The U.S. Gas Pipeline Transportation Market

The paper “The U.S. Gas Pipeline Transportation Market. An Introductory Guide with Research Questions for the Energy Transition” will be presented at the 10th FSR Annual Conference (10-11 June, 2021).

ABSTRACT:

The U.S. power system is going through a major transition in which variable renewable energy sources (VREs) and gas-fired power plants are providing an increasing share of electricity supply and coal plants are being retired. This energy transition will be driven further by continued cost reductions for utility-scale wind and solar power and by policy goals for economy-wide decarbonization. While these drivers imply decreasing future demand for electricity generated with natural gas, gas-fired generators will instead play a key role as peak and ramping capacity at times when VRE electricity production is low and/or electricity demand is high.
By implication, the U.S. interstate pipelines have an important role to play in the energy transition by providing the flexible gas delivery services that the gas-fired generators will need to deliver these peak and ramping services in the power markets. Lower future demand for gas-generated electricity would, in combination with electrification of gas heating loads in the residential and commercial sectors, also imply a reduction in the total volumes of gas transported through the U.S. interstate pipelines. These trends thereby open up important questions around how the interstate pipelines will manage this reduction in their revenue base, and who is, or should be, shouldering the costs of the gas transportation infrastructure and the risk of some of these assets becoming stranded in a low-carbon-energy future.

This paper is intended as an introductory guide to the U.S. gas transportation markets. It outlines the main market features and regulations important for understanding the basic features of this market. The objective is to stimulate further studies on how to improve the design, regulation and operation of this market to facilitate an efficient use of the U.S. gas transportation system throughout the energy transition, and to manage stranded asset risk and associated distributional impacts.

This paper is an introductory guide to the U.S. gas pipeline transportation market and includes a review of relevant economics and energy regulatory literature. The U.S. gas pipeline markets have historically not been much studied by economists – in contrast to U.S. power markets – and existing analyses of this market is dominated by legal, regulatory and engingeering studies. By reviewing these studies, drawing parallels to research findings in energy economics on wholesale power markets and including insights from pipeline market practitioners, this paper takes an interdisciplinary approach. The objective of the paper is to provide a link between academia and practice by providing an analyst’s guide to the opaque operation and practices of the US pipeline markets and thereby facilite further studies of this market.