Basics of Natural Gas Market Participants

by Bob Shively, Enerdynamics President and Lead Instructor

From time to time in our blog posts, we like to go ‘back to basics’ for those readers new to the industry or those who have spent time in one sector and need a bigger picture of the industry. In this post we discuss the key participants in the gas industry and focus on two aspects: 1) the entities involved in physically producing gas and delivering it to consumers; 2) the participants involved in ownership of the supply since in our current unbundled world these entities are often different companies than those that physically move the gas.

Gas Delivery System Market Structure

 

Natural gas delivery market structure

 

Producers

Natural gas producers, also known as E&P (exploration and production) firms, explore for economic gas resources, drill wells, and produce gas. Because natural gas and oil are often found together, some of the largest natural gas producers are also major oil producers. But there are also numerous significant gas E&P firms independent from the large integrated energy companies.

 

Gathering pipelines

Connecting the lease facility with the transmission system is an important function provided by the gathering pipelines. While the producers themselves may handle this function, it is often a third party that owns and operates these small, extended pipeline systems. The third parties commonly include transmission pipeline companies and integrated midstream companies that also own processing facilities.

 

Processors

Processors operate the processing facility necessary to remove impurities from the gas stream and to strip valuable natural gas liquids. Like gathering pipelines, processing facilities are commonly owned by transmission pipeline companies or integrated midstream companies that also own gathering systems and other pipelines.

 

Transmission pipelines

Pipelines transport gas from producing regions (or supply basins) to market regions where they interconnect with the LDC system. In some cases transmission pipelines also connect directly to large consumers such as power plants or industrial facilities. There are hundreds of transmission pipelines in the U.S., but many are owned by a few large pipeline holding companies.

 

Local distribution companies (LDCs)

LDCs transport and distribute gas from the interstate pipeline to end users. Some LDCs are stand-alone investor-owned utilities while others are owned by larger holding companies that may also own pipelines and other energy assets.  In a few cases, LDCs are municipally owned.  The transport and distribution function is handled by the LDC regardless of whether gas supply is provided by the LDC or by a marketer.

 

Storage providers

Storage providers operate storage fields and offer storage services to a variety of market participants. Pipelines, LDCs, and hub operators also provide short-term storage known as balancing and/or parking. Ownership of storage facilities is largely in the hands of pipeline companies and/or independent operators. In some cases storage also is owned by LDCs.

 

Natural Gas Supply Market Structure

 

Natural gas supply market structure

 

Producers

Producers must find buyers for their gas production. Larger producers may market their gas directly to LDCs and, in some cases, even directly to large end users. But often, producers rely on marketers to buy their gas.

Marketers

Marketers generally purchase gas supplies from producers and then resell the gas to LDCs, end users, or other marketers. Successful marketers add value by saving producers and end users the trouble of finding each other, arranging transportation and storage, and sometimes even arranging financing or assuming price risk.

LDC procurement

Except in states where regulators have completely deregulated the supply function, LDCs take responsibility for procuring gas supply for resale to certain classes of end-use customers. In most cases, smaller customers such as residential and small commercial establishments receive their gas supply from LDCs, while the larger customers (including large commercial, industrial, and power plants) purchase their supply from marketers.  In some states, smaller customers have the choice of buying from the LDC or from marketers.

 

Where to learn more…

If you’d like to learn more about the natural gas industry, we suggest Enerdynamics’ learning products including the book Understanding Today’s Natural Gas Business; our online courses including Gas Industry Overview and Gas Market Dynamics; or our classroom seminars including Gas Industry Basics, Gas System Fundamentals, and North American Gas Markets.

About Enerdynamics

Enerdynamics was formed in 1995 to meet the growing demand for timely, dynamic and effective business training in the gas and electric industries. Our comprehensive education programs are focused on teaching you and your employees the business of energy. And because we have a firm grasp of what's happening in our industry on both a national and international scale, we can help you make sense of a world that often makes no sense at all.
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