Natural Gas Industry Segments Defined

NGL market dynamics are influenced by developments in the natural gas industry’s four basic segments: Production, Midstream, Transmission, and Distribution. A general summary of each of these segments is provided in the table below.

Natural Gas Production

The natural gas production segment production segment covers the exploration & development of both onshore and offshore natural gas reserves. Companies that fall within this segment are specialize in exploring recoverable natural gas reserves, acquiring drilling and access rights, and exploiting reserves as efficiently as possible.

Exploration and drilling rights to natural gas reserves are typically acquired by producer through a lease with the landowner, who owns the natural gas in any number of subsurface formations. In exchange for this right, the production company pays the landowner a royalty, or a portion of the proceeds from the sale of the natural gas, as negotiated.

Natural Gas Midstream

the midstream segment is involved in the gathering and processing of gas, and the fractionating of natural gas liquids (or NGLs) removed. In this context, ‘gathering’ consists of collecting gas from multiple points and directing them to a central point within the inter- or intrastate pipeline network. Traditionally, the gathering and transmission pipelines systems were bundled along with the sale of gas itself. No distinction between gathering and transmission lines existed, such that when a consumer purchased gas, the services required to transport it to the point of sale were embedded in the price.

Over the last three decades, the commodity has been decoupled from the underlying transport service, and the inter- or intrastate service (transmission) has been separated from the local service (Gathering).

Natural Gas Transmission

“Transmission” in the natural gas context typically refers to intra- or interstate transportation of natural gas via pipelines regulated by the Federal Energy Regulatory Commission (FERC), a government entity responsible for both economics (rate and tariff) and new construction. Pipelines act as highway systems for natural gas, extending across the United States to bring gas to distribution companies nationwide.

Natural Gas Distribution

Local natural gas distribution companies primarily supply gas they’ve purchased on the interstate pipeline grid. When natural gas production occurs in proximity to major markets – as is the case in the Utica and Marcellus shale basins – it is more common for local distributors to purchase and receive gas directly from the producer or midstream company (rather than the transmission line). The services and pricing of natural gas distributors is regulated by state-level public service or public utility commissions. Local distributors are subject to regulated tariffs that typically contain strict gas quality standards & restrictions which must be abided by.

Targray’s team of NGL marketing professionals are focused on securing reliable and cost-effective rail, barge, truck, and pipeline access. Our long-standing relationships with natural gas producers, midstream companies and other industry stakeholders enable us to help customers in several markets unlock value while minimizing supply chain risk.

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