Summary — Transportation and Scheduling

Overview: What Is Transportation and Scheduling?

Transportation and scheduling is the operational backbone of the natural gas industry. As described in the lecture, it is the function that "holds the industry together" — touching every segment from wellhead production through gathering, processing, transmission, storage, and final distribution. In the natural gas value chain, logistics (which includes transport, processing, and storage) is the middle layer connecting supply and demand, and transportation is the element within logistics that links all three sub-functions together.

The gas industry value chain follows this sequence:

Supply → Gathering → Processing → Transmission (Mainline) → Storage → Distribution → Demand

At every handoff point in this chain, scheduling activity occurs. A scheduler at a marketing company may manage gas flows across dozens — or even hundreds — of pipelines simultaneously, while a pipeline dispatcher manages all customer flows on a single pipeline.

The Two Key Players in Transportation

• Pipeline Dispatcher — An employee of the pipeline company responsible for managing the daily flow of all customer gas on that specific pipeline. Their objectives are safety, reliability, and efficiency in delivering gas to customers.
• Transport Customer / Scheduler — An employee of a marketing company, LDC, or other shipper who manages the daily flow of their company's gas across multiple pipelines. Their objective is to balance receipts, fuel, and deliveries using the most cost-effective paths. A single scheduler may manage gas across 89 or more pipelines simultaneously.

The relationship between these two roles is transactional and confirmatory: the scheduler tells the pipeline what they want moved; the pipeline verifies, confirms, and then moves it.

The Three Pipeline Types and Their Scheduling Environments

Natural gas is transported through three distinct types of pipeline infrastructure, each with its own regulatory environment and scheduling characteristics:

1. Gathering Pipelines — The upstream network connecting individual wells to central aggregation points. Gathering systems are regulated at the state level (e.g., the Texas Railroad Commission governs Texas gathering). These systems involve thousands of receipt points and hundreds of Central Delivery Points (CDPs). The processing plant reconciliation (shrink, liquids extraction) adds accounting complexity. Many large marketers and utilities prefer to avoid gathering system complexity and let specialized producers/agents handle it.

2. Transmission (Mainline) Pipelines — The large interstate pipes that move gas across regions and state lines. These are regulated by the Federal Energy Regulatory Commission (FERC) because by definition they cross state lines. Examples mentioned include Transco, NGPL (Natural Gas Pipeline of Louisiana/Illinois), NNG (Northern Natural Gas), and ANR Pipeline. These pipelines charge both demand and commodity rates under FERC-approved tariffs.

3. Distribution Pipelines — The local delivery network serving end consumers (residential homes, commercial businesses, industrial facilities, power plants). Also requires scheduling. Some marketers specialize in this segment, managing thousands of small commercial and residential customers billed through the ETRM system.

Transportation Pricing: Charges and Fees

Transportation is not free. Every pipeline segment imposes charges that a scheduler must incorporate into their cost calculations and sales pricing. Failing to account for these charges results in financial losses.

Demand Charge

A demand charge (also called a reservation charge) is a fixed monthly fee that gives a shipper the right to a reserved quantity of pipeline capacity. Key characteristics:

• Paid whether or not the shipper actually moves any gas
• Provides firm capacity — the pipeline guarantees that space on the pipe
• Example: A shipper pays to reserve 50,000 MMBtu/day of capacity from Point A to Point B
• Results in a lower commodity rate because the pipeline has already received fixed revenue
• If a shipper pays a demand charge and the firm commodity rate is, say, 2.5 cents/MMBtu, that indicates firm service

Commodity Charge

A commodity charge is a volumetric fee charged per unit of gas actually transported. It comes in two forms:

• Firm Commodity Rate — Lower rate, applicable when a demand charge is being paid (e.g., ~2.5 cents/MMBtu)
• Non-Firm (Interruptible) Commodity Rate — Higher rate, applicable when no demand charge is paid and the shipper is using best-available capacity (e.g., ~37 cents/MMBtu or more). The pipeline charges more because it received no guaranteed revenue from this shipper.

The economic tradeoff between firm and non-firm:

• Firm: Fixed demand charge + lower commodity = higher total cost but guaranteed delivery
• Non-Firm (Interruptible): No demand charge + higher commodity = potentially lower cost but interruptible — the shipper can be bumped off the pipe if a firm customer needs that capacity

Non-firm service is appropriate for filling storage (a missed day is recoverable), but not appropriate when serving a firm sales customer who depends on daily delivery.

Fuel Retained / Fuel Charge

Compressor stations along pipelines consume natural gas as fuel to pressurize and push gas through the pipe. This fuel cost is passed to shippers in one of two ways:

1. Fuel Retained (Retained Fuel) — The pipeline takes a percentage of the shipper's gas as it moves through the system. For example, a 3% fuel rate means 3% of the transported gas volume is "kept" by the pipeline.
2. Fuel Charge — The pipeline independently purchases fuel for its compressors and then allocates the cost to shippers as a line-item charge (similar to a commodity charge). This is used when the pipeline does not retain physical gas volumes.

Exam note: If asked the two ways a pipeline can recoup fuel consumption: (1) Fuel retained percentage (physical volume) and (2) Fuel charge (monetary charge for purchased fuel).

The Fuel Calculation Formula

Because fuel is consumed along the transport path, a scheduler must buy more gas at the receipt point than will be delivered at the destination. The formula to determine the required receipt volume is:

Receipt Volume = Delivery Volume ÷ (1 − Fuel Rate)

Example with 3% fuel rate and 10,000 MMBtu desired delivery:

The pipeline moves 10,309 MMBtu into the pipe. Along the route, 309 MMBtu is consumed at compressor stations (in incremental amounts at each station), and 10,000 MMBtu is delivered to the customer.

Cost Impact of Fuel

Fuel is not "free" to the scheduler just because it is volumetric. The scheduler must purchase those extra volumes from the producer/marketer at market price. Using the example above with a $3.00/MMBtu gas price:

The scheduler's sales price must exceed this breakeven to generate profit. A typical margin target (e.g., 5%) would be added on top of the landed cost.

Nominations, Confirmations, and Actualization

The scheduling process involves three distinct stages that track what was requested, what was verified, and what actually happened:

1. Nominated Units (Nominations)

A nomination is the scheduling "order" submitted by the transport customer to the pipeline — analogous to placing an order on Amazon, or telling FedEx to pick up a package at one location and deliver it to another. Nominations specify:

• Receipt point (where gas enters the pipeline)
• interconnecting pipeline, or storage facility. Defined in transportation contracts. The "demand" side of a pipeline transaction." class="glossary-term">Delivery point (where gas exits the pipeline)
• Volume requested

Timing: Nominations are due to the pipeline by 3:00 PM Central Time (updated from the historical 11:30 AM CDT deadline). The change was driven by electric power generators, who became the dominant gas consumers over the past 10–15 years and needed more time to forecast their daily gas needs due to grid volatility. Nominations are placed for the next gas day (not same-day, except in emergencies).

Weekend/Holiday Rule: Because schedulers do not work on weekends, Friday nominations cover three gas days: Saturday, Sunday, and Monday. Holiday periods (Thanksgiving, Christmas, New Year's) require similar multi-day advance nominations.

2. Confirmed Units (Confirmations)

The pipeline does not simply accept the shipper's nomination at face value. It independently contacts both the upstream counterparty (the gas seller/producer) and the downstream counterparty (the buyer/customer) to verify the volumes:

• "Did [Marketer X] arrange to buy 25,773 MMBtu from you?" → Seller confirms or denies
• "Is [Marketer X] going to deliver 25,000 MMBtu to you tomorrow?" → Buyer confirms or denies

If confirmations do not match the nomination, the pipeline cuts the scheduled volume to the confirmed level. The scheduler must then find additional supply to make up the shortfall. This system was created specifically to prevent volume gaming by shippers (a known problem during early deregulation).

3. Actual Units (Actualization)

Actuals are the volumes physically measured by pipeline meters at receipt and delivery points. Meters are installed at both ends of the transport path. Due to the physical nature of gas flow, actual metered volumes almost never perfectly match nominated/confirmed volumes, creating imbalances.

The actualization process may occur daily, or may be finalized over a monthly settlement cycle.

Imbalances and Cashout

An imbalance occurs when the actual metered volume differs from the nominated/confirmed volume. Imbalances can occur on either the receipt side (producer delivered more or less than nominated) or the delivery side (customer took more or less than nominated).

Short Imbalance (Scheduler is short)

The customer took more gas than the scheduler put into the pipe. Example: Nominated 25,000, but customer actually took 25,513. The extra 513 MMBtu came from the pipeline's own line pack.

• Resolution options:
  • Physical payback: Scheduler delivers the deficit volume on a subsequent day or month
  • Cashout: Pipeline sells the deficit gas back to the scheduler at a penalty price above market (e.g., market = $3.00 → cashout price = $3.25). The penalty discourages schedulers from relying on the pipeline as an unplanned supply source.

Long Imbalance (Scheduler is long)

The scheduler put more gas into the pipe than the customer took. Example: Scheduled 25,000 but customer only took 24,712.

• Resolution: Pipeline buys the excess gas from the scheduler at a penalty price below market (e.g., market = $4.00 → cashout price = $3.75). This discourages schedulers from leaving excess gas on the system.

Tolerance Bands

Most pipelines provide a tolerance band (e.g., ±3% to ±5%) within which imbalances are not penalized. Only imbalances exceeding the tolerance trigger cashout penalties.

Line Pack

Line pack is the gas permanently stored within a pipeline under pressure, which was purchased when the pipeline was first built and pressurized. This gas enables the pipeline to begin doing business immediately and provides a buffer to absorb short-term imbalances. Historically, some shippers exploited line pack by under-delivering on the receipt side while still having the pipeline deliver full volumes on the delivery side — effectively borrowing from line pack and repaying it cheaply in summer when gas prices were lower.

The Art of Scheduling: Transaction Types

Schedulers work with several types of scheduling arrangements:

Buy/Sell (No Transport)

The simplest scheduling transaction. The buy and sell occur at the same point — no physical movement of gas is required. The system simply links the two transactions together, offsetting supply against demand at the same location. Also called a back-to-back transaction. Sometimes a masking transport contract (a no-transport link) is used to conceal the identity of trading partners, preventing customers from discovering and directly approaching the scheduler's supply source.

Single-Leg Transport

Gas moves from one receipt point to one delivery point on the same pipeline — a single link in the transport chain. This is the fundamental unit of scheduling: everything else is built from single legs. The lab exercise for this module focuses on single-leg transport. Requires a transport contract, a commodity tariff rate, and a fuel retained rate.

Multi-Leg Hauls

Gas moves from an origin to a destination through two or more transport legs — either on the same pipeline or across multiple pipelines connected at interconnects. Multi-leg hauls are simply multiple single-leg transports chained together. The airline analogy: flying from a small city (Huntsville, AL) → Atlanta → Washington → Chicago involves multiple legs and even a change of airline (change of pipeline), but each leg is understood individually.

Pools

A pool is a logical aggregation point where multiple gas supplies from various receipt points are combined into a single virtual supply. Instead of linking each individual supply to each individual customer (which creates a complex matrix of links), the scheduler:

1. Moves all supplies into the pool (single legs into the pool)
2. Sells out of the pool to customers (single legs out of the pool)

Benefits:

• Simplifies scheduling complexity — eliminates the need to manage a many-to-many supply/demand matrix
• Insulates customers from supply volatility — if one upstream supply fluctuates, it affects the pool level, not individual customer deliveries directly
• Storage integration — excess pool supply can be injected into storage; shortfalls can be covered by storage withdrawals

Example: 5 supply points each producing ~3,000 MMBtu/day aggregate into a pool of 15,000 MMBtu. Four customers need 1,500 / 1,750 / 225 / 7,500 MMBtu respectively (total 10,975). The excess 4,025 MMBtu goes to storage. If one supply drops, only the pool level changes; all four customers remain unaffected until the pool is exhausted.

Interconnects and Transfers

An interconnect is a physical point where two different pipelines connect, allowing gas to flow from one pipeline to another. A transfer is the scheduling transaction that moves gas across an interconnect from one pipeline to a different pipeline. This is distinct from a pool (which operates on a single pipeline). When a scheduler needs to serve a customer on a different pipeline, they must:

1. Transport gas to the interconnect point on the first pipeline
2. Transfer gas across the interconnect to the second pipeline
3. Transport gas from the interconnect to the customer on the second pipeline

The Scheduling Workflow and Lab Exercise

The module's hands-on lab follows this workflow for a single-leg transport exercise:

Step 1: Enter Tariffs

Before scheduling can occur, the commodity rates and fuel retained percentages must be entered into the ETRM system for each pipeline (ANR, NGPL, NNG). Navigate to the Legal Entity screen, filter for pipeline type, select a pipeline, open the Tariff tab, and add:

• Firm Commodity tariff (e.g., 37.5 cents/MMBtu) with effective date
• Fuel Retained tariff (e.g., 5%) with effective date

Repeat for each of the three pipelines. Verify tariffs in the student portal before proceeding. If fuel is not entered, the system will not calculate the fuel reduction and scheduling volumes will be incorrect.

Step 2: Enter Transactions (Buys and Sells)

Enter purchase and sale transactions in the transaction screen for each pipeline on the designated gas day (Day 6 for NNG, Day 7 for ANR, Day 8 for NGPL). Verify totals against the spreadsheet data.

Step 3: Schedule the Transactions

In the scheduling screen, link each buy to its corresponding sell using Transport (not "No Transport" as in the prior lab). The system will automatically calculate the fuel reduction based on the tariff and display the net delivered volume. Save each scheduled leg.

Step 4: Verify in the Student Portal

After completing tariffs, transactions, and scheduling, verify each step in the student portal. The portal will flag mismatches — even a single incorrect character. Submit before the Friday end-of-business deadline to earn the bonus point.

Relationship to Other ETRM Concepts

• Trading/Deals feed the buy and sell transactions that scheduling then links and moves
• Tariffs (entered at the legal entity level) determine commodity charges and fuel retained rates that the scheduling engine applies automatically
• Storage integrates with scheduling — gas is injected when supply exceeds demand and withdrawn when demand exceeds supply; schedulers must nominate injections and withdrawals just like transport
• Accounting/Settlements consume the actual metered volumes to calculate imbalances, cashout charges, and final invoicing
• Confirmations protect the pipeline and enforce nomination discipline — directly linking the scheduling function to contract compliance
• Processing Plants create reconciliation complexity (inlet vs. outlet volumes, shrink, NGL extraction) that some schedulers prefer to avoid by purchasing gas downstream of the plant