The National Energy Modeling System: An Overview 1998 - Natural Gas Transmission and Distribution Module Network

The natural gas transmission and distribution module (NGTDM) is the component of NEMS that represents the natural gas market. The NGTDM models the natural gas transmission and distribution network in the lower 48 States, which links suppliers (including importers) and consumers of natural gas. The module determines regional market-clearing prices for natural gas supplies (including border prices) and end-use consumption.

The NGTDM has four primary submodules: the annual flow submodule, the capacity expansion submodule, the pipeline tariff submodule, and the distributor tariff submodule. The annual flow submodule--the central component of the NGTDM--is used to derive flows and prices of natural gas in conjunction with an annual natural gas market equilibrium. Conceptually, the annual flow submodule is a simplified representation of the physical natural gas transmission and distribution system, structured as a network of nodes and arcs. The network representation is in terms of 12 internal nodes and 9 border transshipment nodes (Figure 15). The other three submodules provide parameters to the annual flow submodule that define some of the characteristics of the system's nodes and arcs. Other parameters for defining the natural gas market (such as supply and demand curves) are derived from information passed from other NEMS modules. The capacity expansion submodule provides the annual flow submodule with maximum annual flows allowed along each of the arcs in the network. The pipeline and distributor tariff submodules provide price parameters for establishing the tariffs to be charged along each of the interregional, intraregional, and distribution arcs. Data are also passed back to these submodules from the annual flow submodule and between the other submodules.

The primary outputs from the NGTDM, which are used as input in other NEMS modules, result from establishing a natural gas market equilibrium solution: end-use prices, wellhead and border crossing prices, and associated production, and Canadian import levels. In addition, the module provides a forecast of lease and plant fuel consumption and pipeline fuel use, as well as pipeline and distributor tariffs, pipeline and storage capacity expansion, and interregional natural gas flows. The basic NGTDM structure and its relationship with other NEMS modules is shown in Figure 16.

The annual flow submodule is the main integrating component of the NGTDM. One of its major functions is to simulate the natural gas price determination process. The annual flow submodule brings together all major economic and technological factors that influence regional natural gas trade in the United States. The economic considerations include the demand for and the supply of natural gas and the competition from imported natural gas.

NGTDM Outputs	Inputs from NEMS	Exogenous Inputs
End-use natural gas prices Natural gas wellhead prices Natural gas border crossing prices Domestic natural gas production Canadian natural gas imports and production Lease and plant fuel consumption Pipeline fuel use Pipeline and distribution tariffs Interregional natural gas flows Storage and pipeline capacity expansion Synthetic gas production	End-use natural gas demands Domestic and Canadian natural gas supply curves Mexican and liquefied natural gas imports Natural gas exports Consumption parameters from dual-fired plants Macroeconomic variables Associated-dissolved natural gas production	Historical consumption patterns Historical flow patterns Rate design specifications Company-level financial data Pipeline and storage capacity and utilization data Historical end-use prices State and Federal tax parameters Pipeline and storage expansion cost data Synthetic gas production from coal

The annual flow submodule integrates all components of the NGTDM--the annual flow submodule itself, the capacity expansion submodule, the pipeline tariff submodule, and the distributor tariff submodule. Through this integration process, the annual flow submodule derives average annual natural gas prices (wellhead, city gate, and end-use) that reflect a least- cost market equilibrium among competing gas supplies, end-use sector consumption, and transportation routes. End-use prices are derived for both core and noncore markets. Within NEMS, the classification of customers is predetermined. It is assumed that core customers purchase firm transportation service and noncore customers purchase interruptible service.

The capacity expansion submodule simulates the decisionmaking process for expanding pipeline and/or storage capacity in the U.S. gas market. In simulating gas pipeline capacity expansion, the capacity expansion submodule (1) determines the amount of pipeline and storage capacity to be added between or within regions in the NGTDM and (2) establishes effective (or practical) maximum annual utilization rates for each of the interregional pipeline routes represented in the annual flow submodule. Maximum utilization rates (or load factors) for pipeline routes are established to capture the impact of variations in seasonal demand on the maximum amount of gas that can practically flow between regions within a year. Pipeline capacity additions are used in the annual flow submodule (in combination with the maximum load factors) to set limits on annual interregional flows. These capacity additions are also used in the pipeline tariff submodule for the determination of interregional pipeline tariffs.

The pipeline tariff submodule computes tariffs for transportation and storage services provided by interstate pipeline companies. The tariffs are computed for individual pipeline companies, then aggregated to the major gas pipeline corridors or arcs in the United States specified in the NGTDM network (Figure 15). An accounting system is used to track costs and compute tariffs under various rate design and regulatory scenarios. Tariffs are computed for both firm and interruptible transportation and storage services. Transportation tariffs are computed for the interregional arcs defined by the NGTDM network. These network tariffs represent an aggregation of the tariffs for individual pipeline companies supplying the network arc. The tariffs are used within the annual flow submodule to derive wellhead, border crossing, and end-use prices and within the capacity expansion submodule to derive capacity additions.

Markups for residential, commercial, and core industrial customers include the cost of service provided by intrastate pipelines and local distributors. The intrastate tariffs are accounted for endogenously through historical model benchmarking. The distribution tariffs are initially based on 1996 historical data, but they are adjusted throughout the forecast in response to changes in consumption levels and cost of labor and capital and assumed industry efficiency improvements. It is assumed that independent of changes in costs related to the cost of capital and labor and consumption levels, the cost of providing distribution services will decline 1 percent per year through 2015, as a result of efficiency improvements, and remain constant thereafter.

Markups for industrial noncore customers and core and noncore electric generator customers are endogenously derived as the difference between estimated historical 1996 end-use prices and the NGTDM regional core or noncore hub prices and are held constant throughout the forecast.

URL: http://www.eia.doe.gov/oiaf/aeo98/ov98/natg.htm
Contact Name:Susan H. Holte, susan.holte@eia.doe.gov
Phone: (202) 586-4838
Fax: (202) 586-3045

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