Chair of Electric Power Networks
and Renewable Energy Sources
Master Thesis
Analyzation of the gas sector as an option for sector
coupling in the electric power system
submitted on 11.09.2017 Master Thesis
Maciej Sobczak
First examiner: Prof. Dr.-Ing. habil. M. Wolter
Second examiner: Prof. Dr.-Ing. A. Lindemann
Supervisor: M.Sc. André Richter
Master's thesis
for Mr. Maciej Sobczak
Topic: Analyzation of the gas sector as an option for sector coupling in the
electric power system
Task:
Sector coupling can be a solution for congestions in the electric power system. Especially volatile
renewable energy sources demand increasing flexibilities, which cannot always be covered by grid
extensions. This requires the analyzation of different sectors like heat, water and gas and the
according technologies.
This Thesis has the aim to identify typical physical and economical characteristics of the gas sector.
Therefore, a literature research is required. Based on this information an appraisal concerning the
coupling between gas and electrical sector have to be done. Furthermore, a small gas model shell
be developed in a fitting software environment. Additionally, a possible coupling between gas
model and electric network have to be implemented. All results have to be documented in written
form.
The study has to cover the following points:
Literature research on gas market
Literature research on physical characteristics of the gas network
Research on typical business strategies in the gas sector
Development of a Matlab/Simulink model of a gas network
Implementation of a coupling interface to the electric power network
Documentation of the results
Magdeburg, xx.xx.2017
Date of edition: xx.xx.2017
Date of submission: xx.xx.2017
Supervisor: M.Sc. A. Richter
1st examiner: Prof. Dr.-Ing. habil. M. Wolter
2nd examiner: Prof. Dr.-Ing. A. Lindemann
_________________________
Prof. Dr.-Ing. habil. M. Wolter Task tutor
_________________________
Prof. Dr. rer. nat. C. Hoeschen Chairman examination board
Explanation
I assure that I have written this non-technical project independently without external help and
used only the given sources and aids. Literally or meaning points, which were obtained from
other works are labelled with their source.
08. September 2017
……………………………………………………..
Date Signature
I
I Abstract
With the development of technology and industry, in Europe and in the world, engineers and
businessmen are wondering how to maximize profits and minimize losses associated with the
production of different products. Energy, like any other product is subject to this process.
Energy production requires large amounts of money, and even a slight reduction of losses
associated with its production, can generate considerable profits. Another important factor is
dealing with renewable energy sources, like solar and wind power, whose energy output can
vary over time.
As Renewable Energy Sources (RES) get more popular and widespread, there could be noticed
increased interest in power storage technologies, caused by the desire to solve the problem of
variable output of renewables. Energy for useful purposes does not need be stored only in
electrochemical form. Each of the energy storage technologies has features that characterize it,
on the basis of which it finds the right practical application. From a technical point of view,
the development of RES does not have to generate significant problems that negatively affect
the state of the system. Technology, whose implementation and development alleviate the
negative aspects of RES, is available right now. While the battery technology might be the most
obvious, developments in Power-to-Gas technologies completely surpass them in available
power capacity and scope. Such technology allows to store TWh of power over long periods of
time. Storage system will make it possible to store excess energy produced by renewables
during good weather conditions and alleviate problems with overloading of the power grid. In
case, where there is a power shortage, additional power can be supplied to the power grid from
the storage. Power-to-gas technologies, combined with the injection of hydrogen or synthetic
natural gas into the gas network, make it possible to use existing gas infrastructure to store large
amounts of power from renewable sources in the form of chemical energy of the
aforementioned fuels injected into the gas network. Implementation of successful Power-to-
Gas solution on a large scale, requires creation of a coupling interface between gas and power
systems.
In order to make it possible to comprehend problems connected with coupling of the power and
gas systems, following thesis sets out to explain topics such as functioning of the gas market,
structure and technologies of the gas networks, business strategies of the gas sector and creation
of the simulation of a simple gas system. As inner workings of the gas markets can vary from
region to region, thesis describes general idea behind gas market in Europe. Similarly, when it
comes to describing the gas network, thesis will focus on European region. What should be
noted, is that even though main focus is put on Europe, many technologies and mechanisms
behind gas systems and markets can be similar around the world.
Each topic presented in chapters of the thesis deserves a paper on its own, therefore only the
most crucial information will be brought up, in order to create general image of a gas market
and a gas system for people that might not be familiar with the matter at hand. Purpose of this
is to enable any reader to understand the concepts and ideas behind the sector coupling, as well
as to serve as general introduction to the gas sector of industry.
II
II Table of contents I. Abstract........................................................................................................................... I
II. Table of contents........................................................................................................... . II
III. List of figures.................................................................................................................. V
IV. List of tables.................................................................................................................. VI
V. List of symbols............................................................................................................. VII
VI. List of abbreviations.................................................................................................. VIII
1. Introduction ..................................................................................................................1
1.1 Motivation and goal .....................................................................................................1
1.2 Structure of the work ...................................................................................................1
2. Description of gas market .............................................................................................2
2.1 Defining the gas market ...............................................................................................2
2.2 Gas market in Europe ...................................................................................................5
2.3 Concept of a gas trading hub ........................................................................................6
2.4 Gas trade mechanisms in Europe ..................................................................................8
2.4.1 OTC trade in Virtual Point ......................................................................................8
2.4.2 Trading through the exchange .................................................................................9
2.5 Problems with liberalization of European gas markets................................................ 10
3. Physical characteristics of gas network...................................................................... 13
3.1 Characterizing gas transmission system ..................................................................... 13
3.2 Characterizing gas pumping system ........................................................................... 15
3.3 Characterizing Liquefied Natural Gas technology ...................................................... 17
3.3.1 Liquefaction technology ........................................................................................ 18
3.3.2 Gas transport technology ....................................................................................... 18
3.3.3 Regasification technology ..................................................................................... 19
3.4 Characterizing gas storage technology ....................................................................... 21
3.5 Characterizing gas distribution technology ................................................................. 23
3.5.1 Evolution of distribution network technology ........................................................ 23
3.5.2 Role of gas stations ............................................................................................... 24
3.5.3 Measurement devices used for transmission and distribution of gas ....................... 25
4. Typical business strategies in the gas sector .............................................................. 27
4.1 The SWOT analysis ................................................................................................... 27
III
4.2 Porter’s five forces analysis ....................................................................................... 29
4.2.1 Competition between organizations in the sector ................................................... 30
4.2.2 Threat of new entrants ........................................................................................... 30
4.2.3 Threat of substitutes appearing .............................................................................. 30
4.2.4 The bargaining power of suppliers and buyers ....................................................... 31
4.3 Boston Consulting Group analysis ............................................................................. 31
4.4 Building a business strategy for gas trade ................................................................... 32
4.5 Choosing a purchasing portfolio................................................................................. 35
4.5.1 Basic portfolio ...................................................................................................... 36
4.5.2 Pre-hedging and speculative portfolios .................................................................. 36
4.5.3 Closing portfolio ................................................................................................... 36
5. Simulink model of a gas network ............................................................................... 37
5.1 Configuring and using new gas system blocks............................................................ 37
5.1.1 Gas Properties block ............................................................................................. 37
5.1.2 Gas Reservoir block .............................................................................................. 39
5.1.3 Mass Flow Rate and Pressure Source blocks ......................................................... 40
5.1.4 Pipe block ............................................................................................................. 41
5.1.5 Measurement blocks.............................................................................................. 43
5.1.6 Other blocks .......................................................................................................... 44
5.2 Simulation of a simple gas system.............................................................................. 45
5.2.1 Measurement subsystem........................................................................................ 46
5.2.2 Thermal control system ......................................................................................... 47
5.2.3 Results of simulation ............................................................................................. 48
6. Sector coupling between gas and power systems ....................................................... 51
6.1 Comparison of gas and power systems ....................................................................... 51
6.2 Concept of gas smart grid........................................................................................... 52
6.3 Characteristics of gas smart grid ................................................................................ 53
6.3.1 Acceptance of new types of gas ............................................................................. 53
6.3.2 Flexibility ............................................................................................................. 54
6.3.3 New ways to use gaseous fuels .............................................................................. 54
6.4 Overview of options for energy storage ...................................................................... 55
6.5 Power-to-gas technology ............................................................................................ 58
IV
6.6 Interface for coupling gas and power systems ............................................................ 61
7. Conclusions ................................................................................................................. 64
8. List of references ......................................................................................................... 65
V
III List of figures
Figure 1 Consumption of natural gas in Europe and the world ...................................4
Figure 2 Consumption of natural gas in Europe per sector of the market ...................4
Figure 3 Major gas trading hubs and exchanges in Western Europe ...........................7
Figure 4 Diagram of possible routes to market ..........................................................8
Figure 5 Relations between commodity exchange and other institutions .................. 10
Figure 6 Natural gas pipelines and storage caverns in Europe .................................. 14
Figure 7 Technological process associated with LNG transport ............................... 17
Figure 8 The SWOT matrix ..................................................................................... 28
Figure 9 Graphical representation of Porter’s five forces ......................................... 29
Figure 10 Boston Consulting Group matrix ............................................................... 31
Figure 11 Solver block for Simscape libraries ........................................................... 37
Figure 12 The Gas Properties block ........................................................................... 37
Figure 13 Settings of the Gas Properties block .......................................................... 38
Figure 14 Parameters tab of the Gas Properties block ................................................ 39
Figure 15 Controlled and uncontrolled Gas Reservoir blocks .................................... 39
Figure 16 Settings of the Gas Reservoir block ........................................................... 40
Figure 17 Controlled and uncontrolled Source blocks ................................................ 40
Figure 18 Settings of the Pressure Source block ........................................................ 41
Figure 19 The Pipe block .......................................................................................... 41
Figure 20 Geometry settings of the Pipe block .......................................................... 42
Figure 21 Friction and heat transfer settings of the Pipe block ................................... 43
Figure 22 Measurement blocks .................................................................................. 43
Figure 23 Local Restriction blocks ............................................................................ 44
Figure 24 Constant Volume Chamber block .............................................................. 44
Figure 25 Absolute Reference and Cap blocks........................................................... 44
Figure 26 Overview of the model of gas storage connected with the main pipeline .... 45
Figure 27 External view of measurement subsystem.................................................. 46
Figure 28 Internal view of measurement subsystem ................................................... 46
Figure 29 Perfect Insulator block ............................................................................... 47
Figure 30 Ideal Temperature Source block with necessary components ..................... 47
Figure 31 Measurements at the inlet of gas storage tank ............................................ 48
Figure 32 Measurements at the outlet of Reduction Station ....................................... 49
Figure 33 Measurements at the inlet of Reduction Station ......................................... 50
Figure 34 Value range for different energy storage technologies ............................... 56
Figure 35 Biomethane plants per country in Europe .................................................. 57
Figure 36 Methanisation of hydrogen in Power-to-Gas technology ............................ 60
Figure 37 Coupling interface for Gas, Power and Heat Systems ................................ 62
VI
IV List of tables
Table 1 LNG Supplies in EU-28, 2014 ........................................................... 6
Table 2 Weighted average net retail prices of gas and their change in EU .....11
Table 3 Difference between various purchasing portfolios ............................35
Table 4 Physical properties of methane .........................................................38
Table 5 Comparison between key aspects of gas and power systems .............52
Table 6 Comparison between different electrolyzer technologies ..................59
VII
V List of symbols
Q Gas flow rate
R Specific gas constant
Z Compressibility factor
T Temperature
h Enthalpy
c specific heat
k Thermal conductivity
Re Reynolds number
P Power
Greek symbols
𝜇 Dynamic Viscosity
Indicies
max Maximal
ref Reference
n Nominal
e, el Electrical
p Pressure
VIII
VI List of abbreviations
AAV Ambient Air Vaporizer
BGC Boston Consulting Group
CAES Compressed Air Energy Storage
CHP Combined Heat and Power
CNG Compressed Natural Gas
EFET European Federation of Energy Traders
HTF Heat Transfer Fluid
IDM Intra-Day Market
IoT Internet of Things
IP Internet Protocol
ISDA International Swaps and Derivatives Association
kPa Kilopascal
kWel Kilowatt of electrical energy
LNG Liquefied Natural Gas
MPa Megapascal
ORV Open Rack Vaporizer
OTC Over-The-Counter
PEM Proton Exchange Membrane
RES Renewable Energy Source
SCV Submerged Combustion Vaporizer
SNG Substitute/Synthetic Natural Gas
SOE Solid Oxide Electrolyzer
STV Shell and Tube Vaporizer
SWOT Strengths, Weaknesses, Opportunities and Threats
TPA Third Party Access
TWh Terawatt hour
1
1. Introduction
1.1 Motivation and goal
The main motivation behind following thesis is to find solution to problems posed by
the variable work of renewable energy sources like wind and solar power plants, whose
output can change depending on the weather and time of the day. I found the topic very
interesting, as it looks for answers outside of the field of electrical engineering. As
Electrical Engineer myself, working on this topic allows me to learn about new aspects
of engineering, as well as to find multidisciplinary solutions to particular engineering
problems. Working on this topic allowed me to learn a lot of new information about gas
sector and showed me that it is possible to find solutions to problems outside of my area
of expertise.
The goal of the thesis is to create general image of a gas market and a gas system for
people that might not be familiar with the matter at hand. Purpose of this is to enable
any reader to understand the concepts and ideas behind the sector coupling, as well as
to serve as general introduction to the gas sector of industry. Sector coupling and Gas-
to-Power technologies are currently one of the most viable solutions to the problem of
volatility of renewable energy sources. Thesis aims to familiarize the reader with
technology like methanization of hydrogen and scheme of a coupling between gas and
power systems.
1.2 Structure of the work
The works is divided into seven chapters, five of which serve as a main content of the
thesis, while first and last act as introduction to and conclusions on the thesis,
respectively. Second chapter describes inner workings of the gas market, with focus on
its main mechanisms and functions. Third chapter goes in depth into technologies used
to transfer, store and distribute natural gas. Fourth chapter is an introduction to building
purchasing strategy in the gas sector and presents all basic analysis methods needed to
construct such strategy. Fifth chapter serves as a guide to building simulation of a gas
system in Matlab/Simulink software. Simulation presented here is detailed in its
description, but not very large in scope. In sixth and final chapter of main content, most
important part of thesis, that previous chapters build up to, is contained. This chapter
describes technologies and possibilities for sector coupling between power and gas
systems, as well as a coupling interface to achieve so. Sixth chapter is then followed by
conclusions on the thesis and list of references.
2
2. Description of gas market
Natural gas is a valuable resource that is broadly used in European industry. It is used
in technological processes of industrial customers, gas power plants generating power
and by individual residential customers to heat their homes or in gas stoves. With such
broad range of applications it is easy to see that demand for natural gas is a high one.
2.1 Defining the gas market
In many aspects gas market is similar to electrical power market, however there are few
key differences. Firstly natural gas is a strategic resource, which can be only obtained
by extracting it from underground deposits. This immediately causes natural gas to
become also become political matter, as not every country has access to such deposits
and is forced to import it from abroad. Therefore, when considering natural gas one has
to remember to not only analyze economic, but also political aspects. Another key factor
for a country wanting to participate in the gas market is infrastructure. Natural gas can
be extracted from deposit and used in nearby industrial complex, it can be transferred
over large distances, or it can be stored for later use. Here one can observe another major
difference, when comparing with electricity. Electrical power in large quantities, at least
with current technology and infrastructure, has to be consumed the moment it is
generated and cannot be stored for later use.
While buying natural gas might be similar with trading electrical power on the wholesale
market, one has to take into consideration unique features that characterize gas market.
First of all, natural gas market can be interpreted at three different levels [1]:
Global market,
Regional market,
Hub (local market) and national market.
Additionally, gas fuel can be further divided into two categories [1]:
Suitable for storage,
Suitable for transport over large distances.
Natural gas can be transported from anywhere in the world. Only the costs of transport
are included in the profit and loss calculations. In a global system gas fuel prices
are affected by the macroeconomic situation and the general political situation. In recent
years the gas market has been a seller's market. Very large quantities of gas were
exported by manufacturers to Asia (China, Japan) and Europe. In 2007, as a result of
the collapse of financial markets and the deterioration in business conditions, there was
a sharp drop in gas consumption in Europe. As a consequence, the collapse of prices on
hubs in Europe has translated into price declines in other regions of the globe.
3
The hub can be defined as an infrastructure delivery area. Hub can be one country
(Netherlands, Belgium) or part of country (Germany, France). In addition, the shale
revolution in the US and the termination of imports have led to price cuts in the largest
US gas hub - Henry Hub [1].
It is possible to enumerate four major regional markets of natural gas in the world [2]:
USA - currently the market is sustainable, i.e. production covers demand,
Europe - short market, i.e. demand surpasses local supply, therefore imports
from other regions are necessary,
Asia - a very large customer of gaseous fuel, with the highest prices in the
world,
Middle East - the largest exporter of natural gas.
The "long" market occurs when supply is significantly higher than demand and the
region or country becomes a natural exporter. The term "short" is used when demand
exceeds supply. When supply and demand are in equilibrium, one is dealing with a
sustainable market.
It is predicted that in the current century, on a global scale, gas will become the primary
energy carrier. In the European Union, natural gas has already become the second (after
crude oil) primary energy carrier. Significant for this state of affairs was the increasing
availability of natural gas, which resulted from exploration work. Documented world
natural gas reserves amount to about 150 trillion m3, which at today's level of production
is sufficient for over 65 years [3]. There also exists possibility of potential gas reserves
in the place of its greatest abundance, i.e. in Siberia. It is theorized that deposits located
there could be five times the size of the resources currently documented.
As mentioned earlier, considerable quantities of gaseous fuel are being received by Asia,
where gas is transferred from the Middle East and Australia. Europe is also an importer,
for which the largest supplier is Russia. Some European countries have also built LNG
re-gasification installations, but it is currently more profitable to import natural gas from
the East. It should be pointed out that the Europe also has its own sources of production,
mainly located in the North Sea, the Netherlands and the Norwegian Shelf.
Natural gas is by far the most commonly used and consumed gas fuel in the world. It is
not only utilized for production of electrical energy but also largely by industrial,
transportation and building sector of the market. On the figure 1 one can see total
consumption of natural gas in Europe in comparison with that of the whole world. Figure
consists of present data as well as future forecast, and is based on data from U.S. Energy
Information Administration.
4
Figure 1 Consumption of natural gas in Europe and the world [4]
By looking at figure 1 it is possible to observe, that demand for natural gas will increase
in Europe over time, however that increase will be miniscule when compared to the
increase in overall world demand. Figure 2 presents consumption of natural gas of each
major sector of the market in Europe. For now natural gas spent to generate electrical
power represents the smallest of the three major sectors, but it will increase over time
and by year 2035 will overtake industrial consumption for this resource. Another
interesting detail to note, is that industrial consumption is projected to not increase very
sharply over the years and will remain almost constant. Finally consumption for
buildings and transportation sector is also projected to increase with time, but growth
for electrical power sector will be much more rapid.
Figure 2 Consumption of natural gas in Europe per sector of the market [4]
2012 2020 2025 2030 2035 2040
World 3,393 3,772 4,222 4,719 5,245 5,756
Europe 0,504 0,543 0,582 0,632 0,670 0,718
0
1
2
3
4
5
6
7
Consumption /
trillion m3
2012 2020 2025 2030 2035 2040
Electric Power 0,119 0,122 0,139 0,168 0,196 0,245
Buildings and transportation 0,205 0,242 0,259 0,276 0,284 0,282
Industrial 0,179 0,179 0,184 0,188 0,190 0,190
0,000
0,050
0,100
0,150
0,200
0,250
0,300
Consumption /
trillion m3
5
2.2 Gas market in Europe
The European Union natural gas market has been modeled basing on the experiences
that the United States, which has for long years been one of the major players on the
global natural gas market. The basis for creating rules for gaseous fuel trade were mutual
economic interests of EU countries and countries supplying gas to European market.
Initially, the gas market was developed in the Great Britain, where nationalization of the
gas industry created foundations for the later gas market in Europe. At the end the 1980s
state-owned gas company has undergone privatization, which gave incentive to other
EU countries to develop new industry structures. This in turn allowed
national monopolies to expand beyond the borders of their countries of origin and
ultimately opened the gas market in August of 2000 [5].
At the same time, the European Union has introduced several directives that have
influenced the development of the gas market. The most important are: First European
Gas Directive 98/30/EC (in 1988), Second European Electricity and Gas Directive
55/2003/EC (in 2003) and Internal Gas Market Directive 2009/73/EC (in 2009), which
gave the guidelines for the development of gas trade in the EU. These documents have
obliged the Member States to separate transport operations, i.e. to separate transmission
and distribution, so that the transmission system operator is independent. The current
structure of the gas market in the EU has been organized in such a way that enables
operators to compete, which translates into more market users. As a result, the gas
market has become transparent, and now there are separate transmission, distribution,
storage and marketing operators.
At present, a trading operator acquires natural gas from a supplier and then sells it to its
final customer using the services of transmission and/or distribution operators, under
the rules of TPA (Third Party Access), that is, with equal treatment for all market
participants. Operators are making their resources available on the basis of inter-
operator agreements to provide clear billing rules between them. As long as the network
infrastructure allows, this makes possible to send gas between EU countries. In this
market model, the storage operator plays the role of an operator that provides a
nationwide gas balancing service, complements shortages and consumes surplus fuel in
the clearing cycle.
European Union countries are currently trying to diversify their supply of natural gas by
seeking to obtain it from different parts of the world, both through the gas pipeline
network and through the construction of LNG (Liquefied Natural Gas) terminals. LNG
is popular in EU despite higher purchase prices. For now Europe imports LNG mainly
from Qatar, however in spring of 2017 new administration of United States decided to
greatly expand mining and extraction operations of shale gas and allow sale to non-US
customers. This quickly resulted in contracts for LNG delivery between United States
and European countries. With current policy and vast reserves of shale gas, US might
soon become biggest global supplier of gas. Major customers for liquefied natural gas
are France, Spain and United Kingdom, as can be seen in table 1.
6
Table 1 LNG Supplies in EU-28, 2014 [6]
Country LNG net
imports
[TWh]
% change
2014/2013
Belgium 13.3 -26.2 %
France 69.3 -26.6 %
Greece 7.4 4.0 %
Italy 48.4 -19.5 %
Netherlands 11.6 26.2 %
Portugal 13.9 -29.4 %
Spain 119.9 -31.1 %
United Kingdom 123.9 20.7 %
Still however, Europe's largest supplier of natural gas is Russia, which owns LNG
terminals and a well-established gas pipeline network. The share of Russian gas in
consumption of EU countries varies from a few to several tens of percent.
2.3 Concept of a gas trading hub
Gas hubs are critical points of gas network, they are the locations where gas can be
extracted or injected into the network. This property also makes them perfect location
for gas trading. In order for a gas trading hub to be successful it has to fulfil two
requirements [7]. Firstly, the hub has to be located in such a place, that gas can be
effortlessly transferred into and out of the market. Market in this particular case
represents single point or an area (virtual hub) of the gas network. The second
requirement is that there must be a purpose for the gas flowing though the hub. This
purpose can be interpreted as a substantial customer base at a given location or ability
to access new markets thanks to the placement of the hub.
Market players that will be accessing the gas trading hub have to manage volume risk
at competitive cost. Volume risk can be defined as variations in demand (consumer
demand, export) compared to available supply (production, import). In order to alleviate
the volume risk, gas marketer can either use gas storage or have a customer base that
will exactly match the supply characteristics. Consumers of gaseous fuels also have to
manage their volume risk. They can do that by having their own storage facilities or by
buying flexibility services from the gas supplier. Therefore it is a good idea for a gas
trading hub to have supporting storage infrastructure.
In order for the gas trading hubs to function as a marketplace, they require suitable legal
and financial framework. In Europe existing markets operate under many trading
agreements that have developed over the time. Most important of them are the
following [7]: EFET (European Federation of Energy Traders) contract for physical gas
trading and numerous annexes to the ISDA (International Swaps and Derivatives
Association) contract. Framework provided by these two documents serves as a base for
negotiations of all the future contracts. Another thing to keep in mind is that negotiation
7
of especially credit terms can be very time-demanding. One can of course go through
the process of bilateral trading and slowly negotiate all the details, but if the time is of
the essence, it is possible to have all trading cleared by a central body. Such organization
working closely with particular trading hub can increase frequency of trades by speeding
up the process of reaching agreement between two parties and simplifying it to a single
contract. Also worth mentioning is the fact that forward and future markets serve as
crucial risk management options within this framework.
Finally, when considering installation of a new gas trading hub, one must analyze the
liquidity of new potential market. Concept of liquidity is tied to four characteristics of
the market [7]: depth, breadth, immediacy and resilience. When a large volume of gas
can be bought or sold without affecting its price too much, market can be called deep.
Breadth or range of the market depends on the amount of different bids and offers that
exist within the market. Immediacy is the capacity to trade large volumes in a short
period of time. Lastly, resilience is characteristic that describes capability of a market
to return to supply / demand equilibrium after it has been affected by a shock. If players
of the market are confident in its fairness, it will expand and perform better over time,
leading to development of liquidity.
To sum up, in order to have a successful new gas trading hub, following are required [7]:
Access to gas sources and a customer base,
Possibility of managing volume risk for all market participants at competitive
cost,
Low barriers to entry for new players, known contractual setup and possible
clearing services, with low transaction costs,
Managing price risk through the market (existence of a forward / future market),
Fairness and transparency, leading to confidence and liquidity.
Figure 3 Major gas trading hubs and exchanges in Western Europe [8]
8
2.4 Gas trade mechanisms in Europe
Exact construction of gas market in Europe can vary from country to county, however
most of them either already adopted liberalized market model or are in process of
implementing it. Traditional way of purchasing gaseous fuel is to go through the process
of negotiations directly between interested parties in order to settle on a contract. Thanks
to the liberalization of the market, new trading mechanisms are possible. First one is the
Over-The-Counter (OTC) trade in Virtual Trading Points and the second one is trading
through the energy exchange. All the possible options to reach the market have been
depicted in figure 4.
Figure 4 Diagram of possible routes to market [9]
2.4.1 OTC trade in Virtual Point
Any trading company that wants to perform Over-The-Counter trade has to fulfil two
requirements [1]: company has to obtain license for trading gaseous fuels and a contract
with a gas transmission company. After satisfying those two requirements, it is possible
to start trading. Most of the transactions are settled on the basis of gas contracts
following the EFET framework, i.e. a contract template prepared by the European
Federation of Energy Traders, based in Amsterdam. In contrast to the exchange, virtual
trading point allows for non-standard transactions based on formulas or other clauses.
The contract can be concluded for any time horizon, as desired by the participating
parties. A potential risk is the loss of creditworthiness of the counterparty.
9
From a selling party perspective, the threat lies in the payments for gas fuel delivered.
In the case of the buyer, the risk relates to loss of continuity of raw material supply in
the event of bankruptcy of the seller. In order to limit these risks, financial collateral is
used to execute the contract.
2.4.2 Trading through the exchange
For many reasons, trading at the Energy Exchange is one of the most cost effective
possibilities to buy gaseous fuel. First of all, there is no counterparty credit risk. All
transactions are secured by the Commodity Clearing House. There is no risk of default,
i.e. absence of delivery by the contractor. Purchase of gaseous fuel on the exchange is
not subject to such regulation as, for example, the obligation to maintain minimum
reserves of natural gas. Secondly, the stock price is considered by the participants as a
benchmark to which they refer when dealing with the OTC contracts. Thirdly,
transactions can be concluded for very small amounts of gaseous fuel. On the Intra-Day
Market (IDM), the minimum quotation step is equal to 1 MWh, or about 91 m3 of natural
gas. Transactions can be concluded with option for delivery for up to two years ahead.
Exchange allows for purchase of products depending on different time heads-up [1]:
monthly products (up to 3 months in advance), quarterly (up to 3 months in advance),
seasons (up to 3 seasons in advance) and annual products (calendar years, up to 2 years).
The disadvantage is the lack of possibility to negotiate delivery terms. Transactions are
only settled on for standard products, without the ability to make such clauses as make-
up or carry-forward. It is also important to note that, in order to enter into gas market
transactions one does not need to be a direct member of the exchange. This is
particularly important for small power companies. Trade can be carried out by the trade
brokerage, which is a direct member of the exchange. Detailed explanation of trading
through the exchange is also shown in the figure 5.
10
Figure 5 Relations between commodity exchange and other institutions [31]
2.5 Problems with liberalization of European gas markets
Entering competition on network markets is an extremely difficult task, with primary
problem being natural monopolies in these markets, which are most often associated
with infrastructure. In countries that are on the path to liberalization as well as those
which have already completed the liberalization of the gas market, the development of
competition encounters many barriers, including [10]:
Lack of supply diversification and dependence on one supplier - resulting in lack
of liquidity and transparency of wholesale markets,
Ownership fragmentation of transmission and distribution networks - in
Germany, there are several transmission operators and over 100 separate
distribution regions. This situation forces dealers to negotiate distribution
agreements separately with each operator,
Competitive advantage of incumbent companies - this problem can occur even
in markets where competition has already developed. Ofgem, a UK energy
regulator, reviewed the electricity and gas retail markets in 2011, demonstrating
that most of the changes in the gas supplier are currently between alternative
operators and no more than 20% of actually active consumers are willing to
11
change the gas supplier at all. For the most part, they are consumers who have
made such a change in the past. The remaining 80% of consumers can be
considered attached to the incumbent operator. This gives the incumbent a
significant advantage, reflected in the fact that it implements more than double
the margins on basic services than alternative operators, who must actively
compete for recipients. The difficult situation of alternative operators is also
illustrated by the example of Hungary, where at the end of 2010 the largest
alternative gas supplier went bankrupt and its customers were mostly taken over
by emergency suppliers.
The issue that comes to the forefront when discussing the potential effects of
deregulation of the gas market is the impact of regulatory changes on the level of gas
prices for end users. This effect is extremely difficult to quantify because of the fact that
the level of gas prices is influenced by many factors, whose evolution and response to
regulatory changes are difficult to predict. The level of retail prices is primarily affected
by the weighted average cost of gas acquisition, which consists of import prices, the cost
of extraction, and the ratio between domestic production and gas imports. The price
formation also has a significant impact on the incumbent supplier's behavior, the pace
of development and intensity of competition, and the activity of regulatory bodies.
In table 2 one can see comparison between EU countries with liberalized gas market and
other countries, with special consideration for Poland.
Table 2 Weighted average net retail prices of gas and their change in EU [10]
Average price in 2011
[€/TJ]
Average price change
2005-2011
Industrial
customer
Household
customer
Industrial
customer
Household
customer
Countries with liberalized gas market 7.58 11.09 40.5% 45.7%
Other countries (including Poland) 7.89 11.04 61.4% 47.9%
Poland 9.11 10.46 71.7% 69.0%
By analyzing pricing data, it one has to keep in mind that, unlike tariffs for industrial
customers, household tariffs are regulated or subsidized in almost all EU countries.
Weighted average prices do not differ significantly between the group of countries with
functioning competition and countries where competition has not been permitted or is
at an early stage of development. Competitive countries are characterized by slightly
lower prices for industrial customers. Clearer differences are seen in price increases.
While the average increase in household prices over the years 2005-2011 was similar in
both groups of countries, industrial customers were better protected against price
increases in countries with competitive gas market - prices for this group of customers
increased on average only by 40.5 %, while in other countries by 61.4%.
12
Gas prices in Poland are characterized by a slight difference between tariffs for
household consumers and tariffs for industrial customers. The price at which Polish
households buy gas is only 15% higher than the price for industrial customers, while in
Europe the average difference is over 40% and reaches 75% in Denmark. Smaller
difference between tariffs is maintained only in Lithuania (thanks to rigid tariff
regulation), in Romania (high share of domestic production and lowest retail prices in
Europe) and in Germany (where prices for both groups are higher than in Poland). It can
be expected that after the liberalization of tariffs in Poland there will be pressure to
increase the difference between prices for industrial customers and household prices.
13
3. Physical characteristics of gas network
According to the International Energy Agency, the coming decades will be dominated
by gas, as a most common type of fuel. The integration of the European gas market and
infrastructure investments will help to ensure acceptable prices for raw materials to
consumers. This chapter will focus on technologies connected with transmission,
storage and distribution of natural gas.
3.1 Characterizing gas transmission system
From the place of extraction to the place of storage or consumption, natural gas is most
often sent by pipeline. This way of transport is considered to be the most economical.
In addition to the pipes used to arrange the gas pipeline, supplementary components are
required for the pipeline to function. Gas pipelines carry high pressure gas, for long
range transmission pipelines, the pressure usually exceeds 8.0 MPa [11]. However,
depending on type of pipeline, its diameter or country it can vary. For example,
according to the Polish norms pipeline pressure ranges from 1.6 MPa to 10.0 MPa [12].
Transmission of gas occurs also, albeit much less frequently, by pipelines of elevated
mean pressure, at pressures from 0.5 MPa to 1.6 MPa [12].
The most important pipeline systems that are currently in place, are those that transport
large volumes of gas from the extracting site to the largest recipients, in Europe they are
the following:
North Sea gas pipeline system, which enables the supply of gas from drilling
rigs and central Norway to Western Europe;
pipeline transmission system from Northwestern Siberia to Western Europe; It
is a system of several dozen pipes up to 1400 mm in diameter, running through
the territories of Russia, Belarus, Ukraine, Poland, Slovakia, the Czech Republic
and the Baltic Sea.
Among the longest gas pipelines are the following [12]:
Nord Stream (North Transgas, North European Gas Pipeline) - between Vyborg
in Russia and Greifswald in Germany. The length of the underwater part is
1189 km (for a total length of 1222 km), the inside diameter is 1220 mm,
and a maximum working pressure can reach up to 22.0 MPa. The first time gas
flew through the stream in November 2011. Another stream, parallel to currently
working one, is in plans. According to project data, the annual transmission
capacity will reach 55 billion m3. Originally, it was planned that the gas from
the Shtokman field in the Barents Sea would be sent through the gas pipeline.
Currently Nord Stream transports raw material from the West Siberian basin to
Western Europe (Germany, France, UK, Denmark and others);
Langeled (BritPipe) - a gas pipeline between Nyhamna in Norway via the
Sleipner Riser drilling rig in North Sea to Easington in the UK. It was put into
use in September 2007 after 3 years of construction. The length of the pipeline
is 1166 km, the inner diameter of the tube is 1067 mm in the northern section,
14
and in the southern section diameter is 1118 mm, the maximum working
pressure is 25.0 MPa. BritPipe provides deliveries from Ormen Lange to Great
Britain and, with interconnector in Gassled, from the Sleipner platform to
Continental Europe, a total of around 25.5 billion cubic meters of gas per year.
Figure 6 Natural gas pipelines and storage caverns in Europe [13]
In the figure 6, one can see the main transmission routes from the north-east of Europe
and northwestern Asia (Siberia) to the west and south-west. Origin points of pipelines
are areas where there are very large deposits of natural gas (some of them have not yet
started operation). Recipients are highly developed countries in Western Europe, where
the share of natural gas as a primary source of energy is considerable. There is also a
spider web of pipelines in the North Sea area and the states situated there, as well as
several gas pipelines supplying gas from northern Africa to Italy and Spain.
15
3.2 Characterizing gas pumping system
The gas flow inside the pipeline is possible thanks to the differential pressure, which is
generated for this purpose. This pressure can be affected by linear losses and has to be
adequately adjusted. Linear pressure losses are caused by, but not limited to, friction
between the inner side of the pipe wall and the flowing gas particles. In addition to these,
there are also local losses [12]:
Losses related to changing the flow direction of the gas in the arcs and knees;
Formed in the armature (valves, latches) installed along the gas pipeline;
When the gas flows through the measuring apparatus, and even due to slight
unevenness in the welding points of the pipes.
In order to raise the gas pressure to a level that allows it to be sent to the required
distance, it is compressed in a pumping station. It would be important to mention here
that the compression ratio is determined by the quotient of the discharge pressure (at the
outlet of the compressor) to the suction pressure (at the compressor input). For
operational reasons, gas pumps are divided into three types [12]:
Deposit pump - used in boreholes where the pressure is insufficient for the raw
material to be injected into the transmission system (often one pumping station
pumps gas from several wells);
Transmission (linear) pump - operating within the transmission system. Its
function is to raise the pressure of a large amount of flowing gas at low values
of the compression ratio (less than 2);
At the gas storage - distinguished as a separate group due to its specific character
and complex technological layout. Its work must be possible in two directions
(though not always used). For these pumping stations a much larger range of
variations in pressure (suction and discharge) and a higher compression ratio (up
to 4) are required.
For the transport of gas, two basic groups of compressors are used: piston (displacement)
and flow compressors. In piston compressors, the compression process is cyclical and
takes place in the compressor’s cylinder. The gas is sucked through the inlet valve into
the cylinder, and then the volume is reduced by the piston. Due to the fact that the
amount of gas has not changed, reducing the volume has increased its pressure. An
adverse side effect is the simultaneous rise in temperature which lowers the efficiency
of the compression process. This is countered by cooling the compressor and
compressed gas. If a high degree of compression is required, multi-stage compression
with simultaneous inter-stage gas cooling is used. The second type of compressors used
for gas transmission are centrifugal compressors where the pressure difference is
dynamically generated and the inlet and outlet of the compressor is not so clearly
separated from one another. Centrifugal compressors are usually built as multi-stage.
On one axis there are several rotor sections, each is corresponding to one compression
stage. The moving part is a rotor whose rotation and centrifugal force (at constant
angular velocity) increase the velocity of the gas particles (and the static pressure).
16
While the compressor is the most important part of the pumping station, it is not the
only one. There exists a whole range of support and auxiliary systems that are necessary
for pumping station to work, most important of those are [12]:
The barrier-discharge system - is a valve assembly that allows the supply to
and discharge of gas from the pumping station, moreover it electrically isolates
the gas pipeline from equipment and armature in the station. It also ensures that
the gas does not enter the piping of the gas station when it is not necessary (e.g.
in the case of repairs or when the gas pressure is high enough that there is no
need to compress it). Due to the considerable pressures prevailing in the system,
it consists of, among others, the main valve, bypass pipes of much smaller
diameter and smaller valves, which serve to equalize the pressure in front of the
main valve;
The filter-separator system - the filter-separator is a two-part machine
designed to clean the gas entering the compressor station. In the first part, this is
due to the influence of the centrifugal force and the difference in the density of
natural gas and the larger impurities. Condensate particles and larger particle
fragments are removed here. In the second part, which is equipped with a very
fine mesh fabric filter, minor fine impurities are removed;
Measurement systems - measure the volume of fuel entering and exiting the
pumping station. Due to the fact that large quantities of gas flow through the
station, two gas meters with different operating principles are mounted on one
line. Piping of measurement field can be used to switch gas streams to different
nominal flow rates. In addition to gas meters, measuring systems include
additional devices: temperature and pressure sensors, conversion systems,
industrial chromatographs that analyze the composition of the gas, as well as
equipment necessary for recording, gathering and transmitting data to the gas
dispatcher;
Suction manifold - it is created by a pipe with a larger diameter than the other
supplying gas for compression. The gas entering the compressor from different
directions, after passing through the previous components of the compressor
station, is "combined" in this tube. Suction manifolds are connected to all
compressors in the pumping station through suitable shutoff valves. Thanks to
this arrangement, compressors can work with the same suction pressure
parameters;
Gas compressors with drives – in order to work compressors have to be driven
by electric or gas motors. In the first case, they use asynchronous motors, while
in the second case - gas piston engines or gas turbines;
The discharge manifold - plays a similar role as the suction manifold in front
of the compressors. Compressors pressurize the gas under high pressure, and
then through the valve and pipe system it is distributed to the various directions
of the supply. In the case of a simple pumping station (for example, on a transit
gas pipeline), it will only be one collector. In a more complex compression
station connected to the gas node, there can be several such collectors;
17
Gas coolers – they are located behind compressors. Their task is to lower the
gas temperature after compression. These are mostly air cooled pipe coolers.
Fans can be used to increase the intensity of the air flow through the cooler. In
the case of multi-stage compression, inter-stage cooling is used to increase
efficiency of the compression process;
3.3 Characterizing Liquefied Natural Gas technology
An alternative to natural gas transported by the pipeline in the gaseous form, is to supply
the gas fuel in liquid form. Liquefied gas transport is most often carried out over long
distances, especially where pipeline construction is unprofitable. This form of transport
is economically justified because of the physicochemical properties of natural gas, as its
condensation results in decrease of its volume by approximately 630 times.
By looking at figure 7 one can observe, that the LNG transport scheme consists of three
essential parts:
Natural gas purification and liquefaction installation at the supplier;
Methane/gas carriers, i.e. ships carrying gas;
Regasification installation at the recipient terminal.
Figure 7 Technological process associated with LNG transport [12]
In recent years, the volume of gas delivered in liquefied form has increased steadily. In
2011 330 billion cubic meters of gas were transported in this form. For comparison, the
gas pipeline transfer was twice as large and amounted to 695 billion m3 of gas [12].
18
3.3.1 Liquefaction technology
Before proceeding to liquefy natural gas, it must be cleaned. For this purpose, it is first
dried and then purified from hydrocarbon condensates, carbon dioxide and hydrogen
sulphide and mercury. This is done in order to prevent the condensation and freezing of
components on the surfaces of the tanks and fittings, as this causes difficulties in
operation. Three basic liquefied natural gas technologies are currently in use in the
world [12]:
The classic cascade cycle - involves cooling of the gas in three cooling cycles,
in which the cooling agents are propane, ethane and methane. Their boiling
points are 42.1 °C, -88.0 °C and -161.5 °C, respectively. The characteristic
feature of this technology is the multi-part heat exchanger, in which several
changes of state occur at the same time. The gas intended for liquefaction is
supplied at a pressure of approximately 3.5 MPa. In addition to cooling in its
individual phases, further refrigerants are liquefied. Propane from the first cycle
is used to liquefy ethane, which is then used to liquefy methane. Thus, in the
initial phase simultaneous cooling of natural gas, ethane liquefaction and
propane evaporation is taking place. In the next one, the gas is cooled down with
the simultaneous condensation of methane and evaporation of ethane. At the end,
the cooling of natural gas and the evaporation of methane occurs;
Auto-cooling cascade cycle - coolant used here is a small stream of
hydrocarbons separated from liquefied gas. In this method, which is a
modification of the classical cascade cycle, only one compressor is required. The
heat exchanger is also divided into three sections, but the coolant flows through
them in turn. Between the sections the liquefied gas is collected and the
remainder is directed to the next cooling stage;
Depressurization cycle with use of turboexpander - due to its low efficiency
and high energy consumption, this method is usually used in small installations
that are activated to meet the peak demand for gas. The most important element
of this method is a turboexpander, which expands 85% of the gas, which causes
its temperature to drop to about -90 °C. This gas is then used to liquefy the
remaining 15% in the heat exchanger, but only 10% of the gas directed to the
installation is actually liquefied.
The cheapest of the listed methods is the classic cascade cycle, where 1 m3 of natural
gas can be liquefied with use of approximately 0.5 kWh of electrical power.
3.3.2 Gas transport technology
The transport of liquefied gas is carried out by sea in ships dedicated for this purpose
(tankers / gas carriers). The loading procedure is very complicated due to the high risk
of explosion of methane-air mixture. Consequently, the vessel's tanks must initially be
filled with inert gas (CO2 or N2) and then gradually filled with methane. When the
temperature of the tanks drops low enough, the gas is poured to about 98-99% of their
19
capacity. This leaves a reserve for increasing the volume of gas in the event of a slight
increase in temperature.
There are five types of ships transporting gas. Each of them has a different type of tanks
installed [12]:
Moss - Five or six spherical tanks are supported by a frame that allows them to
expand and shrink freely (up to 0.5 m). The outer insulation is kept in inert gas
(nitrogen) with simultaneous control of the presence of methane;
TGZ Mark III - equipped with membrane tanks of unique design: on the inside
there is a proper wall (changing its dimensions due to thermal effects), on it there
are two layers - insulation and shielding, between which inert gas is kept. Tank
is then protected by the second insulation layer, and on the outside by the hull of
the ship;
GT96 - tank walls are consist of two thin layers of invar (iron alloy containing
nickel, silicon and manganese), which is characterized by practically no
expansion due to temperature increase. Insulation is made in the form of layers
filled with perlite (a component of high strength iron alloys) and surrounded with
nitrogen. In newer solutions, argon is used, which has much better insulating
properties;
CS1 - is a combination of TGZ Mark III and GT96, but the wall of the tank is
made of invar, and the insulation is made of polyurethane foam;
IHI - prismatic self-supporting tanks, very rare technology, currently there are
only two ships using this design.
The carrying volume of gas tankers produced today is about 135 thousand m3 of LNG,
which makes it possible to transport about 80 million m3 of gas.
3.3.3 Regasification technology
Similar types of tanks that are used on ships, most often multilayer, are also built for
both condensation and regasification terminals. The inner layer is made of nickel-plated
steel, resistant to expansion under elevated temperature. The next layer consists of the
insulation and the outer concrete layer, providing a protective function (e.g. in the case
of failure of the internal steel tank). The liquid gas transported to the recipient is
subjected to regasification usually in the immediate vicinity of the receiving terminal.
In the further part of the gas supply chain, the gas is flowing through pipelines. Only a
small percentage of liquefied gas is transported by trucks.
The last stage of liquefied gas delivery is the regasification, i.e. the evaporation of gas
from the liquid to gas form. Two types of installation are most commonly used for this
purpose [12]:
ORV (Open Rack Vaporizers) - these are heat exchangers heated with
seawater, provided that it has temperature of at least +5 °C. This works in such
20
a way that the water temperature leaving the heat exchanger is about 10 °C lower
than the supply water. The construction of the exchanger is similar to a plate
radiator, washed from the outside by the sea water that flows from the upper
tank. LNG is fed from the bottom of the exchanger and the top of the gaseous
natural gas is collected;
SCV (Submerged Combustion Vaporizers) - the LNG is warmed up and
evaporated by water, which is heated by flue gases. Pipes with LNG are
submerged in a tank with this warm water.
There are also other types of installations that are in use, but are not as common as ORV
and SCV systems [12]:
STV (Shell and Tube Vaporizers) - sometimes also called IFV (Intermediate
Fluid Vaporizers) – they use the heat from exhaust of gas turbines. Heat is drawn
through an intermediate medium (e.g. ammonia or glycol), circulating inside the
shell and between tubes of LNG;
CHP-SCV (Combined Heat and Power SCV) - is the combination of
evaporative installations with cogeneration plants producing energy. It is
characterized by the possibility of achieving high efficiency of regasification
process;
AAV (Ambient Air Vaporizers) - in installations of this type the heat is
extracted from the air. Heat exchangers are in the form of tall columns with an
extended surface heated by air. Additionally, airflow is forced from top to
bottom. They can be built in a warm and dry climate. These requirements are
important for providing adequate heat and reducing frosting of the surface of the
heat exchanger;
AAV-HTF (AAV - Heat Transfer Fluid) - the units of this type are a
combination of AAV and STV exchangers, with the exhaust gas from the gas
turbine being replaced by hot air.
21
3.4 Characterizing gas storage technology
Gas is primarily stored to be available in times of increased demand. Due to
technological reasons, the supply of gas, both from domestic sources and from imports,
is practically unchanged throughout the year (although subject to slight fluctuations).
Consumption of gas, however is not so stable, even though industrial consumers are
generally getting a fixed amount of gas (or at least very predictable or even precisely
defined by the contract). The most influential factors on changes in consumption are the
seasons (heating season in winter), fluctuations associated with the day cycle (day and
night), as well as individual days of the week and holidays.
Depending on how large gas shortages are to be balanced, appropriate volumes should
be used. Those volumes of gas can be stored in different ways e.g. [12]:
In high pressure pipelines - by exploiting pressure changes in the gas pipeline
and properties of natural gas. This method makes it possible to store small
amounts of fuel and use it to cover daily gas consumption. However the
downside of this solution is that it involves higher operating costs as a result of
the flow of higher volume of gas;
In surface tanks - only small quantities of gas (also LNG) are involved.
Nowadays, these type tanks are used less and less frequently, they were popular
during the period when coal gas was produced;
In underground tanks - they can hold large amounts of gas, which can balance
seasonal fluctuations in consumption.
Natural gas stored in tanks serves as a strategic reserve to ensure continuity of supply
for industry and households. Large volumes of gas are now stored in underground tanks.
Used for this purpose are the following [12]:
Exploited deposits of natural gas and crude oil - this is the most common type
of natural gas storage (About 82% of available storage capacity). This method
exploits deposits that are in the final stage of operation. The decision that the
deposit will be an underground storage should be taken much earlier, so the
remaining deposit can be properly operated. The advantage of this type of
storage is their infrastructure is already there at the time of the allocation
decision. Wells are already constructed and surface infrastructure, including
pipeline connections with the transmission system, are in operation. The
geological structure of a particular deposit is well known, and since it is a
geological trap, the risk of leakage is negligible. However, it may be necessary
to build a gas injection system for the storage and/or to the transmission system
(compressor station). Within one year, only one filling- emptying cycle can be
performed;
Aquifers – this solution is not as popular as storage in exploited deposits, but is
still significant (about 13% of available storage capacity). The storage is located
between two aquifers (which provide a very good sealing) or between the bottom
aquifer and the top impermeable rock layer. Unfortunately, this method is costly,
as it requires to carry out a large number of observation and control bores in
22
addition to wells. Furthermore, gas from the storage may require extra drying,
which results in additional costs;
Salt caverns - (about 5% of available storage capacity) - caverns of this type are
formed after salt is washed out from an underground deposit. The cost of creating
such a storage is high and the volume of a single cavity is relatively small (up to
tens of millions of cubic meters). On the other hand, the valuable advantage of
salt caverns is the high efficiency of the stream received from the gas tank, as
well as the possibility of long-term storage (without changing the properties of
the medium) and several filling and emptying cycles during the year;
Rock caverns - these caverns are natural or specially designed for this purpose.
Very often storage of this type is not connected to the gas system and has only
local importance. In Europe there are only two rock cavern storages: in the Czech
Republic (Haje, with a capacity of 60 million m3) and in Sweden (Skallen, with
a capacity of 9 million m3);
Abandoned mines - such storages are also built without connection to the gas
system. Large operating difficulties are caused by proper sealing of the
excavation (cement, metal or plastic). There is currently only one tank of this
type and is located in Burggraf-Bernsdorf, in Germany, with a capacity of
3.4 million m3.
It is important to note that there are the two "types" of gas volumes that are present in
the underground storage. For technological reasons it is necessary to maintain a buffer
volume, which is supposed to provide adequate pressure to prevent damage to the
storage. The volume that is available for use is called the active volume of the storage.
It expresses how much gas can be pumped underground without risk of exceeding the
maximum pressure and unsealing of the storage, as well as how much gas can be
collected so as not to exceed the minimum pressure.
The first three types of tanks are the most common. Works on the last two (where the
cost of gas storage is high) are conducted in countries with no suitable geological
formation to create a storage, for example in the aquifer. The filling time of the
underground storage in the exploited deposits and aquifers ranges from about 200 to 250
days, while for the salt caverns it is significantly shorter and takes from 20 to 40 days.
Emptying the storage is however much faster. For exploited deposits and aquifers it
takes from 100 to 150 days, and for salt caverns only 10 to 20 days.
23
3.5 Characterizing gas distribution technology
The next step in the route of natural gas from the source to the customer is transporting
the fuel by the distribution network, using medium (10-500 kPa) or low pressure (below
10 kPa). In this case the distances are much smaller than in the transmission network.
The amount of gas flowing is also considerably smaller and is directly related to the
amount of gas demanded by different groups of consumers.
It is difficult to precisely define the demand for gas by small groups of consumers,
especially for private households. This problem appears twice: for the first time in the
design phase of the distribution network, due to the need for selection of the internal
diameter of the pipes, which is necessary to provide a minimum pressure at each point
of the network and to optimize material costs. For the second time, the problem occurs
during the operation, at the moment of contracting the gas stream by the distribution
company.
3.5.1 Evolution of distribution network technology
A few dozen years ago, distribution networks were built of steel pipes. In order to
facilitate their assembly, special fittings were created to allow the diameter, direction or
attachment of the branch to be changed. A serious problem was the protection of gas
pipes against corrosion, caused by so-called stray currents from urban electric traction
or from inadequate realization of passive protection layers (applied to pipes at the
construction site, immediately prior to laying in the excavation), as well as complex
power grid systems.
Nowadays the distribution network, unlike the transmission grid, is built of polyethylene
pipes that have several advantages, which steel pipes lack. The main advantage is
resistance to corrosion, in addition, polyethylene pipes have comparable to steel pipe’s
tensile strength, significantly lower internal roughness (which lowers gas flow
resistance and reduces pressure loss), much greater linear elongation (important in areas
threatened with mining damage) and a much simpler way to connect individual sections.
Polyethylene pipes are joined by welding, which is made with use of two
technologies [12]:
Butt welding - after initial preparation of the pipe edge (milling to obtain a plane
perpendicular to the pipe axis), the heating surfaces heat up the front faces and
then press them against each other;
Electrofusion welding - special pipe fittings with a resistance wire are used to
connect the pipes. During the current flow wire heats up causing the pipe and
fitting material to become plastic and connect the two elements.
Welding is very easy as manufacturers fully automate the procedure by storing all
process parameters in the bar code of a material. The operator's job is to clean the heating
elements, place them in the coupler and connect the welding electrodes.
New distribution networks are built for medium pressure (above 10 kPa), because of the
ability to deliver more gas at the same internal diameters of the pipe. What distinguishes
modern distribution networks from the construction point of view is also a different
24
topology compared to transmission networks. Very often they are ring circuit systems,
which significantly improves the reliability of gas supply to the recipient. This is due to
the possibility of gas flow from two directions of such a ring. Such systems also have a
positive effect on the pressure distribution in the network, and thus allow for the
connection of more consumers.
Modernization of distribution networks with polyethylene pipes (forced by deteriorating
technical state of old pipes) has allowed for a significant increase in the maximum
pressure and, therefore, to increase their throughput. This has often led to a transition of
the network from low to medium pressure range. In some cases, the rejuvenation of the
network took place using new technologies (e.g. relining or swage-lining). They involve
inserting the polyethylene pipe into the old gas pipeline. This results in a slight reduction
in cross section, but the pressure boost compensates for this loss and increases the
throughput. The undoubted advantage of polyethylene gas pipelines is also the ability
to carry out various tasks, such as maintenance or connection, without shutting down
parts of the installation. By replacing arc welded joints with heat welding, there is no
need to remove gas from the section where the work is carried out, and it is also possible
to make a hole in the main pipe without interrupting the gas supply.
3.5.2 Role of gas stations
Gas stations are part of the distribution network and together with the gas pipeline
system they serve as local supply for smaller areas. They are designed for specific
throughput, inlet and outlet pressure and the total power of the equipment being
supplied. They are divided into several groups according to their functions [12]:
Reduction stations - designed to reduce gas pressure, equipped with at least two
reduction lines with automatic regulation, each with a throughput of the station,
one of which should be a backup line with installed over- and under-pressure
protection devices;
Measuring stations - for measuring the volume, mass or energy of the gas
stream;
Reduction-measurement stations - acting as reducing and measuring stations;
Gas reduction stations on the connection - their inlet is a connection with
suitable parameters. In case of supply pressure in the range of 10 kPa to 500 kPa
and gas flow rate Qmax 60 m3/h - the installation is referred to as the reduction
point or reduction-measurement point when measuring device is installed.
Due to the reduction of gas pressure, the reduction stations are divided into [12]:
First stage reduction stations - high pressure stations supplying medium
pressure gas pipelines;
Secondary reduction stations - medium pressure stations supplying low
pressure gas networks.
Gas stations are usually located outside the buildings. In case, where the maximum
working pressure at the entrance to the station does not exceed 500 kPa (i.e. medium
pressure installation) and the gas stream does not exceed 200 m3/h, they may be located
in boiler rooms or technical rooms of buildings.
25
The main purpose of the reduction and measurement station is to maintain the preset gas
pressure at the outlet from the station by reducing and compensating for any increase in
pressure in the gas network, and - by using telemetric measuring devices - remote
monitoring of gas flow values.
A typical secondary reduction-measuring station is equipped with [12]:
Pressure reducers with built-in quick-release and relief valves, reducing the gas
pressure from 500 kPa to 10 kPa;
Pressure gauges in front of the gas flow rate gauge and after the pressure
reducers;
Temperature sensor installed in front of the gas flow rate measuring device;
Measuring device recording the volume flow of the gas stream with the
possibility of transmitting the state of the meter via GSM;
Automatic gas shutoff valve (solenoid valve);
Blowout pressure relief valves protecting the system from the pressure increase
that can trigger the safety valve and shut off gas supply in case of temperature
increase, with no gas flow;
Dust filter for gas filtration, protecting gas meters, regulators and gas receivers
from damage;
Optionally a steam trap for precipitating condensate from gaseous fuel installed
at the gas station entrance together with a gas filter.
3.5.3 Measurement devices used for transmission and distribution of
gas
Household gas meters count the number of cubic meters of gas that the consumer
collected. Industrial meters count [12]:
Gas flow in measured conditions [m3];
Gas pressure [kPa];
Gas temperature [°C];
Gas flow converted to normal conditions [m3];
Sometimes the ambient temperature is also measured.
Methods based on measurement of the volume and velocity do not provide accurate
information about the amount of gas, since this parameter is strongly dependent on
pressure and temperature. In general, the value of gas flow converted to normal
conditions is used for financial settlements in the transmission and distribution of gas.
Various measuring systems are used in the stations. The one-meter system has only one
measurement-billing gas meter. Thus there is no problem determining the amount of gas
flowing. In the two-meter measurement system there are two working gas meters, one
of which is usually designed to measure smaller gas flows occurring during the summer
season, while the other is for larger gas flows during the winter season. It is also possible
to set up the meters in such a way that one meter is used to control the measurements of
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the other device. Three-meter systems can also be encountered, albeit much more rarely.
Located by the gas meters are the converters. They read the indication and, based on
pressure and temperature, convert the volume from the measurement conditions into
normal conditions. Only such value is used for subsequent financial settlements. Such
measurements make it possible to control the gas transmission in the gas network.
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4. Typical business strategies in the gas sector
Whether an entity within the gas sector is a company looking to optimize its supply
chain and technological process or an individual looking to make profit in trading gas,
one of the most important decisions on the gas market is when one should buy gas fuel.
Business strategies used in gas market were built over the years and have their beginning
in strategies used in crude oil market. As the time has passed and natural gas became
more and more popular fuel, strategies developed for the oil sector were applied to gas
sector, sometimes with various modifications.
Building a gas fuel purchase strategy can be divided into two aspects. First one is
analyzing the overall market including gas purchase paths, while the second one focuses
on managing a purchasing portfolio. First aspect requires an analysis of an energy
company against the background of the wholesale gas market. The possibilities of
purchasing natural gas and regulatory restrictions are also examined. This analysis
usually follows simple algorithm [1]:
1) Determining possible purchase paths,
2) Formal and legal analysis of obligations related to the individual places of
purchase of natural gas,
3) Analysis of the most profitable places to obtain gas from.
In the past, the trade of natural gas was linked to crude oil, which directly affected the
purchase of gaseous fuel on the wholesale market. The price of gaseous fuel was based
on price formulas in long-term contracts of up to 30 years. At present, natural gas can
be acquired by concluding transactions on the gas exchange.
4.1 The SWOT analysis
When faced with the task of analyzing the overall gas market, one of the most popular
methods an individual or company can use is SWOT analysis. SWOT stands for
Strengths, Weaknesses, Opportunities and Threats. The SWOT method is built upon a
market-based analysis of the company and factors affecting its market position. It can
be observed that all factors affecting a company can be external or have internal
characteristics, furthermore they can have a negative or positive effect on the company.
Those factors can now be grouped into four subcategories, as seen on the figure 8.
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Figure 8 The SWOT matrix [14]
The analysis should be done in several steps. Firstly, it is necessary to answer the basic
questions about the company's business profile and identify the needs of its customers.
In this regard, it is essential to describe the strategy of selling natural gas on the retail
market. Secondly, one should identify the external environment and evaluate the
opportunities and threats. This concerns both the purchase of gas and its further sale.
Last two steps are based on defining the company's current situation in terms of
opportunities and threats as well as outlining the company's strengths and weaknesses.
Finally, one has to evaluate scenarios that may take place, as a result of SWOT factors.
The SWOT analysis is designed around finding out how a company fits into the
environment and how the environment can affect it. It is crucial to identify four groups
of factors and determine their impact on the position of a company. An energy company,
by creating a strategy for the purchase of gas on the wholesale market, should assess
what are the main risks and how it can use its strengths.
SWOT analysis can produce four assessments of the situation [1]:
Very good strategic position - resulting from the superiority of opportunities
over threats. The above situation results from a strong developmental position
and is a combination of external and internal situation. It can also be called
aggressive (maxi-maxi) strategy,
Very bad strategic situation - the predominance of threats to opportunities.
Both external and internal situation are not favorable. It is imperative to quickly
change the style of management in the company. This is a reflection of the mini-
mini defensive strategy,
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Mixed situation - external conditions create opportunities but internal trends are
negative. It signifies the change and restructuring of the company while
preserving its strategy on the market. Such strategy is called competitive (mini-
maxi),
Mixed situation - not favorable external environment, but high internal
potential. In this situation, one should consider entering new markets or
changing market strategy. This approach is called conservative (maxi-mini).
It should be noted that the SWOT analysis is usually done "from the inside to the
outside", but it is possible to use a reverse approach to create an "outside to inside"
analysis. This approach is then referred to as TOWS analysis.
4.2 Porter’s five forces analysis
As the name implies, Porter's five forces analysis was created by Michael E. Porter. The
name comes from five factors that are subject to analysis in the sector survey. The
starting point of the analysis is the product and geographical separation of the sector.
Porter's five forces analysis method is used to assess the sector's attractiveness (potential
profitability) and to identify opportunities and threats, thus allowing forecasting of
changes in the sector.
Porter's Porter 5 analysis should be used before attempting to enter the market because
it serves to assess the attractiveness of the sector and is based on five different factors
that are relevant to the business environment [15]:
Threat of new entrants,
The threat of substitutes appearing,
The bargaining power of suppliers,
The bargaining power of buyers,
Competition between organizations in the sector.
Figure 9 Graphical representation of Porter’s five forces [16]
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Each of these five forces represents a mutual relationship between the managers of the
organization and the people in other organizations, while the combined forces determine
the structure of the sector. Porter's underlying message is that the sectors in which these
forces are large, are not attractive enough to act in them, because competition is so
overwhelming that it is impossible to achieve the expected returns. The reverse situation
occurs when these forces are weak. The sector is then seen as attractive and providing
adequate profitability.
M.E. Porter proposed a structured analysis of each of the five forces by decomposing
them into a number of economic and technical variables. Intensity of a given variable is
also very important, as its low or high value causes a strengthening or weakening of a
given force.
4.2.1 Competition between organizations in the sector
In the beginning, one should start by defining the competition and assessing the current
rivals in the gas industry. It is best to check which the main players in the sector are, and
to analyze their market shares. Information on this subject can be searched on the
Internet, obtained by watching the results of companies and by observing sales
dynamics [17].
After all relevant data has been gathered, it is time to determine the level of competition
between the participants of the market. At this point, attention should be paid to the
marketing activities undertaken by individual companies and whether their actions are
open competition, comparative promotion or rather they focus on advertising their own
assets.
4.2.2 Threat of new entrants
The next important force is the threat of new competitors, i.e. all companies that can
enter the market. Companies that are still in the process of creation should also be
included in this analysis. The easier it is for new entrants to enter the market, the more
often they are competing. Therefore, one should investigate potential competition by
analyzing entry barriers [17]. The higher they are, the lower the risk of new entrances.
4.2.3 Threat of substitutes appearing
Another force that needs to be analyzed during the market assessment is the threat posed
by the introduction of substitute products or services. When considering substitutes, it
is useful to reach out to the industry press where information on new technologies and
potential substitutes is often presented [17].
When assessing substitutes as a market threat, account should be taken of the degree to
which they meet consumer needs and the prices at which they are offered. In addition,
consideration should also be given to the factors that are normally taken into account in
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the case of directly competitive products, such as the cost of switching to the substitute
from the customer's point of view. For traditional natural gas market, the biggest
substitute that has be considered is shale gas.
4.2.4 The bargaining power of suppliers and buyers
Finally, one should analyze the last two forces - suppliers and buyers. For these two
components, Porter's Analysis is exactly the same. In the beginning, one takes into
account the groups and organizations that his company pays for delivering the product
or service. Then one determines their impact on his business (how strongly each supplier
dictates terms of cooperation). It is best to do this using a scale from 0 to 5 [17].
One should do the same with the buyers. Here, attention should be paid not only to
private individuals, but also to various distribution channels. In this case, the influence
of the buyers on the company should also be determined.
4.3 Boston Consulting Group analysis
Boston Consulting Group (BGC) analysis, also known as BGC Matrix is the oldest and
simplest way to present a portfolio for managing a purchase. It is based on two variables
- market growth rate and relative market share of the examined product or group of
products. In addition, it is necessary to determine which products are the most
interesting for the surveyed company.
Figure 10 Boston Consulting Group matrix
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Figure 10 pictures simple example of BCG matrix, its four sectors represent
combinations of product and market conditions. Those sectors can be further explained
as [1]:
Stars - are products that bring significant revenue, but require funding. This
sector represents all new offers for customers that are characterized by an
increase in market size,
Cash cows - are a high-margin products that do not require a financial
investment. The market is not growing too fast, but the company is still
benefiting. Usually these are products put on sale some time ago, but still
popular,
Question marks - are characterized by low profitability and high financial costs.
At present, they have a low market share, while the dynamics of the development
of the area are noticeable. In the future such product might develop into a star or
become too uncertain to excuse further investment,
Dogs – products in this sector are characterized by low profitability and low
financial needs. In addition, there is no noticeable dynamic of the significance
of this area.
On the one hand, BCG analysis can be performed for the area of gaseous fuel sales. On
the other hand, it is also viable for the management of the purchase strategy, where the
greatest potential for building competencies and experience lies. BCG matrix has many
advantages and disadvantages. Its strength is the diversification of the production
portfolio and the creation of a stable source of revenue. On the other hand, by using the
BCG matrix, one might not notice a slowly growing market, that offers big gains. High
market share does not always guarantee revenue. An example of such situation is sale
of the large volumes of gas to end users that comes with high cost of maintenance
(invoicing, customer service).
4.4 Building a business strategy for gas trade
In the first step, real possibilities of physical purchase of natural gas for end customers
and introduction into the transmission network are analyzed. In fact, however, the
minimum purchase volume may exclude the direction of purchase (e.g. overseas LNG
transport). At the end, it is necessary to carry out a formal and legal analysis of the
obligations linked to the chosen purchase direction and whether it is feasible for energy
companies to fulfil them.
The second step of strategy building is the timing of the purchase of gas and the
products, by which purchase will be realized. Products should be understood as stock
exchange listed on the power exchange and the physical balancing market organized by
the Transmission Network Operator. Simplified methodology for managing one’s
shopping portfolio is as follows [1]:
1) Deciding on where to buy natural gas,
2) Determining the time and products purchased for gaseous fuel,
3) Defining shopping portfolios.
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Managing the gas purchase portfolio is done by answering the question of what should
be the time interval between the signing of a sales and purchasing contracts from the
point of view of an energy company, that is to say what should be done first. Should a
sales contract be signed first and only then the purchase contract or vice versa. In both
cases there are risks involved.
The third step is to describe the main players of the gas market. This step should be done
simultaneously with the second one. In this step following questions should be
answered [1]: Who can influence the wholesale price of gas? Which countries will have
a decisive impact on the transaction? What will be the behavior of the Transmission
Network Operator? To answer those questions one should implement Porter’s Five
Forces analysis.
The fourth step is largely the extension of the first. It requires to describe the main trends
in global, regional and national markets. The energy company will be a player in these
markets without much influence on the possibilities of creating them. This step requires
use of Boston Consulting Group analysis.
The next task is to write out and quantify the main threats, risks and problems.
Identifying and describing major uncertainties will allow to quickly respond to issues in
the future. To complete this step SWOT analysis should be performed. Awareness of
business risks should allow an energy company to prepare ahead for them. Most
important at this stage is analysis of the law and the proposed changes that might be
relevant in the future.
In the final phase, potential gas purchase scenarios should be built, verified and
described. The number of scenarios should not exceed 5-7 [1]. It is also important to set
priorities and the people responsible for the tasks set out in the scenario.
Finally, conclusions should be drawn from the analysis of potential purchasing
scenarios. These conclusions should, among others, address the following two issues
[1]: How does an energy company contract gas fuel? Should it conduct business more
or less aggressively? Analysis of scenarios can also allow company to base on it its
management strategy of individual purchasing portfolios.
After the completion of a strategy company should analyze its competitive position in
the market. The competitive position of the company is the sum of its strengths and
weaknesses [18]. At this point SWOT analysis is useful once again. It depends on how
well one masters key success factors, including the competencies, resources, and assets
company needs to succeed in a chosen field. In the case of companies trading gas, these
factors include [1]:
Credibility on the market,
Size of equity or access to finance and credit,
Opportunities to enter foreign markets,
Access to highly qualified human resources.
If company does not have a competitive advantage in a particular business sector, it is
not advisable to take aggressive action, which might be seen by the competitors as trying
34
to gain a significant market share. Energy companies, especially in the initial stage of
their activity in the natural gas market, may not be able to acquire gas fuel in the context
of complicated operational activities. Gas market companies can be divided in terms of
their experience and activity in the markets. It does seems sensible to, for example, start
own extraction business when the energy company is just starting to trade gas on the
domestic market.
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4.5 Choosing a purchasing portfolio
The purchasing portfolio that company chooses it a part of its business strategy. The
risk that the company can accept determines the models of strategy building. As part of
the preparation of gas purchase strategies, the purchase portfolios should be defined [1].
An energy company can adopt several approaches to secure its position on the wholesale
market, hence it is necessary to create separate purchasing portfolios to measure
managerial effectiveness. Depending on the characteristics of the portfolio, the company
should determine what its acceptable level of financial loss is. In addition, it is necessary
to determine how the purchase will take place - on the futures market or spot market.
The decision-making process in this area determines the type of portfolio.
When purchase of gaseous fuel is done with goal of future sales contracts, there is a risk
of price fluctuations on the energy exchange. If a power company makes a pre-emptive
decision to execute a sales contract with the intention of securing its position at a later
date, there is a risk of price fluctuations on the stock market [1]. The energy company
must decide whether the purchase will be made on the futures or spot market and
whether the contract will be hedged (protected against loss) simultaneously with the
sales contract.
Table 3 Difference between various purchasing portfolios [1]
Purchasing
portfolio
Time of purchase of natural gas Purchase
on
futures
market
Purchase
on spot
market
Before
signing a
sales
contract
After having
a contract
with the end
customer
Simultaneously
signing a sales
contract and
buying gas
Basic portfolio - X - X -
Closing portfolio - X X X -
Pre-hedging portfolio X - - X -
Speculative portfolio X X - X X
In terms of potential losses, the closing portfolio is the safest one. At the time of selling
gaseous fuel at a specified price, the first-stage margin is immediately secured. By
calculating the offer for the end customer, the portfolio manager measures the "purchase
price" according to the current quotations - on the gas exchange or the over-the-counter
market at the price index [1]. Offer validity period usually ranges from a few minutes
to several days. This implies a degree of risk, but it is not too big.
Another on the risk scale is the basic portfolio. It is based on volumetric forecasts for
sales plans for the following years. An energy company may have analyzes indicating
the probability of having a certain volume. One can then secure his position and make
a purchase. The failure to achieve sales at the expected level is the risk involved with
this type of portfolio.
The most risky are pre-hedging and speculative portfolios. In order to ensure a certain
level of margin it is necessary to conclude with two opposing parties in the
transaction [1]. One has to secure the purchase of gaseous fuel on the wholesale market
36
and the sale to the final customer. In case one of the parties is not closed (for example,
the purchase of natural gas but no sales contract), the company has an open position.
The open position is associated with potential losses caused by price volatility.
4.5.1 Basic portfolio
A basic portfolio is created when a company already has a customer base with a volume
that can be expected to be realized with high probability. Typically, a company already
operates for a number of years and is able to anticipate that their portfolio is likely to
perform without any problems. A basic portfolio is created when an energy company
has a large purchasing volume, which is impossible to execute in a single transaction.
Assuming that the seller has to make a purchase of high volume of the natural gas (e.g.
2000 MW) within a given year, knowing that the average daily trading volume for a
given product is 50 MW, placing the entire purchase order would introduce a big
confusion to the market [1]. Hence, strategies are created to break down the total volume
of purchases into smaller parts. The purpose of this portfolio is to achieve so-called
weighted average price for the product.
4.5.2 Pre-hedging and speculative portfolios
Pre-hedge portfolio operates on the principle of market uptake or purchasing of goods
before sale. Let us imagine a situation where the energy company has not yet signed a
sales contract, but based on price forecasts, it is predicted that there will be a sharp rise
in raw material prices soon. Then it can act ahead of the market and complete the
purchase transaction. The risk with this portfolio is the lack of sales and the drop in
natural gas prices on the wholesale market. If the purchase is finalized and sales contract
is not signed and the price of gas on the wholesale market will fall, then the company
will make a big loss.
The speculative portfolio is largely similar to a pre-hedging portfolio, but with its use
reversed. In this case, the sale of natural gas to the final customer is signed and the
moment of raw material purchase on the wholesale market is delayed. For example, at
the time of signing the sales contract, the price of gaseous fuel on the wholesale market
was 60 €/MWh. The energy company predicts that in the period in 2 months the price
will fall by another 6 €/MWh. At that time, a decision is made to delay the purchase of
gaseous fuel until more favorable price conditions are met on the wholesale market [1].
As with the pre-hedge portfolio, there is a risk of inaccuracy of the forecast.
4.5.3 Closing portfolio
The closing portfolio created in tandem with the basic portfolio. For example, the power
company set up sales of 15 TWh in the following year. The basic portfolio assumed
10 TWh. The remaining part was the uncertainty of forecast accuracy. With the passage
of time and securing the contracts, the company can raise its forecast to 17 TWh. Then
the company should perform securing of its assets on the basis of immediate closure.
This means that each new contract signed with the final customer should be hedged on
the stock market or the OTC market [1].
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5. Simulink model of a gas network
Along with 2016b release of Matlab/Simulink software, Mathworks – the company
behind it, included updated Simscape libraries. Simscape along with other libraries form
a large database of blocks that are used for simulations in Simulink. The new, updated
software included blocs for creating and running simulations of gas systems and
networks. Following chapter of the thesis will present how to use those new blocks, how
to set up a simulation and finally include simulation of simple gas network.
5.1 Configuring and using new gas system blocks
As a result of expansion of libraries and updates to software, now it is possible to
perform simulations exclusively in Simulink, without necessity to input simulation
parameters in Matlab and then to reload those parameters into Simulink. With newest
version of software it is possible to have all parameters directly inputted into the
simulation, because of new simulation blocks.
Before starting simulations, it is important to include solver block, so the calculations
can be performed. For Simscape blocks, solver can be found in the following library
directory: Simscape/Utilities. For visual reference, solver block is presented in
figure 11.
Figure 11 Solver block for Simscape libraries
5.1.1 Gas Properties block
As mentioned above, it is now possible to input parameters directly into simulation. For
gas systems and network this is achieved by using Gas Properties block. Any gas circuit
connected to this block will adopt its parameters. It is also possible to have multiple
circuits in simulation that use different gasses, but each of them will require its own Gas
Properties block. The block can be found in the following directory:
Simscape/Foundation Library/Gas/Utilities. For visual reference, Gas Properties block
is presented in figure 12.
Figure 12 The Gas Properties block
38
It is worth mentioning, that as default the block uses parameters for dry air. If simulation
requires different kind of gas, it is necessary to look up parameters in tables and
professional literature. The Gas Properties block can work in one of three modes:
perfect gas, semi-perfect gas and real gas. Working mode of the block should be selected
basing on available data, as for example perfect gas mode requires input of a single
number per parameter, while real gas mode requires for some parameters input of whole
vectors of data. With default settings for dry air, those vectors have more than 200
numbers in each of them. While real gas mode provides best accuracy of simulation,
with more complex systems or networks it will take longer time to run calculations.
Because of complexity of information required to run simulation in semi-perfect and
real gas modes, any model presented in this thesis will be using perfect gas mode.
Network natural gas is in 98 % composed of methane, for the purposes of simulation, it
can be approximated as pure methane, parameters of which are listed in the table below:
Table 4 Physical properties of methane [32]
Parameter Symbol Unit Value
Specific gas constant 𝑅 𝑘𝐽
𝑘𝑔 ∗ 𝐾 0.518
Compressibility factor 𝑍 1 0.99814
Reference temperature 𝑇𝑟𝑒𝑓 𝐾 293.15
Specific enthalpy at reference temperature ℎ𝑟𝑒𝑓 𝑘𝐽
𝑘𝑔 627.58
Specific heat at constant pressure 𝑐𝑝 𝑘𝐽
𝑘𝑔 ∗ 𝐾 2.2
Dynamic viscosity 𝜇 𝜇𝑃𝑎 ∗ 𝑠 11
Thermal conductivity 𝑘 𝑚𝑊
𝑚 ∗ 𝐾 33.3
Figure 13 presents values inputted into the Gas Properties block with units used in Table
4, however it is possible to choose different units from roll-down list next to the
parameters.
Figure 13 Settings of the Gas Properties block
39
It is also possible to access “Parameters” tab of the block to input minimum and
maximum temperature and pressure of given gas network. If at any point of simulation
those values are exceeded, error message will appear and simulation will be stopped.
One can also define here values of atmospheric pressure and threshold at which flow
reversal occurs (in reference to Mach number). This tab can be seen in Figure 14.
Figure 14 Parameters tab of the Gas Properties block
5.1.2 Gas Reservoir block
Another important element used in simulations of gas network is Gas Reservoir block.
This block acts as an infinite volume reservoir under constant pressure and temperature.
The Gas Reservoir block can be found in the following directory: Simscape/Foundation
Library/Gas/Elements. There are two versions of this block, controlled and
uncontrolled. For visual reference, Reservoir blocks are presented in Figure 15.
Figure 15 Controlled and uncontrolled Gas Reservoir blocks
Controlled Reservoir block allows for temperature and pressure parameters to vary in
time in accordance with an input control signal. In uncontrolled Reservoir block,
pressure and temperature are constant and assume the value of parameters set in block
configuration. In both cases it is necessary to specify cross-sectional area of the port at
the entrance to the reservoir. In Figure 16 one can observe settings of the Reservoir
block. It is worth noting, that it is possible to specify reservoir’s pressure by inputting a
value or by choosing for it to remain at atmospheric pressure. In the second case, the
block will assume atmospheric pressure, as defined by the Gas Properties block
connected to the network.
40
Figure 16 Settings of the Gas Reservoir block
Depending on the pressure of the reservoir and outside network, gas will either flow
from or into the reservoir. In the first case, gas will have the parameters as set in reservoir
settings and reservoir will act as a heat source. In the second case, temperature of the
gas will be determined by the gas network and reservoir will act as a heat sink.
The Gas Reservoir block can be used to represent connection of local gas network to
gas transmission system. Another use for this block might be to represent industrial or
household consumers, if simulation requires a constant levels of consumption over time.
5.1.3 Mass Flow Rate and Pressure Source blocks
Both Mass Flow Rate and Pressure Sources act as an ideal mechanical energy source.
Mass Flow Rate Source will provide a constant mass flow rate regardless of the pressure
differential, while Pressure Source will provide a constant pressure differential
regardless of the mass flow rate. Sources are represented as ideal elements, therefore
they will not cause any flow resistance or heat exchange with the environment. Source
blocks can be found in the following directory: Simscape/Foundation Library/
Gas/Sources. There are two versions of those block, controlled and uncontrolled. For
visual reference, Source blocks are presented in Figure 17.
Figure 17 Controlled and uncontrolled Source blocks
Controlled blocks allow for mass flow rate or pressure of a source to vary over time in
accordance with an input control signal. In uncontrolled source blocks those parameters
are set during the block configuration and stay constant over time. It is also possible to
define whether a source will perform work on a gas flow. A source can either add no
power or add isentropic power to the gas stream. In the first case block will be used to
just change parameters of a gas flow, while in the second one it will more truthfully
resemble for example a gas pumping station. Source block settings also allow for
determining cross-sectional areas of inlet and outlet ports. All settings of Pressure
Source block can be seen in Figure 18, and are identical to those of a Mass Flow Rate
Source, with only difference being mass flow rate and pressure differential parameters.
41
Figure 18 Settings of the Pressure Source block
Pressure Source block can be used to represent compression or decompression station.
This effect is obtained by setting pressure differential parameter to either positive
(compression) or negative (decompression) value. For example setting this parameter to
-5 as seen in Figure 18, will cause gas stream entering the source to be decompressed
and drop its pressure by 5 MPa.
On the other hand Mass Flow Rate Source can be used in combination with Gas
Reservoir block to model a gas extraction source (e.g. mine, drilling well) that supplies
network with gas at constant pressure and constant or varied mass flow rate. Sources
always assume flow from port A to B, therefore inputting negative value will cause a
flow reversal.
5.1.4 Pipe block
In order to model a gas pipeline one has to use a Pipe block. Because block models
convective heat transfer with the pipe wall and viscous friction losses, it is able to
simulate pipe flow dynamics. Additionally, volume of gas will remain constant within
the pipe and temperature and pressure will evolve based on the compressibility and
thermal capacity of this gas volume [19].
It is possible for the gas flow through this block to choke, this event occurs when gas
flow on the outlet reaches sonic speeds. As supersonic gas flow is not modeled in current
iteration of the software, this will cause gas stream to not further increase its flow rate
and might result in simulation errors.
Pipe block is equipped with inlet and outlet port, as well as thermal conserving port that
determines temperature of the pipe wall. Pipe block can be found in the following
directory: Simscape/Foundation Library/Gas/Elements. For visual reference, Pipe block
is presented in Figure 19.
Figure 19 The Pipe block
42
Settings of the Pipe block are more complex than those of previous blocks and are
divided into two categories. First one is geometry and the second one is friction and heat
transfer. Geometry configuration allows to specify length of the pipe, its cross-sectional
area and hydraulic diameter. Hydraulic diameter is the internal diameter of a pipe,
understood as a diameter of an area through which a fluid or a gas can flow through.
Geometry settings can be seen in Figure 20.
Figure 20 Geometry settings of the Pipe block
Friction and heat transfer settings should be kept at default values if simulated network
uses standard circular pipes that are laid in straight lines without any bends. However if
network at hand is more complex, parameters have to be modified.
Aggregate equivalent length of local resistances is a parameter that describes combined
length of all bends, fittings, armatures and pipe inlets and outlets [19]. All of those form
local resistances, which increase effective length of a pipe, and have to be taken into
consideration during friction calculations. Volume of gas that is present in a pipe
depends only on its geometrical length.
Internal surface absolute roughness is used to describe average depth of all surface
defects on the internal surface of the pipe [19]. Those defects have an effect on pressure
loss, if the flow of a gas stream becomes turbulent.
Upper Reynolds Number limit for laminar flow describes boundary above which flow
of a gas stream starts to transition from laminar to turbulent. Fully developed laminar
flow, at the border of entering transition state, is described by this number. Lower
Reynolds Number limit for turbulent flow describes opposite situation. It refers to a
boundary, at which fully developed turbulent flow starts to transition into a laminar one.
For circular pipes, in engineering practice, following boundaries for Reynolds number
are assumed [20]:
Re < 2100 – laminar flow
2100 < Re < 3000 – transitional flow
Re > 3000 – turbulent flow
43
Shape factor for laminar flow viscous friction describes how pipe geometry influences
viscous friction losses. This parameter usually takes following values: 64 for a circular
cross section, 57 for a square cross section, 62 for a rectangular cross section with an
aspect ratio of 2, and 96 for a thin annular cross section [19].
Nusselt number for laminar flow heat transfer is a ratio of convective to conductive heat
transfer. Value of this parameter depends on the pipe cross-sectional geometry and the
thermal boundary conditions of pipe wall. If the pipe is circular and temperature is
constant over time, this parameter usually takes value of 3.66 [19].
All the settings for friction and heat transfer section can be seen in Figure 21.
Figure 21 Friction and heat transfer settings of the Pipe block
5.1.5 Measurement blocks
In order to analyze result of a simulation, it is necessary for simulated gas network to
contain measurement blocks. There exist three kinds of measurement blocks: Mass and
Energy Flow Rate Sensor, Pressure and Temperature Sensor, and Thermodynamic
Properties Sensor. Measurement blocks can be found in the following directory:
Simscape/Foundation Library/Gas/Sensors. For visual reference, measurement blocks
are presented in Figure 22.
Figure 22 Measurement blocks
Out of those three blocks only first two are necessary to analyze flow in a gas network.
Thermodynamic Properties Sensor is used for more detailed analysis of gas behavior in
a system. Both Mass & Energy Flow Rate and Pressure & Temperature Sensors have
44
inlet and outlet ports (A and B respectively), as well as two ports that can be connected
to Scope block in order to read measured data. Sensors also act as ideal elements and
there is no temperature or pressure loss in gas stream flowing through them. It is also
important to note, that because of the parameter it measures, Flow Rate Sensor has to
always be connected in series with other elements of gas network.
5.1.6 Other blocks
Besides already described blocks, Simscape libraries also contain few others, which
does not require such detailed description. All of them can be found in the following
directory: Simscape/Foundation Library/Gas/Elements.
Firstly let us introduce Local Restriction block. This block allows to model a brief flow
area restriction in a gas network. Settings of the block allow to specify restriction area,
cross-sectional area of inlet and outlet ports, as well as discharge coefficient and laminar
flow pressure ratio. It should also be mentioned that there exists controlled version of
the block, which makes it possible for restriction area to vary in time, in accordance
with input control signal. For visual reference, Local Restriction blocks are presented in
Figure 23.
Figure 23 Local Restriction blocks
Constant Volume Chamber is a block used to model storage capabilities of a gas system.
This block has two ports, one that connects with gas network and second one that is a
thermal conserving port, which specifies temperature inside of the chamber. Constant
Volume Chamber’s settings allow to specify volume of the chamber and cross-sectional
area of the port that will connect it to the gas network. For visual reference, Constant
Volume Chamber block is presented in Figure 24.
Figure 24 Constant Volume Chamber block
Finally two block that should be mentioned are Absolute Reference and Cap blocks.
First one of them is used to represent the absolute reference point for a gas system.
Pressure and temperature in such point are equal to zero. Second one represents where
the gas network is terminated, as it is not possible for mass and energy to flow through
this block. Both blocks are represented in Figure 25.
Figure 25 Absolute Reference and Cap blocks
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5.2 Simulation of a simple gas system
The purpose of this simulation is to present how construct a simple model out of the
blocks presented in chapter 5.1. The model represents filling of a gas storage that is
connected to the main pipeline through a 5 km long pipe and a pressure reduction
station. All detailed parameters of elements used in simulation can be seen in chapter
5.1 in the Figures 13, 14, 16, 18, 20 and 21. Complete model can be seen in Figure 26.
Figure 26 Overview of the model of gas storage connected with the main pipeline
Process of constructing this model went as follows. Firstly Reservoir block was picked
to represent connection point to the main pipeline, as it can provide infinite source of
gas at set pressure and temperature. Pressure of 7 MPa and default temperature of
293.15 K were chosen. Also at this point it was decided that whole simulated system
will be using circular pipes with diameter of 0.5 m which corresponds to ca. 0.785 m2
cross-sectional area. After that Reservoir was connected with Solver Configuration
block, as it is required to run simulation, and Gas Properties block. Second of whom
was used to define gas used in the network. After configuring the block in accordance
with data presented in Table 4, Reservoir was connected to a Pressure Source block. Its
purpose is to represent reduction station, which will reduce 7 MPa pressure of gas
stream flowing from the port of main pipeline to 2 MPa pressure at which gas will be
stored in a gas storage tank. After pressure reduction gas is then sent over the 5 km pipe,
which is configured exactly as shown in chapter 5.1.4. Pipe is then connected to the gas
46
port of Constant Volume Chamber, which represents gas storage tank. Volume of the
gas storage tank was chosen to be 30 000 m3.
As seen in Figure 26, there are three measurement points in the simulated network. First
point is located before the reduction station in order to monitor parameters of the gas
stream entering the station from main pipeline. Second measurement point is located
after the reduction station to check on the parameters of the gas after decompression.
Final measurement point was placed at the inlet port to the gas store tank, so it will
possible to observe parameters of the gas stream entering it. In each point three
parameters are measured – mass flow, pressure and temperature. All values are then
displayed in one Scope block for each measurement point.
In order to keep simulation simple, both temperature of the pipe wall and inside of gas
storage tank are kept at the same value, as the temperature of the gas stream coming
from the main pipeline.
5.2.1 Measurement subsystem
As can be seen in Figure 26, in order to visually simplify model of a gas network,
measurement blocks at each measurement point were condensed into one subsystem.
Furthermore, all parameters measured in one measurement point are displayed using
single scope block. External view of measurement subsystem can be seen on Figure 27,
while its internal components are presented in Figure 28.
Figure 27 External view of measurement subsystem
As can be seen on Figure above, measurement subsystem is equipped with two ports (A
and B) through which it is connected with the gas network, as well as three measurement
data ports connected to a Scope block.
Figure 28 Internal view of measurement subsystem
47
Inside the subsystem, there are two measurement blocks – Mass & Energy Flow Rate
Sensor and Pressure & Temperature Sensor. First of them is connected in series with
the rest of the network through the ports A and B. This is required, as the block measures
flow rate. Pressure & Temperature Sensor measures difference in those parameters
between measurement point and chosen reference point. If one wants to obtain
measurement in a single point, instead of difference in values between two points, it is
necessary to use Absolute Reference block, as a reference point. Results of measurement
are outputted as physical signals, therefore if they are to be displayed using Scope block,
they have to be converted into Simulink output signal. This can be done using PS-
Simulink Converter block. After conversion, data can be inputted into the Scope block.
5.2.2 Thermal control system
By observing Figure 26 one can notice, that both Pipe and Constant Volume Chamber
blocks have thermal conserving points, which are connected to a thermal system. Blocks
used here can be found in the following directory: Simscape/Foundation Library/
Thermal/Elements and …/Thermal/Sources.
Thermal control system can be realized in two ways. First of them operates under
assumption that element of a gas network has ideal adiabatic heat insulation. As a result
of this, there is no heat exchange with outside environment. It is possible to obtain such
result by connecting Perfect Insulator block, to a thermal conserving point of the gas
network element in question. This block is displayed in Figure 29 for visual reference.
Figure 29 Perfect Insulator block
Second way to approach this problem to specify temperature at thermal conserving port.
This can be done by using Ideal Temperature Source block. Such setup can be seen in
Figure 30.
Figure 30 Ideal Temperature Source block with necessary components
In order for this block to work, it requires two input signals. One of them will be
reference signal, which here is represented by Thermal Reference block, and the other
is control signal. It should be noted that control signal, should be a physical signal,
therefore any value that is set in Constant block, needs to be converted using Simulink-
PS Converter block. Such set up can be connected to a one thermal conserving port, or
several if the same temperature should be present at numerous ports.
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5.2.3 Results of simulation
The run time of simulation was chosen to be 2400 s (40 minutes), as it will allow gas storage
tank to be completely filled, and all parameters to settle. It is also assumed, that gas starts
flowing through the network at the beginning of simulation. Figure 31 represents
measurements taken at first measurement point, which is located at the inlet of gas storage
tank.
Figure 31 Measurements at the inlet of gas storage tank
By observing mass flow parameter it is possible to say that it took around 1660 s (27
minutes 40 seconds) to completely fill the gas storage. This process was however far
from linear. In the first moments of simulation, as the gas storage is empty, gas flow
rate goes quickly from zero to its peak value at 367.5 kg/s. After reaching the peak,
storage tank becomes more and more pressurized over time, so the mass flow rate also
slowly drops over time. During the initial inrush of gas stream into empty storage, its
temperature sharply drops from 293 K to 276.3 K. This is caused by the rapid
decompression of gas stream, which before entering the gas storage, was kept at the
pressure of 2 MPa. After reaching its minimal value, and as the tank becomes more
pressurized over time, temperature also rises over time until it stabilizes at the ambient
temperature of 293 K. Friction of the gas stream flowing through the pipe also has an
effect on its overall temperature. At the beginning of simulation storage begins with
internal pressure of 0.101325 MPa (default conditions) and slowly over time, as gas
stream flows into it, pressure rises until it reaches 2 MPa, which is pressure of network
supplying the storage tank.
49
Figure 32 represents measurements taken at second measurement point, which is located
at the outlet of Reduction Station.
Figure 32 Measurements at the outlet of Reduction Station
By observing mass flow curve at this measurement point it is again easy to state how
long it took for the storage tank to be completely filled, as mass flow reaches zero at
that time. What is different than in last measurement point is that peak mass flow value
is higher here and reaches 403.2 kg/s. Peak value at the inlet of the storage tank is lower
because of heat and friction losses. Shape of the mass flow curve remains the same, as
in the last case. As this measurement point is located at the outlet of the Reduction
Station, where gas stream is decompressed down to 2 MPa, pressure here should be
constant, which can be seen by looking at the pressure curve. However, as gas is
constantly decompressed here, temperature will noticeably drop. This is confirmed by
the temperature curve, which drops down as low as 219.2 K. Nevertheless, as time
advances and gas storage becomes filled, pressure in the tank increases and mass flow
rate decreases. This allows temperature to recover and stabilize at ambient temperature
level, which is 293 K.
Figure 33 represents measurements taken at third measurement point, which is located
at the inlet of Reduction Station.
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Figure 33 Measurements at the inlet of Reduction Station
Mass flow curve here is exactly the same as at the outlet of the reduction station and
reaches the same peak value. This is the case, because Pressure Source block used to
represent Reduction Station is assumed to be an ideal element, therefore it causes no
losses. Pressure curve is constant over time, with value at 7 MPa, as it is constantly
supplied with gas stream at that pressure from the main pipeline. Temperature curve
here has an interesting behavior, as it seems to mirror mass flow curve. Firstly it quickly
rises and reaches peak value and then it slowly drops over time, similarly to mass flow
curve. Temperature reaches its lowest value at 274.8 K, and then as mass flow becomes
low enough, it starts to recover and stabilizes at ambient temperature of 293 K, when
the gas storage becomes full.
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6. Sector coupling between gas and power systems
As new technologies develop and energy demand constantly increases over time, gas
will undoubtedly play a growing role in the broader energy sector. The ecological
factors and the EU policy will definitely favor the development of this area of industry.
For the average consumer, it is important that the energy supply is reliable and at the
lowest possible price, allowing them to meet essential needs such as heating and lighting
their home or powering their household appliances. As renewable energy offers energy
independence for countries and reduces the need for import of natural resources, it will
be increasingly important.
It seems that in the future there will be an ever greater convergence of energy systems,
i.e. between electrical power and gas. Despite the fundamental differences in these
systems, the ultimate goal is always to provide the end users with the energy they
require. Today's advanced information technology, new grid capabilities, increased
participation of renewable energies, but also increased and additional capabilities that
modern gas systems can provide, are the basis for concrete and practical proposals for
interoperability between the gas and power systems.
6.1 Comparison of gas and power systems
The difference between the two systems does not mean that they cannot work together.
Furthermore, as a result of the difference, there is room for complementary or
collaborative work of the systems. It is advantageous to treat both sectors not as market
competitors but also as partners who can complement their competencies / services. It
is important to note that gas transport is more reliable and involves less losses than the
transport of electricity. In situation where country or region faces threat of electricity
deficit, the gas sector may be a salvation for the power sector.
The main inconvenience and problem of the power system is the lack of practical storage
of electricity. Increasingly widely used renewable energy sources due to their periodic
work characteristic (power output dependent on weather conditions, time of day, etc.)
cause additional and large imbalances in power systems. Often there is an excess of
energy in times when the demand naturally diminishes, for example during the night.
Although intensive work is put into solving this problem (high capacity battery energy
storage, use of energy for compressing air, etc.), it is difficult to talk in the near future
about a satisfactory, i.e. economical and rational solution to this problem. In this
situation, the gas network can capture a portion of the excess (and therefore very cheap)
energy and use it in a rational way.
Direct comparison between different aspects of gas and power systems can be seen in
Table 5:
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Table 5 Comparison between key aspects of gas and power systems [21]
Parameter Gas System Power System
Type of energy Primary energy Processed energy
Possibility of large-scale energy carrier storage Present Absent
The effect of switching off (adequate number of)
receivers on the system in the short time horizon Absent Present
Transfer and distribution losses Low Significant
Reliability of transfer and distribution Very high High
Number and variety of devices using a given
energy carrier Low High
The possibility of introducing variable, dynamic
tariffs on a wide scale Low High
Diversification of consumption among different groups of individual consumers
High Low/medium
Impact of independent factors on consumption
(weather, etc.) High Low/medium
Possibility to remotely turn off/on reception (with appropriate meter equipment)
Problematic Present
Possibility for the individual recipient to act as a
local source Absent Present
The ability to create smart networks based on
individual recipients Absent Present
It is important to note, that reliability of transfer and distribution for power system is
high under normal conditions, it might diminish because of extreme weather conditions.
It should be also noted that while it is technically possible to remotely turn on and off
reception of gas during modern meter equipment, in everyday practice service team is
usually dispatched on site to perform those duties.
6.2 Concept of gas smart grid
The concept of smart grid have been well settled among the terms of the new
technologies in the power industry. Smart grid - regardless of many definitions or
explanations - is understood as a power grid that meets specific conditions and allows
for certain functionality. However, gas smart grid is a relatively new concept. This is
the response of the gas sector to the new approach of the energy sector to the question
of perceiving the network system and treating the prosumer as an active part of this
system. A more important cause of concern is the need for a new look at the gas system,
resulting from new challenges and needs, including in the broader energy sector. Also,
the availability of new tools and information technology enables realization many new
ideas whose strategic goal is to better manage available energy.
In current gas networks, new materials, complex telemetry systems, monitoring and
diagnostics are used, but the functionality and principles of the system as a whole have
not changed substantially. However, it is certain that there will be additional conditions
53
in which the future gas system will have to work. The most important new factors are
outlined below [21]:
The possibility for gas networks to utilize more diversified gas compositions
(biogas, biomethane, natural gas with hydrogen);
Greater variability in the connecting and disconnecting of new gas sources from
the network (e.g. shale gas, biogas and biomethane);
Greater variability in operating parameters (e.g. pressures) for greater use of the
accumulation capacity of the gas system;
The possibility of using very cheap electricity (smart grids);
The need to use two-way gas flow in networks on a larger scale.
This means that the new gas smart grid will have to be more dynamic, including the
ability to adapt to changing working conditions and the environment. By combining all
those requirements, it is possible to create a working definition of a gas smart grid,
which can be described as follows [21]:
Gas Smart Grid - is a dynamic subsystem (gas network) with variable topology,
equipped with metering and control systems, integrated with teleinformatic systems that
optimize its work in real time and performs additional functions alongside more basic
ones, including easy connection/disconnection of gas sources. Such grid should allow
for use of non-standard natural gas, bi-directional gas flow and gas/energy storage for
later use.
6.3 Characteristics of gas smart grid
The following is a more detailed concept of the intelligent gas network. The new
features of the intelligent gas network include [21]:
Acceptance of new types of gas, previously not used,
Flexibility,
New ways to use gaseous fuels.
6.3.1 Acceptance of new types of gas
It is likely that gas from new/other sources will be present in the gas network, in
particular: biomethane, biogas, hydrogen (as admixture) and decompressed LNG. There
also exists a real possibility for unconventional gases (e.g. shale gas) to be present in the
network. Greater diversity of gases will introduce greater variability in gaseous fuel
composition (and its calorific value). This imposes new demands on gas smart grids, as
following features will be required [21]:
Real-time monitoring of gas composition,
Improved tools for simulation and optimization analysis,
Possibility for contract settlements based on units of energy,
Intelligent self-diagnosis systems for gas pipelines and fittings.
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6.3.2 Flexibility
Gas smart grids should be much more flexible than current networks. In different places,
new sources of gas may emerge, such as the construction of a biogas plant producing
biogas/biomethane not used in cogeneration but sold to the gas system. Another
possibility is discovery and exploitation of shale gas deposits. The characteristics of
these sources will be atypical and unfavorable (from the gas grid point of view), because
in most cases they will be sources whose unit yield will be relatively small (biogas) and
variable over time (shale gas).
For example, medium-sized biogas plants produce no more than several hundred cubic
meters of biogas per hour [21]. In turn, the characteristics of unconventional gas deposits
indicate high efficiency in the first period and strongly decreasing - in the subsequent
ones. After several years, the unconventional gas source is usually considered to have
been completely exploited. The areas of concentration of these sources may be
accidental, i.e. there will be areas where the deposits will be very numerous and where
they may overwhelm the capacity of the local distribution network. This will require a
new approach, including the creation of an easy and economically acceptable gas
transport option between two selected gas network points.
The introduction of hydrogen into the gas network is already a viable option. This type
of mixture was named: Hythane (hydrogen + methane) [22]. There are already several
test and pilot installations in Europe and around the world. When hydrogen is introduced
into the natural gas network, the energy value of such gas is increased. In the more
distant future, natural gas can also be used as a "means of transporter" for hydrogen and,
using membrane separation, to obtain pure hydrogen from household gas network to
power a private-owned fuel cell.
Of course, the physical topology of the gas network is always and will be fixed.
However, much higher possibility for switching, metering and network monitoring will
be required for and expected of this topology. Measurement devices will need to work
properly for a greater range of parameter variability. The new measurement
technologies, such as ultrasonic measurements, are likely to be of further importance.
6.3.3 New ways to use gaseous fuels
Many of the following examples of gas use have already been applied in practice. Some
are not yet commercially available. The new approach will involve a much greater
intensification of such activities and widespread commercialization of these
technologies. Examples of the use of gas within the gas smart grids include [21]:
Gas heat pumps,
Cogeneration (including μCHP), trigeneration,
Fuel cells,
Dual fuel (gas/electricity) equipment,
Natural Gas Vehicles.
In the examples given above, the gas network allows the use of gas for distributed
generation of electricity.
55
For gas heat pumps where the compressor is driven by a gas engine, operating savings
of up to 30% and significantly lower CO2 emissions can be achieved. Cogeneration
systems are relatively well-recognized and successfully implemented in industry.
An interesting alternative are the fuel cells. These devices could also be defined as a
kind of cogeneration systems, however it was decided to keep them as a separate group,
because of their high potential and growing prospects. Fuel cells are not a new concept,
as they have been successfully used for generations as electricity generators in situations
where economic considerations are not decisive (space, military, etc.). Fuel cell
technology is considered to be one of the real alternatives to distributed energy in the
future - it is low-emission and environmentally friendly device. During operation, the
cells emit relatively small amounts of impurities, while being low-noise equipment.
Hydrogen is the fuel used for operation of fuel cells (excluding special types of cells).
So far, the simplest and most economical method of obtaining hydrogen is the process
of reforming natural gas, although the production of hydrogen using electrolysis and
renewable energy is another viable option. Many home appliances will be able to use
both electricity and gas (interchangeably) in their future. Examples are heat pumps,
condensing furnaces with hot water tanks, etc. Depending on the price signals and the
demand profile for electricity from the power system, one could have the option of
automatic switching to gas fuel, resulting in both an individual economic effect (cheaper
energy in the apartment), as well as in relieving the power system (reducing the risk of
extensive power failure).
What seems to be the most attractive and innovative possibility of gas smart grids is to
allow the transfer of energy between the power and gas networks. The gas network can
be seen as an optional energy storage for the power system.
6.4 Overview of options for energy storage
Energy storage technologies, because of their technical specification and possibilities
they offer, can be categorized into one of two categories [23]:
a) Long-term storage – can store high amounts of energy, but it takes at least few
hours to discharge them. This category includes technologies such as:
Pumped Hydro Power Plants
Compressed Air Energy Storage (CAES)
H2 integration in natural gas
Substitute Natural Gas (SNG)
b) Short-term storage – can store small to medium amounts of energy, however they
are able to quickly discharge all their stored energy. This category includes
technologies such as:
Batteries
Supercapacitors
Fly Wheels
Heat storage
56
It should be noted that battery technology is very versatile, and they are able to either
release all of the stored energy very quickly or over longer periods of time. Figure 34
depicts typical value range for different energy storage technologies.
Figure 34 Value range for different energy storage technologies [24]
Even though battery storage offers great advantages, one of the main problems at the
moment is high cost of large capacity storages. Other energy storage methods such as
pumped hydro storage or Compressed Air Energy Storage allow for much larger
amounts of energy to be stored. The idea is in both cases is to use cheap electricity in
order to either pump the water or compress air or other gas. Because electricity prices
are subject to strong seasonal and even daily fluctuations, stored energy of water or
compressed air can be used to generate electricity in times when it is most cost effective
and needed. Both of these methods are technologically complex and require significant
financial inputs and the end result has relatively low system efficiency. For pumped
hydro there is a direct dependence on favorable environmental factors, relevant
geological structures, dams on rivers, etc. In the case of CAES, it is difficult to talk
about developed technology, as they are still more of a developmental and research
activity. The well-known example of commercial use of CAES is the compressed air
storage plant in Huntorf, in Germany, where a cavern of exploited natural gas was used
for storage.
New, long-term prospects for energy storage are achieved by manufacturing hydrogen
or Synthetic Natural Gas with a possibility to pump them into gas systems. In both
situations, the gas sector is directly involved in the implementation of these solutions.
Hydrogen can be produced using the standard electrolysis method, using the temporary
excess of electricity normally found in renewable energy (wind, solar). The cost of
energy in this situation is very low, and its reception is often a rescue for the power
system, for which excess energy is a significant problem. There are situations where it
is more rational for power generation companies to pay for energy to be consumed than
to switch off conventional power plants. The situation of "negative prices" of energy
57
has already occurred in Germany and Scandinavia, where the reception of renewable
energy, e.g. from wind farms, is the priority. In this situation, hydrogen production can
be economically viable even in an energy-intensive method such as electrolysis. The
term "green hydrogen" or "wind hydrogen" can be already found in professional press,
as they describe the hydrogen produced by electricity produced by wind farms.
Pure hydrogen is a gas that is extremely troublesome in storage (gas migration through
typical construction materials). The gas network in this situation is a perfect solution.
Research shows that up to 15-17 % hydrogen admixture can be used in standard
networks and no change in network fittings is required [21]. These sizes should be
treated as upper limits. Simulations made in Germany (E.ON Ruhrgas "GasCalc") [23]
indicate that an admixture of 15 % hydrogen may be equivalent to 60 TWh/year of
stored energy. In another words, basing on this study, by adding the admixture of only
4 % of hydrogen to the German gas system would allow to store 15 TWh/year, which
translates to ca. 20 % of wind energy produced in Germany in 2016 (77.8 TWh [25]).
Another option for the use of hydrogen is the methanisation process in which methane
is produced by the synthesis of a mixture of hydrogen and carbon dioxide. Replacement
natural gas produced from biomass and biogas after purification and treatment can be
introduced into the gas network. The volume of gas production depends on the specific
national circumstances and the methods of co-financing (e.g. systems of so-called color
certificates). Eight European countries already include biomethane, i.e. cleaned biogas,
into the gas network. The German market is the leader when it comes to biogas, as it
plans to acquire and introduce 6 billion m3 of biomethane into the gas network by
2020 [21]. While Germany is definitely the leader when it comes to biomethane plans,
there are 367 facilities of this type around Europe. Figure 35 shows total number of
operational biomethane plants in European countries, as of 2015.
Figure 35 Biomethane plants per country in Europe [26]
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Gas systems themselves can be considered as powerful energy storages. It is estimated
that the medium-sized gas system of the European country has a projected capacity of
several dozen or more TWh. For example, the German system, a very extensive network
of gas pipelines, has a possibility for an annual accumulation of about 220 TWh [21]. It
is also important to remember about underground gas storage facilities which, thanks to
their specifics of work, meet the actual storage functions. In energy storage terms,
capacities that are possible with gas storage are far larger than what standard energy
storage methods are able to offer right now.
6.5 Power-to-gas technology
Commonly used energy carriers in gas power systems are hydrocarbon mixtures whose
main component is methane. In recent years attempts have been made to use hydrogen
as the energy carrier. Hydrogen is not present in nature in a free state, however there is
practically unlimited supply of it, as it can be extracted from water. Currently, the
cheapest and most popular method of producing hydrogen is steam reforming of natural
gas. This method utilizes reaction between high temperature steam and fossil fuel, in
this case natural gas. The process requires temperature between 700 °C and 1000 °C,
pressure of 3-25 bar and metal-based catalyst (e.g. nickel) [27]. As result of the reaction
yields pure hydrogen and carbon monoxide. Chemical reaction occurring in reformer
can be seen in the equation 6.1:
CH4+ H2O→ CO2+H2 (6.1)
In recent years, there has been an increase in interest in hydrogen production in the
process of electrolysis of water using renewable electricity. Power-to-gas technology is
a promising solution for balancing the electricity system as excess electricity from
renewable sources could be used to produce hydrogen that could then be pumped into
the gas network to store the chemical energy thus obtained. It should be emphasized that
medium- and long-term storage of energy for balancing of the power system requires
the capacity of the TWh of energy. This storage capacity scale is only available with
underground storage of chemical energy, in the form of underground gas storage in
depleted deposits, aquifers and salt caverns.
Power-to-gas installations can include alkaline, polymeric proton exchange membranes
(PEM), and solid oxide (SOE) electrolyzers. Alkaline electrolyzer typically operates at
approximately a temperature of 80 °C and a working pressure of 30 bar. Typically they
achieve efficiency between 60-70 % [28]. Commercial available modules have nominal
power of up to 2.5 MW. In terms of degree of development, this technology is the most
advanced and the cheapest. Among the dozens of projects on the laboratory scale, as
well as among the planned and implemented demonstration projects, 67 % of
installations use alkaline electrolysis, while the rest are based on proton exchange
membrane (PEM) electrolyzers [28]. The advantage of PEM cells is simple construction
and high efficiency of 65-83 % [28]. They are also adapted for rapid load changes.
However, their exploitation period is shorter due to the durability of the electrolyte in
the form of a proton exchange membrane, and the small capacity of up to 30 m3/h. They
are also characterized by higher costs due to the platinum used as a catalyst.
59
Solid Oxide (SOE) electrolyzers are still in the research and development phase and are
not used in commercial installations at the moment. The main problem associated with
them, in the context of applications in Power-to-Gas installations, may be the sensitivity
to thermal stresses of ceramics due to the requirement of flexible working mode and
frequent breaks in the work cycle of the electrolyzer.
These technologies are currently at different stages of development, and their brief
characteristics are given in Table 6.
Table 6 Comparison between different electrolyzer technologies [28]
Parameter Unit Alkaline PEM SOE
Stage of technological development - Advanced Demonstrative R&D
Typical operating temperature °C 60-80 50-80 700-1000
Working pressure bar < 30 < 100 < 30
Current density A/cm2 0.2-0.4 0.6-2.0 0.3-1.0
Cell voltage V 1.8-2.4 1.8-2.2 0.95-1.30
Power density W/cm2 < 1 < 4.4 -
Electrical efficiency % 60-71 65-83 81-86
Energy demand kWh/m3 4.5-7.0 4.5-7.5 2.5-3.5
Production rate of hydrogen m3/h < 760 < 30 -
Work at partial load % > 20 > 5 -
Rate of load change % of Pn /s < 10 %/s < 25 %/s -
Lifetime of the cells h < 75 000 < 30 000 < 40 000
Lifetime of the installation years 20-30 10-20 -
Purity of hydrogen % > 99.8 > 99.999 -
Time to start minutes 15 < 15 > 60
Estimated cost €/kWel 1000 2000 -
In most demonstration projects, the hydrogen produced in the electrolyzers is then stored
in pressure vessels. The working pressure range of the tanks is very wide and ranges
from 4 bar to 400 bar [28]. For example, for hydrogen refueling stations, a high
operating pressure of 300 bar is required. High pressure saves space for storage tanks,
but increases installation costs due to the need for a hydrogen compressor. As with
compressed natural gas refueling stations, buffer tanks are used to reduce the cost of
compression and the refueling process takes place only after they are filled. Another
way to reduce the cost of compression is to use a pressure electrolyzer. Such
electrolyzers are available with a working pressure range of 12-30 bar. The overall
efficiency of the pressure electrolysis installation is about 5% higher than that of low-
pressure electrolysis plants, but due to higher investment and maintenance costs, it is
recommended to use low-pressure electrolytic cells that work with hydrogen
compressors [28]. The power-to-gas plant currently having the highest hydrogen
production capacity is the Audi plant in Werlte, Lower Saxony, Germany. Opened in
2013, the plant has a capacity of 6.3 MW and an average efficiency of 54 % [28]. The
produced hydrogen is then used to produce methane, which is used as a fuel for cars
powered by Compressed Natural Gas (CNG).
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After resolving problems with generation of hydrogen, it is possible to construct Power-
to-Gas installation, which general scheme can be seen in Figure 36.
Figure 36 Methanisation of hydrogen in Power-to-Gas technology [28]
In order to store excess energy from solar and wind renewable energy sources, generated
power can be used in an electrolyzer to generate hydrogen. This hydrogen can be then
directly pumped into gas network to increase overall calorific value of gas present in the
system, or used to produce Synthetic Natural Gas (SNG). SNG can be produced in
Sabatier Reaction, which was discovered in 1910s by Paul Sabatier. The process
requires temperature between 250-400 °C and nickel, ruthenium or rhodium
catalyst [29]. Chemical reaction occurring in production of SNG can be seen in the
equation 6.2:
CO2+4H2→ CH4+ 2H2O (6.2)
Synthetic Natural Gas produced in this process can be pumped into gas network and
transferred for immediate use or stored for later. During power imbalance in power
system, stored gas can be transferred to gas power plant and converted back into power
to balance the system. Using Combined Power and Heat (CHP) technology can further
increase overall efficiency of the process.
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6.6 Interface for coupling gas and power systems
Coupling interface between gas and power systems will be a key part of future power
macro-system. The scheme of such an energetic and ecologic macro-system can be
visualized as follows: a renewable source provides energy (solar, water, biogas
combustion) to smart grid and biogas directly to the gas smart grid. The excess of cheap
energy from the smart grid can be used to produce hydrogen (for example, in an energy-
intensive electrolysis process), liquefy natural gas, or garage refueling of electrical
vehicles.
In turn, hydrogen can be directly introduced into the gas network or it can be a raw
material for methane production in methanization. Energy is therefore transferred from
one type of power (electricity) to another (gas), where it can be easily stored and used
at a later time or used to increase available gas resources. In this situation, electricity is
effectively transferred and used. A reverse process might also occur, i.e. the use of
gaseous fuels for the production of electricity, both in large stationary systems (gas
power plants) and in distributed systems. Produced distributed electricity (from gas)
reduces the burden on both the transmission and distribution systems as well as the
demand (especially peak), increasing reliability and reducing the risk of large blackout
failures [21]. This can be compared to the function of peak power plants operating in a
distributed system.
When it comes to hydrogen introduced into gas network, it is important to remember
about additional stress that might be inflicted upon existing infrastructure, which was
built with pure natural gas in mind. In addition to gas turbines, the components in which
the increased share of hydrogen in the mixture with natural gas carries the greatest risks
are: underground gas storage facilities (especially in the structures partially filled with
water, due to the potential hydrogen impact on the geological structure), measuring
equipment (process chromatographs not adapted to the new composition of hydrocarbon
mixtures and volume conversions) and CNG vehicles (operational problems of CNG
steel tanks) [28]. In general, the amount of hydrogen that can be safely added to natural
gas depends to a great extent on the composition of the gas at the pumping point and on
the type of terminal equipment (gas receivers) installed at the exit points of the system.
In the case of the risk of exceeding the allowable share of hydrogen in the mixture with
natural gas, hydrogen may be subjected to methane production by producing synthetic
natural gas (SNG), which can be supplied to the gas network in unlimited quantities,
assuming existence of a network of sufficient capacity and storage possibilities.
Coupling interface of the future power macro-system will allow for energy transfer
between electrical power grid and gas network. To make this process as easy and
effortless as possible, one should aim to create a smart macro-grid. Such construction
will include smart grid, gas smart grid, coupling interface between them and a control
system. Scheme for this macro-system, with emphasis on coupling interface, can be seen
in Figure 37.
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Figure 37 Coupling interface for Gas, Power and Heat Systems
Structure like that will require for all of its elements to communicate with each other,
which will cause enormous amounts of data to be send and received. In order to cope
with such demands on data transfer and number of connected devices, advanced
networking technologies and concepts should be used. One concept that will be very
helpful in this case is the Internet of Things (IoT), which is a name for a network that
connects all different types of devices (computers, sensors, actuators, etc.) and allows
them to collect and share data. This concept makes full use of IPv6 technology that
allows for 2128 (ca. 3.4*1038) IP addresses, which is more than enough to accommodate
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both all current and future websites, servers and still have enough addresses for physical
devices functioning under IoT doctrine.
With implementation of IoT, control system for smart macro-grid should be possible to
construct. Such control system will first of all monitor working parameters of power and
gas systems, especially watching for imbalances in electrical power system (shortages
and excess in power). By monitoring gas network, the control system will know,
whether it is possible to use stored volumes of gas to create electrical power in gas power
plants or CHP plants in case of power shortage. In reverse case, the excess of electrical
power, control system will also be able to tell whether additional hydrogen or natural
gas can be introduced into gas network. While CHP plants are not essential for overall
scheme of smart macro-grid, they allow for increased efficiency of energy conversion,
as well as for coupling with heat system, which allows for further expansion of the
concept to encompass all utilities.
Generation and receiving structures can be integrated into larger units from the point of
view of the power system and can to some extent be subject to external control. This
integrated unit is the so-called Virtual Power Plant. An interesting solution in high
saturation conditions with RES units is the creation of local semi-self-balancing
structures, covering areas of municipalities, settlements or larger buildings. These
structures, in addition to integrating reception, should have their own power sources and
energy storage systems. This purpose serves the idea of creating energy clusters. It is
worth emphasizing that the concept of teleinformatically managed energy clusters, as a
form of regional aggregation of energy sources, actually fulfills the idea of the Virtual
Power Plant [30].
Even though main role of the control system is to balance the power system, with the
input of data from gas and power markets, it can also optimize the profit. This possibility
is especially viable in countries with large amounts of biogas power plants, like
Germany. Biogas power plants can output two products: either power to the electrical
power system or biomethane to the gas system. Thanks to the market data, control
system can monitor local prices and decide what individual biogas units should produce.
Sufficiently complex control algorithm should be able to perfectly balance power output
of biogas power plants to the power grid and biomethane to the gas network, so that
systems will be kept stable and maximal profit can be achieved.
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7. Conclusions
To understand problems connected with coupling of the power and gas systems, the
presented thesis set out to explain topics such as functioning of the gas market, structure
and technologies of the gas networks, business strategies of the gas sector and creation
of the simulation of a simple gas system. Each topic deserves a paper on its own,
therefore only the most crucial information was brought up, in order to create general
image of a gas market and a gas system for people that might not be familiar with the
matter at hand. Purpose of this was to enable any reader to understand the concepts and
ideas contained in the final chapter of the thesis, on the sector coupling, as well as to
serve as general introduction to the gas sector of industry.
Changing the paradigm of the functioning of the power and gas systems, through the
popularization of individual generation sources, leads to distributed generation, which
requires the application of new technical and organizational solutions. The idea of local
manufacturing, cooperatives and energy clusters and virtual power plants is part of the
development of the public sector energy sector. The problem of balancing energy in the
network with the production instability of RES-based units can be mitigated on the one
hand, thanks to energy storage systems and, on the other, through appropriate
aggregation of entities. Aggregation of different units can be made to average the profile
and create conditions for regulating the load and using market opportunities, managing
and balancing resources and deriving profits. This is the mission of the virtual power
plant. Such aggregations can however be a part of a much larger macro-system that will
encompass power system, gas system and possibly even heat system. Key factor in
achieving this idea is construction of an appropriate coupling interface and a control
system. Both hydrogen and methane in all its forms (Natural Gas, CNG, LNG, and SNG)
play a very important role in this concept, however using new technologies will put
additional stress on existing gas infrastructure. While it does not pose a problem now,
in the future, if use of technologies such as injection of hydrogen into gas network is
intensified, infrastructure will require modifications, modernization or perhaps even
partial or complete replacement.
Elements such as energy storage systems, Power-to-Gas installations, distributed
generation and virtual power plants will be an inherent part of modern power systems,
and due to the importance of stabilizing the power system, they should gain a prominent
position within the regulated energy market, adequately remunerated. However,
cybersecurity considerations are a matter of particular concern for the development of
control and information infrastructures.
Biogas power plants create interesting opportunity for the future, if gas and power
systems continue to integrate. Those installations can decide which system to supply,
and depending on energy balance and financial factors, can decide which action to take.
On a larger scale (country or private company owning multiple plants) it would be wise
to have a control system that would take care of power balancing and maximization of
profit.
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