Operators of virtual pipelines — trucked supplies of compressed natural gas and LNG — are solidifying their spot in the midstream marketplace as a go-to source of fuel during delivery disruptions.
Once a mainstay of off-the-grid industrial users, virtual pipeline operators have increasingly become a ready solution for local distribution companies, power plant operators and industrial plants when supplies get tight. The virtual pipeline operators, which set up storage tanks and truck in supplies of either fuel, are teaming up to ensure that a backup supply of natural gas is never more than about 300 miles away from population centers, a panel of company executives told the LDC Gas Forums Rockies & West Conference in Los Angeles Aug. 6.
"Pipeline peak demand is probably our largest business segment," said Steve Stump, vice president of Houston-based Stabilis Energy, which produces and transports LNG. "Along the Northeast seaboard if you're a single power plant utility, you have to have a multi-day supply of feedstock under peak demand conditions."
Pipeline constraints in the U.S. Northeast have created significant bottlenecks on the coldest winter days, forcing pipelines and utility operators to limit shipments to so-called interruptible customers — those who do not have firm contracts. Regulators have required some of the companies to maintain supplies of gas to mitigate price spikes and to reduce the risk that supplies will be cut. Growth in the virtual pipeline market has spread beyond the Northeast to the South and West where companies "can't shut their customers down without a lot of regulatory interference," Stump said.
The rise of virtual pipelines has attracted the attention of some large utility companies, including Dominion Energy Inc., which will enter the business in Pennsylvania with a liquefaction facility and about 80,000 gallons of storage in December, the company's Gas Business Development Adviser Judd Cook told the conference. One of the plant's first customers will be a mining company.
"They need the energy," Cook said. "We were able to come in with LNG since they were nowhere near the pipeline. We brought in LNG and we'll able to serve them for power and other needs."
Virtual pipelines are limited by the availability of storage space at the customer's site and the amount of LNG or CNG that can be forced through the system. Sam Thigpen, CEO of Thigpen Solutions LLC in Conroe, Texas, said his company was able to supply 1.8 MMcf per hour for 16 hours using LNG during the startup of a power plant in West Virginia. Thigpen offers LNG and CNG transportation, storage and delivery, although it does not manufacture LNG.
In another situation using LNG "we were actually holding up an entire neighborhood," Thigpen said. "Their pipeline was being taken out of service so they were able to rig up at the front of the neighborhood and keep about 6,000 homes up on natural gas while they did pipeline service."
The company's supply service has also been used as a hedge against price spikes and potential supply disruptions for a large industrial customer, Thigpen said.
"They actually used us as a hedge against their high-priced gas-market prices during the wintertime," he said. The customer "found that they could actually play the market and that was one of the first times we've ever used a virtual pipeline solution as a hedge against the marketplace."