The research on natural gas pipeline transportation price formulation method

YU Wenjia, MA Yan

(College of Information,Mechanical and Electrical Engineering,Shanghai Normal University,Shanghai,200234,China)

1 Introduction

With the development of a gas pipeline network,the scale of the natural gas market is becoming huge.The research of natural gas pipeline price formulation method has high value in society and engineering applications.

At present,our country still executes the government unified pricing system in natural gas prices.Now the natural gas terminal sale price is made up of three parts:the factory price,pipe price and city official price.The factory price and pipe price depend on our National Development and Reform Commission(NDRC).City official price is decided by the local government.So,the price of natural gas pipeline is playing an important role in the development of the natural gas market,the construction of project investment and related policy arrangement.

The natural gas pipeline has the characteristics of large investment,high risk,and complex operation system.The problem concerned by domestic and foreign investors is cost and their benefits.Therefore,reasonable price of gas is one of the most effective ways to expand the scale of users.

The mode of our traditional domestic natural gas pipeline pricing cannot meet the needs of the rapid development of the natural gas industry.This paper offers a natural gas pipeline pricing model,which is based on the Two-part Tariff and includes the influence of some cost factors of the pipeline pricing.It has some reference values on the formulation of natural gas price in the future.

2 Brief introduction and advantages of the two-part tariff

There are a lot of natural gas pipeline pricing methods in the world,such as marginal cost pricing method,average cost pricing method,the two-part tariff method,the net return value pricing,etc.Among them,the two-part tariff is the common method of America's natural gas transportation pricing method.The expense of the natural gas two-part tariff defined consists of two parts:(1)reservation fee,which is not related with the capacities of the actual usage or purchase.(2)Usage fee which is unit gas pipeline transportation price which is related with the capacities of the actual usage.The two-part tariff is a good way to meet the balance of the cost and economic benefits and realize maximum social welfare.From the aspect of cost-recovery,the two-part tariff is the best choice to set the price of the pipeline.

The pricing advantages:(1)According to the dependence relationship between the cost of pipeline transportation and natural gas supplies,the cost will be divided into fixed part and variable part,and fixed cost and variable cost are distributed by two kinds of different users-firm users who must be supplied natural gas at all times and interruptible users who can be suspended during peak shifting.(2)Firm users have to undertake most of the cost and pay a yearly reservation fee.Interruptible users may be deferred natural gas at any time,so they partake a little of the cost.(3)For firm users,those who use more natural gas yearly at a stable rate can get a lower price than those who use less natural gas yearly or those who use natural gas according to the season.

As we all know,there are different types of users in the natural gas market,such as gas power plant,industrial fuel users,industrial raw material users and city gas users.These different types of users show great difference in the continuity and reliability of gas supply,capacity of bearing price,elastic demand and balance use of gas.The two-part tariff can meet these needs well.

3 A brief description of the method on natural gas pipeline transportation price

In this paper,we introduce a new two-part tariff mode.We assume a long distance pipeline which has only one gas intake with users.The users sign take-or-pay contracts and confirm total reservation capacities of the year and maximum capacities of one day.

The fixed cost is made up of approved return,fixed operation and maintenance expenses,depreciation and amortization expenses,income tax allowances and price tax-earned income credit.The variable cost is made up of variable operation and maintenance expenses.

Since the pipeline and gas storage have the function of peak-load regulation,we design the pipeline on the basis of users' annual total needs instead of users' daily largest capacity during the pipeline construction.In the pricing,we use the two-part tariff.The fixed cost allocates to firm users.It is called reservation fee,while the variable cost allocates to all users.How much they pay depends on how much they use.It is called usage fee.

At the same time,we take distance into consideration.We revise the fixed cost according to the different distances.In addition,for the storage cost of peak-load regulation,the firm users pay the peak-load regulation cost according to the principle of "who needs who pays",and interruptible users are not charged this fee.In addition,we can add the structure adjustment factor of pipeline transportation fee(SAF)to reduce the proportion of the fixed cost allocation in the reservation fee.

Firm users undertake the pipeline transportation rates including reservation fee rate,usage fee rate and peak-load regulation fee rate.Interruptible users undertake the rates including reservation fee rate,usage fee rate.The reservation fee is paid according to the annual total reservation natural gas needs.The usage fee and peak-load regulation fee are paid according to the actual amount of usage.

4 The model expression of natural gas pipeline transportation price

We take the following steps to determine the rates:

Step1According to the dependence relationship between the cost of pipeline transportation and natural gas supplies,the total pipeline transportation cost(TC)will be divided into fixed cost(FC)and variable cost(VC)

TC=FC+VC.

(1)

Step2We introduce the structure adjustment coefficient of pipeline transportation fee(a).We can ascertain reservation fee(RF)and usage fee(UF).

RF=FC-FC*a，

(2)

UF=VC+VC*a.

(3)

Step3We assume that in Districti,the distance between carrying gas point and Gas injection point(Li),andcount the total distance of pipeline(Lmax).

According to the distance and the amount of reservation,we count every district and users' weight distributions.We can ascertain every district's reservation fee for the firm users(RFFi)and for the interruptible users(RFLi)according to weight distributions.

(4)

(5)

Which,in Districti,Qiis the total amount of the reservation gas;QFijis the amount of the reservation gas for the firm user(juser);QIikis the amount of the reservation gas for interruptible user(kuser);QMFis the amount of the maximum daily reservation for firm users.QAIis the amount of the average daily reservation for interruptible users.

Step4We can count that for firm users and interruptible users,their reservation fee divided by their total amount of annual reservation gas is their reservation fee rate.

(6)

(7)

Step5We can count users' usage fee rate(UFR)according to the variable cost(VC)and the total amount of the annual total reservation natural gas needed(∑Qi).

(8)

Step6We can count the peak-load regulation fee rate(PFR)according to the total fee of the peak-load regulation fee(FP)and the total amount of virtual peak-load regulation(∑QPi)

QPi=∑|QMM-QAM|,

(9)

(10)

which,QMMis the maximum amount of natural gas according to the contract for firm users in Districti;QAMis the monthly average amount of reservation gas which can be calculated by the total amount of the annual total reservation natural gas needs.

Step7If the firm users have stable and larger amount of natural gas,their peak-load regulation fee rate(PFR)can decrease 1 percentage.They can get more favorable prices.

From the aboveformula,we can conclude that in Districti,the firm users undertake the pipeline transportation rates including reservation fee rate(RFRFi),usage fee rate(UFR)and peak-load regulation fee rate(PFR).The interruptible users undertake the rates including reservation fee rate(RFRIi),usage fee rate(PFR).

5 Experimental results and analysis

Assume:There are 4 districts.The fixed cost is 333226365 RMB,the variable cost is 111075455 RMB and the total fee of the peak-load regulation fee is 111080000 RMB.The structure adjustment coefficient of pipeline transportation fee is 0.2.

User 2 in District 1,user 3 in District 2,user 2 in District 3 and user 2 in District 4 have stable and larger amounts of natural gas.So their total fee rates are 1.33 RMB/scm,0.904 RMB/scm and 1.139 RMB/scm and1.730 RMB/scm.

From the above,we can see that in the same district,interruptible users undertake fewer fees than firm users;Firm users with stable and larger amounts of natural gas can get more favorable prices.In the same area,users don't undertake same fee according to the unified standard any longer.This plan adjusts the fee according to the different types of users,which benefits the gas company as well as users.

Table 1 Users for natural gas pipeline transportation fee rates

Table 2 Firm users for the annual reservation natural gas needs

Table 3 Interruptible users for the annual reservation natural gas needs

6 Conclusion

This paper has introduced a method of natural gas pipeline transportation price on the basis of two-part tariff.We took reservation fee,usage fee and peak-load regulation into consideration.We used an example to confirm our result.Our country belongs to the beginning of the rapid development of natural gas industry.This method not only considers the investment income recovery but also considers the different types of users paying a reasonable fee.We hope the new pricing model can give a great reference in promoting the reform of the pipeline gas pricing mechanism and the development of Chinese natural gas industry.

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