equilibrium solution. Given the consumption levels from other NEMS modules, the basic process followed by ITS involves first establishing the backward flow of natural gas in each period from the consumers, through the network, to the producers, based primarily on the relative prices offered for the gas from the previous ITS iteration. This process is performed for the peak period first since the net withdrawals from storage during the peak period will establish the net injections during the offpeak period. Second, using the model’s supply curves, wellhead and import prices are set corresponding to the desired production volumes. Also, using the pipeline and storage tariffs from the pipeline tariff submodule, pipeline and storage tariffs are set corresponding to the associated flow of gas, as determined in the first step. These prices are then translated from the producers, back through the network, to the city gate and the end users, by adding the appropriate tariffs along the way. A regional storage tariff is added to the price of gas injected into storage in the offpeak to arrive at the price of the gas when withdrawn in the peak period. This process is then repeated until the solution has converged. Finally, delivered prices are derived for residential, commercial, and transportation customers, as well as for both core and noncore industrial and electric generation sectors using the distributor tariffs provided by the distributor tariff submodule.

Pipeline Tariff Submodule

The pipeline tariff submodule (PTS) provides usage fees and volume dependent curves for computing unitized reservation fees (or tariffs) for interstate transportation and storage services within the ITS. These curves extend beyond current capacity levels and relate incremental pipeline or storage capacity expansion to corresponding estimated rates. The underlying basis for each tariff curve in the model is a projection of the associated regulated revenue requirement. Econo- metrically estimated equations within a general accounting framework are used to track costs and compute revenue requirements associated with both reservation and usage fees under current rate design and regulatory scenarios. Other than an assortment of macroeconomic indicators, the primary input to PTS from other modules in NEMS is pipeline and storage capacity utilization and expansion in the previous projection year.

Once an expansion is projected to occur, PTS calculates the resulting impact on the revenue requirement. PTS assumes rolled–in (or average), not incremental, rates for new capacity. The pipeline tariff curves generated by PTS are used within the ITS when determining the relative cost of purchasing and moving gas from one source versus another in the peak and offpeak seasons.

Distributor Tariff Submodule

The distributor tariff submodule (DTS) sets distributor markups charged by local distribution companies for the distribution of natural gas from the city gate to the end user. For those that do not typically purchase gas through a local distribution company, this markup represents the differential between the citygate and delivered price. End–use distribution service is distinguished within the DTS by sector (residential, commercial, industrial, electric generators, and transportation), season (peak and offpeak), and service type (core and noncore).

Distributor tariffs for all but the transportation sector are set using econometrically estimated equations. The natural gas vehicle sector markups are calculated separately for fleet and personal vehicles and account for distribution to delivery stations, retail markups, and federal and state motor fuels taxes.

Natural Gas Imports and Exports

Liquefied natural gas imports for the U.S., Canada, and Baja, Mexico are set at the beginning of each NEMS iteration within the NGTDM by evaluating seasonal east and west supply curves, based on outputs from EIA’s International Natural Gas Model, at associated regasification tailgate prices set in the previous NEMS iteration. A sharing algorithm is used to allocate the resulting import volumes to particular regions. LNG exports to Japan from Alaska are set exogenously by the OGSM.

The Mexico model is largely based on exogenously specified assumptions about consumption and production growth rates and LNG import levels. For the most part, natural gas imports from Mexico are set exogenously for each of the three border crossing points with the United States, with the exception of any gas that is imported into Baja, Mexico in liquid form only to be exported to the United States. Exports to Mexico from the United States are established before the NGTDM equilibrates and represent the required level to balance the assumed consumption in (and exports from) Mexico against domestic production and LNG imports. The production levels are also largely assumption based, but are set to vary with changes in the expected wellhead price in the United States.

A node for east and west Canada is included in the NGTDM equilibration network, as well as seven border crossings into the United States. The model includes a representation/accounting of the U.S. border crossing pipeline capacity, east and west seasonal storage transfers, east and west consumption, east and west LNG imports, eastern production, conventional/tight sands production in the west, and coalbed/shale production. Imports from the United States, conventional production in eastern Canada, and base level natural gas consumption (which varies with the world oil price) are set exogenously. Conventional/tight sands production in the west is set using a supply curve from the OGSM. Coalbed and shale gas production are effectively based on an assumed production growth rate which is adjusted with realized prices.

Preface and Contacts
Appendix