The virtual pipeline: Operations insight fuels marketing decisions
Tony Lupien
Stoner Associates, Inc.
P.O. Box 86
Carlisle, PA 17013
Re-regulation drives market changes
The pipeline and utility businesses are changing rapidly, due to regulatory changes intended to
make commodity markets more transparent and efficient. Already, these changes have sparked
the emergence of specialist brokers who use information technology to find and exploit
inefficiencies in deregulating energy commodity markets. However, as these markets mature, the
balance of power will shift from the broker to the pipeline or utility itself. For only the integrated
operator/marketer knows both price and cost of service.
Although these trends are driving all utility and pipeline sectors, economic and regulatory forces
are transforming the natural gas transmission pipeline business most dramatically right now. The
current change in that sector is a valuable bellwether of the changes, challenges, and responses
all utility and pipeline companies can anticipate.
Under the current regulatory regime, gas pipeline companies can sell only transportation; they
cannot buy or sell gas themselves, but rather serve as a common carrier for any shipper. Pipeline
companies enjoy long-term transportation contracts with regular clients, typically commodity
brokers who buy and sell gas for their own clients. Under the new regime, which we expect will
be implemented in late 2000, pipeline companies will be much more active market participants,
as long-term transportation contracts give way to a short-term, on-line market for transportation.
Pipeline companies that will succeed in the new regulatory regime must follow two imperatives:
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Make marketing decisions in seconds, not hours
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Exploit private knowledge of your own operational costs and capabilities
Interdependent business processes
Companies in the natural gas transmission pipeline industry have traditionally organized around
two high-level business processes: marketing and operations. Marketing, at the broadest level,
involves creating and managing customer relationships, establishing long-term contracts,
confirming daily nominations, and seeing that accounts are settled. Operations is the process of
fulfilling the daily receipt and delivery commitments marketing makes.
The marketing decision-making cycle is about 24 hours long. Nominations received during the
day are confirmed mid-morning the next day. The marketing decision-making process is to
collect nominations and allocate capacity on the pipeline, following complex but established
priorities that result in a schedule of deliveries for the next day. The marketing and operations
processes link the next morning, when the two organizations meet to review and refine the
schedule. The operators then take the schedule and execute it.
The low degree of interaction of between marketing and operations processes, coupled with the
relative stability in day-to-day business, has fostered the development of two entirely separate
information systems for marketing and operations.
Operators have superb information systems to help them manage the complex task of receiving
gas from any of hundreds of points, and transporting it to hundreds of other points, to make timesensitive
deliveries. Typically, the entire pipeline network will be studded with sensors, feeding
information to a SCADA system. Often, a real-time pipeline simulator will be running, to
confirm and fill in information from SCADA, and to support predictive "look-ahead" simulation.
SCADA and real-time simulation tells the operator "what's going on" in great detail. Predictive
simulation lets the operator see "what's going to happen", and allows him to try various
scenarios to select the best operating plan for the next several hours or even days. Successful
predictive simulation depends upon a sophisticated load forecaster, which looks at historical
operations as well as forecast changes in weather, energy prices, and consumer behavior.
