Natural Gas Distribution

The natural gas industry is an extremely important commodity in the energy sector of the U.S. economy. In addition to providing one of the cleanest burning fuels available, it offers constant value and growing commerce to the nation.

Over the past 15 years, the structure of the natural gas industry has changed dramatically. The industry formerly had a simple structure with limited flexibility and few options for delivery. Production companies explored and drilled for natural gas, selling their product at the wellhead to large transportation pipelines. These pipelines transported the natural gas, selling it to local distribution utilities, which sold that gas to its customers. The price for which the producers sold the natural gas to the transportation pipelines and the price for which the pipelines sold the local distribution companies were both federally regulated. Then state regulation monitored the price for which local distribution companies sold natural gas to their customers. The increasing demand for natural gas as a fuel source, new technology, regulation flexibilities, and innovative data monitoring have changed the industry.

Distribution is the final step in delivering natural gas to end users. High capacity interstate and intrastate pipelines deliver directly to the large industrial, commercial, and electrically generated customers. These accounts are usually contracted through natural gas marketing companies. Most other users receive natural gas from a local distribution company (LDC). There are two basic types of local distribution companies: those owned by investors, and public gas systems owned by local state governments.

Local distribution companies like Triple Diamond Energy Corp transport natural gas through small-diameter distribution pipe. Delivery points to LDCs, especially for large municipal areas, are often termed 'citygates'. LDCs usually take ownership of the natural gas at the citygate, then deliver it to each individual customer's location of use. It has been estimated that the extensive network of small-diameter distribution pipe required to deliver natural gas in the United States is over one million miles.

The transportation infrastructure required to move natural gas to many diverse customers across the country to some remote and isolated areas, distribution costs make up the majority of natural gas costs for small volume end users. Distribution companies must deliver relatively small volumes of gas to many more different locations. Large pipelines can reduce unit costs by transmitting large volumes of natural gas, but these infrastructures are utilized around the concentrated metropolitan areas of the country. According to the Energy Information Administration (EIA), for the typical small volume residential natural gas consumer, distribution costs represent up to 47 percent of the natural gas bill. The actual natural gas commodity represents about 34 percent of residential consumers' bill, and transmission (by large interstate and intrastate pipelines) and storage costs make up about 19 percent.

Other innovations affecting the natural gas industry include the new technology of flexible plastic and corrugated stainless steel tubing in place of rigid steel pipe, new electronic meter-reading systems capable of transmitting data information directly to the local distribution company, new trenching techniques allowing for pipe installation with less impact on the above ground surroundings, and new supervisory control and data acquisition (SCADA) systems which assimilate gas flow control and measurement providing a comprehensive accurate report for the LDC. All of these improvements result in cost savings for the LDC, which are passed along to customers.