Installing Small Diameter Distribution Pipe

Source: Duke Energy Gas Transmission Canada

Local distribution companies typically transport natural gas from delivery points along interstate and intrastate pipelines through thousands of miles of small-diameter distribution pipe. Delivery points to LDCs, especially for large municipal areas, are often termed 'citygates', and are important market centers for the pricing of natural gas. Typically, LDCs take ownership of the natural gas at the citygate, and deliver it to each individual customer's location of use. This requires an extensive network of small-diameter distribution pipe; it has been estimated that there exist over one million miles of distribution pipe in the United States.

Because of the transportation infrastructure required to move natural gas to many diverse customers across a reasonably wide geographic area, distribution costs typically make up the majority of natural gas costs for small volume end users. While large pipelines can reduce unit costs by transmitting large volumes of natural gas, distribution companies must deliver relatively small volumes to many more different locations. In fact, according to the Energy Information Administration (EIA), for the typical small volume residential natural gas consumer, distribution costs can represent up to 47 percent of the natural gas bill. As shown, commodity costs (the physical natural gas itself) represent about 34 percent of residential consumers' bill, and transmission (by large interstate and intrastate pipelines) and storage costs make up about 19 percent.

Components of Residential Natural Gas Prices

Source: Energy Information Administration

Delivery of Natural Gas

The delivery of natural gas to its point of end use by a distribution utility is much like the transportation of natural gas discussed in the Transportation section. However, distribution involves moving smaller volumes of gas at much lower pressures over shorter distances to a great number of individual users. Small-diameter pipe is used to transport natural gas from the citygate to individual consumers.

The natural gas is periodically compressed to ensure pipeline flow, although local compressor stations are typically much smaller than those used for interstate transportation. Because of the smaller volumes of natural gas to be moved, as well as the small-diameter pipe that is used, the pressure required to move natural gas through the distribution network is much lower than that found in the transmission pipelines. While natural gas traveling through interstate pipelines may be compressed to as much as 1,300 pounds per square inch (psi), natural gas traveling through the distribution network requires as little as 3 psi of pressurization. The natural gas to be distributed is typically depressurized at or near the citygate, as well as scrubbed and filtered (even though it has already been processed prior to distribution through interstate pipelines) to ensure low moisture and particulate content. In addition, Mercaptan - the source of the familiar rotten egg smell in natural gas - is added by the LDC prior to distribution. This is added because natural gas is odorless and colorless, and the familiar odor of Mercaptan makes the detection of leaks much easier.

Distribution Compressor Station

Source: Duke Energy Gas Transmission Canada

Traditionally, rigid steel pipe was used to construct distribution networks. However, new technology is allowing the use of flexible plastic and corrugated stainless steel tubing in place of rigid steel pipe. These new types of tubing allow cost reduction and installation flexibility for both local distribution companies and natural gas consumers.

Another innovation in the distribution of natural gas is the use of electronic meter-reading systems. The natural gas that is consumed by any one customer is measured by on-site meters, which essentially keep track of the volume of natural gas consumed at that location. Traditionally, in order to bill customers correctly, meter-reading personnel had to be dispatched to record these volumes. However, new electronic meter-reading systems are capable of transmitting this information directly to the local distribution company. This results in cost savings for the LDC, which are in turn passed along to customers.

Installing Residential Distribution

Source: Duke Energy Gas Transmission Canada

The installation of natural gas distribution pipe requires the same process as for larger pipelines: the excavation of trenches into which the pipe is laid. However, new trenching techniques are allowing for the installation of distribution pipe with less impact on the above ground surroundings. Guided drilling systems are used to excavate an underground hole in which the pipe may be inserted, and can lead to significant excavation and restoration savings. This is particularly important in crowded urban settings and scenic rural environments, where the installation of natural gas distribution pipe can be a major inconvenience for residents and business owners.

Supervisory control and data acquisition (SCADA) systems, similar to those used by large pipeline companies, are also used by local distribution companies. These systems can assimilate gas flow control and measurement with other accounting, billing, and contract systems to provide a comprehensive measurement and control system for the LDC. This allows accurate, timely information on the status of the distribution network to be used by the LDC to ensure efficient and effective service at all times.

Regulation of Natural Gas Distribution

Traditionally, local distribution companies have been awarded exclusive rights to distribute natural gas in a specified geographic area, as well as perform services like billing, safety inspection, and providing natural gas hookups for new customers. Like interstate pipelines, LDCs have historically been looked upon as natural monopolies. Because of the cost of implementing the distribution infrastructure, it would be uneconomic to lay overlapping distribution networks in any one area, meaning that in most areas there is only one LDC offering distribution services.

Because of their position as natural monopolies in a given geographic area, distribution companies have historically been regulated to ensure that monopoly power is not abused, and natural gas consumers do not fall victim to overly high distribution costs or inefficient delivery systems. State public utility commissions are charged with the oversight and regulation of investor owned local distribution companies. Those utilities owned by local governments are typically governed by local government agencies to ensure that the needs and preferences of customers are met in a cost effective manner. State regulation of local distribution companies has a variety of objectives, including ensuring adequate supply, dependable service, and reasonable prices for consumers, while also allowing for an adequate rate of return for investor owned LDCs. State regulators are also responsible for overseeing the construction of new distribution networks, including approving installation sites and proposed additions to the network. Regulatory orders and methods of oversight vary from state to state. To learn more about the regulation of natural gas distribution in your state, click here to visit the National Association of Regulatory Utility Commissioners (NARUC).

Local distribution companies have historically offered only bundled services; that is, they combine the cost of all upstream activities, including their own transportation and the price of purchasing the natural gas itself, into one price for consumers. However, recently there has been a movement towards the retail unbundling of natural gas sales. Much like the interstate pipeline restructuring, many states now offer programs in which customers may choose from whom they purchase their gas, and use the distribution network in place simply to transport that natural gas to its point of consumption. These programs, commonly called 'customer choice' programs, are in place or under development in a number of states. To learn more about the status of state distribution customer choice programs, visit the EIAs website here.

Although most residential and small commercial customers tend towards purchasing 'bundled' natural gas from LDCs, new methods for allowing customer choice in natural gas purchases are being tested in a number of states. The increasingly important role of natural gas marketers, as well as the innovation fueled by increasing competition in the marketplace, is leading to innovative ways of supplying natural gas to small volume users. To learn more about natural gas marketing, click here.

Distribution and Safety

Local distribution companies, like the larger interstate and intrastate pipelines, maintain the highest safety standards to ensure that preventable accidents are avoided, and problems with the distribution network are remedied in a timely fashion. Many of the safety programs maintained by LDCs are quite similar to those of interstate pipeline companies. Safety measures at the local level include:

• Leak Detection Equipment - LDCs have in place sophisticated leak detection equipment, designed to pick up on leaks of natural gas from the distribution network, as well as adding odorants to the natural gas to make it easier to detect a leak
• Safety Education Programs - LDCs typically run natural gas safety seminars in schools, community centers, and through other organizations to ensure customers are well versed in natural gas safety procedures, and know what to do in the event of a leak or emergency
• Technicians on Call - LDCs maintain fleets of technicians on call 24 hours a day, seven days a week to respond to customers' problems and concerns
• Emergency Preparedness - LDCs participate in community and local emergency preparedness programs, educating and preparing for emergency events such as natural disasters
• One Call Systems - provides customers, contractors, and excavators with a single phone number to call before commencing excavation or construction, to ensure that the distribution network is unaffected

Community Emergency Response Team - Checking Gas Meters

Source: Federal Emergency Management Agency

These are but a few of the safety measures maintained by local distribution companies. Especially important for the safe distribution of natural gas, particularly in densely populated areas, is the education of customers. By teaching natural gas users the safe use of natural gas, what to do in an emergency, and how to detect leaks, distribution companies ensure that the distribution of natural gas will remain one of the safest forms of energy transmission. For more information on natural gas safety in your area, contact your local distribution company. The Department of Transportation's Office of Pipeline Safety (OPS) also has jurisdiction over ensuring the safety of natural gas distribution networks. To learn more about safety initiatives and procedures set out by the OPS, visit their website here.

The delivery of natural gas through distribution utilities and interstate and intrastate pipelines is highly dependent on the regulatory environment of the day. To learn more about the current regulatory environment surrounding the natural gas industry, including local distribution companies, click here.