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The Supply and Demand Forecast's Inherent Volatility

Energy commodities are renowned for their volatility, and gas is no exception.

Large Drivers

Dozens of variables drive the Supply and Demand Forecast and ultimately the decision whether an OFO is necessary to ensure safe pipeline inventory levels. However, a few of these variables are most commonly responsible for large changes from one plan to another, or one day to the next. These large drivers are: demand forecast changes, electric generation and third party storage.

Demand Forecast Changes

Large changes in the core demand forecast can be driven by discrepancies between forecast temperature and actual temperatures during the day. During the winter, a difference of one degree between forecast and actual temperature can shift forecast demand more than 60 MMcf/d. Such swings are a fact of life in the gas marketplace. Perfect models of weather and demand are far from reality.

Electric Generation

Pacific Gas and Electric Company maintains daily communication with large electric generation operators and models generator gas use based on which plants are running, forecast temperatures and electric load. However, unplanned outages at electric generators (gas-fired and other) and unexpected changes in electric demand can cause large swings in gas flows, resulting in inaccurate gas demand forecasts.

Third Party Storage

Third party storage providers on CGT's system add significant variables to the supply and demand forecast. Responding to the needs of a dynamic marketplace, third party storage providers may change their plans drastically with very short notice to CGT. When a storage forecast flips from injection to withdrawal in short order, its impact on the overall supply and demand forecast can be significant, not only reducing demand but increasing supply, or vice versa. CGT and third party storage providers strive to communicate regularly regarding daily forecasts. CGT adjusts its supply and demand forecast to reflect any updated information from third party storage providers. However, any storage operator may enter into large transactions without regard for how such transactions will affect CGT's current or pending supply and demand forecast.

Best Information Available

For each plan, CGT's Transmission Coordinators update the supply and demand forecast with the best information available. The data they use for internal operations planning is sent to the Pipe Ranger Web site five times per day. Although Pipe Ranger's data may occasionally change significantly, it remains the best information available. Large changes in the supply and demand forecast simply reflect the variability of the underlying inputs.