Euromoney Energy Training

A 3 day course featuring:

• Overview of the gas supply chain
• Pipeline design basics
• The main cost drivers
• The economics, pricing, regulation and development of gas transmission pipelines
• The scope and sizing of projects
• National and trans-national projects
• Exercises to enhance understanding of all material presented

Course objectives

In today's global gas market the development of transmission pipelines that will deliver a large proportion of the gas from production sources to ever growing consumer markets depends above all on the fundamental economic realities of cost, regulation and market development. In many respects gas is different from oil and electricity and different tools, techniques and assumptions are needed.

Effective training in these areas becomes an urgent need for relevant executives in both public and private sectors. In response to such industry dynamics, this course provides practical and detailed training, in workshop format. The course will provide effective training in the critical considerations and conditions for successfully developing, regulating and utilising gas transmission pipelines and for getting gas to market.

The course will enable you to gain a strong insight into the way in which the gas industry has developed and continues to be shaped, why and how the US and European models are different and what arrangements might be most suitable in developing gas markets.

Teaching methodology

The course is delivered using power point presentations, case studies and exercises. The case studies examine the significance of and variation between contractual frameworks for gas pipeline development and operation in the US and Europe and the impact of regulatory regimes on projects. The exercises include cost estimation, Greenfield project appraisal and tariff design.

Day 1

Where does gas transmission fit in the gas supply chain?

• Exploration and production
• Processing
• Long distance international transmission pipelines
• LNG – sources and markets
• National/regional high pressure pipeline networks
• Distribution
• Retail supply and marketing

How does the gas supply chain compare / contrast with the electricity and oil supply chains?

• Defining features by chain
• Use of principal forms of supply chain transactions
• Spot markets
• Bilateral contracting
• Vertical integration
• The various combinations of:
• Regulation
• Competitive markets
• Vertical integration, coalitions, JVs
• Bilateral contracting

Why are certain combinations used for gas transmission investments?

• The specific nature of the investment
• The requirement to ensure full recovery of the investment (including an appropriate risk-related rate of return) leading to

either

• long term supply contracts for gas and transmission services, based on netback prices derived from estimated gas market value in relation to fuels being displaced and with, in general, oil or petroleum product price indexation – though other indices may be included

• The ability to separate the ownership and operation of the pipelines from the ownership, trading and supply of the gas being transported
• The ability to write complete, tradable contracts for the capacity in transmission pipelines and
• The incentives for traders and suppliers to trade gas at locations where there are multiple pipeline interconnections – or virtual interconnections in the case of virtual hubs

leading

• to competitive markets in gas and pipelines

Case study: Contractual frameworks for transmission pipelines in the EU and the US

Day 2

What are the different types of transmission pipeline investments?

• New (or “Greenfield”) pipeline project linking new gas production, a new LNG importation facility or new external pipeline supplies to new markets
• Within national boundaries or
• Traversing more than one country
• Expansion or interconnection of existing pipeline system

What is the impact of different institutional and regulatory regimes on these projects?

• Traditional market value/netback pricing with vertical integration and/or exclusive bilateral contacting and extended or indefinite exclusivity
• Competitive markets in gas and pipelines
• Transition arrangements to competitive markets in gas and pipelines

Case study: Examples of typical projects

What does a pipeline project involve?

• Conceptual design including peak and annual volume delivery requirements
• Basic equations
• Line pipe
• Compression
• Block valves
• SCADA systems and telemetry

What are the primary cost drivers?

• Terrain
• Distance
• Diameter
• Wall thickness
• Pressure and compression requirements
• Grade of steel
• Coatings

The secondary cost drivers?

• Steel price
• Mill availability
• Compressor station availability
• Mitigation of social and environmental impacts

Exercise: Cost estimation and development of a simple cost model

Illustration of how the various cost drivers impact total project development costs and their respective significance

Day 3

How is the scope, sizing and phasing of the project determined?

• Greenfield project
• Peak and annual volume gas delivery demand (and potential substitution value) by location and over time
• Electricity generation
• Feedstock
• Industry
• Residential and commercial (R&C)
• Peak and annual volume supply input (and estimated cost) by location and over time
• Requirement for demand and supply modulation, storage, interruptibility, etc.
• System expansion or interconnection project
• Rationale for pipeline capacity expansion or extension
• Demand expansion, delivery efficiencies secured or constraints relieved, security of supply issues, reverse flow potential, etc.
• Peak and annual volume delivery requirements
• Integration with existing facilities
• Establish technical feasibility

How is the appropriate legal, regulatory and contractual framework established?

• May be established for expansion/extension of existing system but may need to be defined for Greenfield project
• Legal, regulatory and taxation arrangements
• Contractual framework governing commercial behaviour of pipeline owner, shippers and system operator
• Financial structure and financing options

What does the economic / financial appraisal involve?

• Estimate gross margin for transmission
• Between the value of gas delivered and cost of gas supplied
• Establish basic investment metrics – e.g., investment recovery period, required rate of return on investment, payback period, etc.
• Estimate costs of transmission and annual revenue recovery requirement (including gross capital charges and operational expenditure)
• Identify financing structure, cost of debt, cost of equity, taxation regime, etc.
• Assess economic and financial feasibility

Exercise: Greenfield Project Appraisal

How are tariffs derived?

• Define the cost base and revenue recovery requirement
• Classify costs between fixed and variable
• Allocate costs in proportion to cost causation
• Identify design option to distribute costs among pipeline users and apply to billing determinants
• Point-to-point
• Zonal
• Entry-exit

Exercise: Simple tariff design model

Course summary and close

• Paul Hunt

  Paul Hunt works primarily as an independent energy sector consultant and he began his energy sector career as Corporate Economist for Bord Gáis Éireann (The Irish Gas Board) in 1986. In 1989 he moved to Britain and has worked since then as an energy sector consultant both with major engineering and economic consultancies and, since 1997, as a self-employed consultant – working either directly with clients or in association with other consulting firms. His major areas of work are gas industry structure and regulation with a specific interest in the development, financing and pricing of services on gas transmission and distribution networks. Beginning with significant involvement in the UK’s gas market liberalisation from the late 1980s the geographical scope of his work has expanded and he has considerable international experience throughout Europe, Africa, the Middle East, Russia and East Asia. He is a frequent chair/moderator and presenter at conferences, he delivers seminars and workshops and has recently produced a publication on the development of the gas market in Europe.

Interested in holding this course in-house? Please fill out your details and a member of our team will be in touch with more information.