With deregulation fast becoming a reality, future business in the gas pipeline industry will be more dynamic with the need for transportation costs being readily available to decision makers. In such an environment, there will be an increasing need to use better tools to obtaining quantitative transportation cost information. Compression energy costs account for the majority of the operating cost. This paper presents the use of compressor station optimization to derive the marginal cost of transporting natural gas. Marginal cost is defined as the additional cost that is incurred to transport an additional amount of gas (over and above what?). Marginal costs are very sensitive to the system throughput and system configuration. The Marginal Cost Analysis application performs optimization of the devices on the pipeline (compressor "on/off" states, station suction and discharge pressures, station load sharing). During the optimization, the device characteristics and compressor maps are used along with the different tariff structures (gas vs. electricity). The system optimization is performed for a base case (nominal throughput) and child runs (different amount of additional "point to point" throughput). The differences in the cost between the base and child run are used to derive the marginal cost. The marginal cost information can be used by operations and marketing groups to get a better insight on how the transportation cost varies by seasons and in the presence of outages. This paper examines changes in the pipeline business environment, and describes how marginal cost calculations are becoming very important in this context. The paper presents the key qualities an effective marginal cost application must have, and it describes the Marginal Cost Analysis applicationimplemented at Texas Eastern Transmission Corporation, along with how the information generated will be used. Marginal Cost Analysis


Imagine an essential commodity, one that everyone depends on day in and day out, increasing in price by a factor of 300 in a matter of days. The effects of this dramatic increase would be profound, disruptive and even shocking. This is exactly what happened to the wholesale electricity market in the summer of 1998. The electricity market is undergoing a deregulation exercise similar to the natural gas industry and in many respects is further ahead, and thus this incident bears some examination.

Price Spikes

During the week of June 22-26, 1998, the electric industry in the Midwest experienced a number of dramatic price increases in the wholesale electric market. These price increases were short-lived, but very large. Next-day prices rose from the $25 per megawatt hour (MWh) range to as much as $2,600 per MWh, with at least one hourly price reaching $7,500 per MWh.

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