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:
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. Marketers also have sophisticated information systems, which let them solicit and manage nominations, and make decisions about which to confirm, reject, or curtail. This is roughly analogous to the problem airline agents face: multiple agents are selling seats on many airplanes at many prices. Each agent needs to know which seats are available at each price, and with each sale the inventory and prices change. Like airline agents, pipeline marketers have little control over prices, which are established in long-term contracts. But unlike airline agents, pipeline marketers have little information about their inventory; typically, they have a weekly spreadsheet showing how much gas can flow between each section of their pipeline. This "nominal capacity" is their only regular source of capability information. As a result, pipelines are often undersubscribed, costing the company revenue, or oversubscribed, upsetting customers or incurring penalties. In a deregulated spot market, pipeline marketers will operate less like airline agents and more like airline ticket auctioneers. To succeed, pipeline marketers need to know the actual available capacity of their pipeline and the marginal cost of transportation for each nomination. They also need to know what the market is doing and will do over the next few days. Furthermore, they need to access this information in real time, share it among all other marketers, and update the database with each decision made. Each needs to know which seats are available. Unlike the airlines, pipeline marketers also need to know their marginal cost of filling each seat and what price the market will bear. The only way to achieve this dream of informed, and hopefully profitable decision making, is to integrate operational and marketing information and publish it throughout the business, in accessible, current, and appropriate formats. Our research into this problem has led us to a complex document we call a "virtual pipeline," which organizes both marketing and operations information to be flexibly useful to many people in the company. A virtual pipeline A virtual pipeline is a set of informational displays - maps, charts, reports - that are broadly accessible, and provide operational and marketing insight to support business decision-making. These displays are built from information gathered from various technical and business information systems, which is consolidated into a standard set of business objects, and delivered on demand as maps, charts, and reports via intranet or Internet to marketers, operators, and executives. Through work with pipeline industry clients, we have established design criteria for several aspects of virtual pipelines. The following sections present the technical architecture, information requirements, presentation requirements, and organizational impact of a virtual pipeline. Technical Architecture The technical architecture for a virtual pipeline consists of subsystems for information generation, information transmission, and information distribution. Information is generated from operations and marketing systems, including nominations and gas management (product accounting) systems, SCADA systems, and hydraulic simulations of pipeline operations. Optimizing and predictive simulations provide information about future states of the pipeline. Forecasters are also used to predict supply and demand. Critical real-time data comes from Internet-based feeds of weather and market pricing data. Information is transmitted through a set of system interfaces that harvest information from many sources and consolidate it into a standard set of business objects, representing all the important constructs in the virtual pipeline. These objects range from tangible operations assets such as compressor stations, to more abstract marketing objects such as contract pools. For these objects to deliver value they must be comparable and available. This implies a logical data model that is consistent among objects, especially with regard to names and units of measure. It also demands a standard corporate communications layer, including a standard object request broker. Our experience suggests that an open standard technology such as CORBA/IDL is most robust and maintainable in the corporate environment. Information is distributed as web-based displays, created on demand, to present highly processed information in compelling, graphical images. A virtual pipeline requires many graphical tools for rendering appropriate displays, depending on information content and user preferences. Much valuable information about a pipeline is dynamic, which requires the information distribution technology to render displays on the server but subsequently provide active updates to an interactive browser-based client. Technologies critical to data distribution include geographic information systems (GIS) for map-oriented display and interaction, ActiveX or equivalent controls for schematic displays, and graphing, charting and reporting components for other displays. Information Requirements The value of a virtual pipeline depends upon the content, timeliness, and clarity of its information displays, which has implications for information generation, transmission, and distribution technology. Although information may be generated by many different sources, it must include basic operations and marketing content to be valuable in decision-support. Fundamentally, it must answer the questions "what's going on?" now, and "what's going to happen?" in the future, for both marketing and operations business processes. The following list illustrates some examples of the information required to answer these questions in a way that creates valuable decision-support displays: What's going on?
A virtual pipeline presents displays representing each layer of source information, such as those listed above. It also presents a number of synthetic displays, created by combining two or more of the information layers. These synthetic displays, which combine sets of marketing and operations information layers, are generally the most interesting and valuable. One common type of synthetic display calculates available capacity: the difference between the design capacity of the pipeline, minus any current operational outages, and the current actual throughput of gas. Another valuable display is operating profit: the difference between operating cost and revenue. Because both operations and marketing business processes happen over time, valuable information displays can be created for the past, present, or future. It is also useful to consider the present state of the virtual pipeline as a single state (current actual) or as a trend of recent actual states. Similarly, the future state of the virtual pipeline may be interpreted in several ways: a forecast based on extrapolation of its current state, a forecast based on tentative marketing and operations decisions, or an optimized target state, based on analysis of possible marketing and operations decisions. Yet another dimension of decision-support displays is the format of presentation. For a given user and application, the same information may be viewed as a chart, a report, or a map. Indeed, our experience suggests that most information displays should be available in any of these formats. Any display, of any layer, in any format, can also be presented at various levels of granularity. The display might represent the virtual pipeline as a whole, or show variation by location (at several possible levels), or by customer, or nomination, or contract type. Depending upon the information generation, transmission, and distribution technology available, a huge number of possible information displays may be created for a virtual pipeline, simply by generating synthetic display layers and offering the user choices of past-present-trend-futureoptimal states, map-graph-report-chart format, and system-to-detailed granularity. To deliver this variety of displays, the virtual pipeline must create each display on demand, using an autonomous process to render business objects when requested, rather than pre-computing all possible displays. Organizational Impact The virtual pipeline concept can dramatically change the tone and pace of communication within a pipeline company. Traditionally, marketers undersubscribe the pipeline because they do not know what is operationally possible, or they oversubscribe the pipeline and incur the ire of operators. The morning meeting between marketing and operations in many pipeline companies often follows this pattern: Marketer: "Here's what we want to do today." Operator: "Hell, no!" The virtual pipeline can provide marketers with the same operations insight that the operators themselves already have. Together, these groups can share a common understanding of what is possible operationally, and what is valuable from a business perspective. This exchange of insight can, by itself, transform the discourse from antagonism to collaboration. This collaboration can lead to better asset utilization, improved margins, and better customer service. As the pace of business quickens under re-regulation, the virtual pipeline will support marketers, who must make snap decisions about nominations and pricing. Without real-time information about capacity, cost, and contracts, presented timely, in a format they can use, their only choice is to pass on valuable opportunities or risk making deals that will backfire. In the long term, the virtual pipeline will support innovative business models for the pipeline and utility industries, by providing insight on-demand to non-traditional actors within the company, such as executives, and field-based operations and customer support staff. Ultimately, information about the pipeline will be as valuable as the commodity it carries, when it is shared by the network of departments, brokers, regulators, and shippers who each have a stake in the physical and economic reality modeled and communicated by the virtual pipeline. | ||
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