Best Practices for Natural Gas Management

Round-Table Introduction

Overview of the Natural Gas Transaction Lifecycle

• Describe the full natural gas transaction lifecycle
• What “forecast to cash” means in natural gas management
• Explain how each business function contributes to the forecast-to-cash process.
• Difference between physical gas and financial gas activity
• Front office, scheduling, middle office, back office, accounting, and IT roles
• Commercial position vs scheduled position vs actual position vs settled position
• Why upstream data quality drives downstream settlement accuracy

Gas Burn Forecasting

• Explain how forecasted demand becomes the starting point for procurement, scheduling, imbalance management, and delivered cost analysis
• Forecasting gas burn by plant, unit, meter, location, or load area
• Long-term, monthly, day-ahead, and intraday forecast cycles
• Weather, load, dispatch, outages, and operational assumptions
• Baseload demand vs variable or swing demand
• Forecast revisions and version control
• Best practices in gas burn forecasting:
  • Forecast vs procured gas vs nominated gas vs scheduled gas vs actual meter volume
  • Forecast at the level needed to procure, nominate, and settle gas
  • Update forecasts when dispatch, weather, load, or operational conditions change
  • Use forecast variance to improve future procurement decisions

Gas Procurement

• Show how gas supply teams convert forecasted demand into procurement decisions and executed transactions
• Comparing forecast demand to existing supply
• Identifying open supply need or excess supply
• Baseload procurement
• Swing supply
• Day-ahead procurement
• Same-day and intraday procurement
• Fixed price purchases
• Index-based purchases
• Basis deals
• First-of-month index transactions
• Daily index transactions
• Sales of excess gas
• Financial hedges, swaps, futures, and options
• Capturing the reason for intraday activity
• Best practices in gas procurement:
  • Match procurement strategy to the certainty of demand
  • Buy gas at the correct hub, pool, receipt point, or delivery point
  • Confirm transportation availability before relying on procured supply
  • Track open position after each procurement cycle
  • Document why day-ahead or intraday trades were executed

Capturing Gas Trades

• Explain how gas trades should be captured so they can support scheduling, confirmation, risk, settlement, accounting, and reporting
• Physical gas purchases and sales
• Hedging with financial gas swaps, futures, and options
• Pipeline Communications
• Bookouts & Cashouts
• Package deals and multi-leg transactions
• Best practices in gas trading:
  • Required fields for scheduling and settlement
  • Capture trades as close to execution as possible
  • Avoid free text for critical commercial, scheduling, or settlement terms
  • Capture bookouts and cashouts separately from standard physical trades
  • Make sure trade location and pricing index align with settlement expectations
  • Ensure the trade contains enough detail to settle without downstream rework

Reviewing Mid-Office Functions (Validate Contract, Credit, Confirmations, and Deal Controls)

• Show how controls reduce commercial risk before the transaction moves deeper into scheduling and settlement.
• Master agreements
• NAESB and ISDA agreements
• Contract effective dates and expirations
• Special provisions
• Counterparty approval
• Credit limit availability
• Price, volume, and term thresholds
• Trade lifecycle
  • Trade approval workflow
  • Confirmation workflow
  • Confirmed vs unconfirmed trades
  • Deal locking
  • Controlled unlocks
• Deal amendments
• User roles and separation of duties
• Audit logs
• Best practices for Mid-Office controls:
  • Validate credit and contract coverage before or immediately after trade execution
  • Monitor unconfirmed trades daily
  • Require approval for material changes to counterparty, price, quantity, location, or flow dates
  • Lock approved trades and control post-lock amendments
  • Maintain a clear audit trail for deal changes

Gas Pipeline Management

• Physical attributes of a gas pipeline
• The Pipeline Network
  • Receipt, delivery and pooling points
  • Market hubs, city gates
  • Plant meters
  • Storage points
  • Pipeline interconnections
• The natural gas flow

Transportation Capacity and Contracts

• Explain how transportation capacity supports the physical movement of gas from receipt to delivery.
• Firm transportation vs Interruptible transportation Pipeline zones and rate areas
• Pipeline services
• Transportation costs
• Fuel retainage
• Maximum daily quantity (MDQ)
• Demand charges
• Releasing capacity

Managing Pipeline Nominations, Scheduling and Pipeline Curtailments

• Teach how physical gas trades are converted into pipeline nominations and scheduled flow.
• Creating nominations from trades and demand requirements
• Matching receipts and deliveries
• Pipeline contracts
• Nomination cycles
• Timely, evening, and intraday nominations
• Pipeline confirmations
• Pipeline acceptance or rejection
• Scheduled quantities
• Fuel-adjusted delivered quantities
• Intraday nomination changes
• Pipeline cuts
• Revised scheduled quantities
• Trade quantity vs nominated quantity
• Nominated quantity vs scheduled quantity
• Best practices in managing pipeline nominations
  • Best Available Volume status: keeping trade (forecasted), nominated, confirmed, scheduled, and actual quantities separate
  • Track nomination cycle changes
  • Capture pipeline cuts and reasons
  • Reconcile nominations to trade quantities daily
  • Use final scheduled quantities consistently for settlement validation

Using Actual Gas Meter Data and Reconciling Operational Quantities

• Explain how actual gas flows are captured, validated, and reconciled against forecasts, trades, and scheduled quantities.
• Pipeline meter actuals
• Internal meter actuals
• SCADA, PI, spreadsheet, or internal system actuals
• Receipt / delivery actuals
• Plant burn or customer consumption
• Estimated actuals vs Preliminary actuals vs Corrected actuals vs Final actuals
• Meter corrections and overrides
• Forecast vs actual
• Trade vs nomination
• Nomination vs schedule
• Schedule vs actual
• Pipeline actual vs internal actual
• Settlement quantity validation
• Best practices in managing gas meter actuals:
  • Load actual meter data on a consistent schedule
  • Identify source, timestamp, and status of actual data
  • Separate estimated, preliminary, corrected, and final actuals
  • Maintain audit history for meter changes
  • Reconcile daily instead of waiting for invoice receipt

Storage Management

• Storage as a balancing tool
• Injections and withdrawals
• Inventory position
• Storage valuation
• Ratchets, injection rights, withdrawal rights, and inventory limits
• Storage settlement charges
• Best practices in storage management:
  • Maintain daily inventory visibility
  • Separate inventory from supply position
  • Monitor injection and withdrawal limits
  • Reconcile storage activity daily
  • Include storage in delivered cost and settlement

Managing Gas Imbalances, OFOs, and Operational Variances

• Explain how imbalances are calculated, monitored, and resolved before they become settlement or penalty issues.
• Imbalances
  • Scheduled vs actual imbalance
  • Receipt vs delivery imbalance
  • Daily & Monthly imbalance
  • Pipeline imbalance
  • Pool imbalance
  • Location imbalance
• Fuel variance
• Operational Flow Orders
• Addressing out-of-tolerance conditions
  • Penalty exposure
  • Cashouts
  • Make-up gas
  • Imbalance trades
• Best practices in managing imbalances:
  • Manage imbalances daily, not only at month-end.
  • Separate operational imbalance from commercial open position.
  • Understand the cause of each imbalance.
  • Estimate cashout or penalty exposure before invoices arrive.
  • Use imbalance history to improve forecasting and procurement.

Monitoring Position, Risk, Credit, P&L, and Delivered Costs

• Monitoring financial exposure, operational exposure, and full-delivered cost.
  • Physical gas position
  • Financial gas position
  • Open demand and excess supply
  • Position by location, book, portfolio, strategy, and delivery month
  • Fixed price exposure
  • Floating index exposure
  • Basis exposure
  • Location exposure
  • Transportation-adjusted position
  • Storage-adjusted position, if applicable
• Mark-to-market valuation
  • Realized and unrealized P&L
  • P&L Explain
  • Understanding P&L Leakage
• Calculating Weighted Average Cost of Gas (WACOG)
  • Including/excluding charges
  • Sales vs. Supply Margin
• Credit exposure and collateral

Validating Gas Pipeline Settlements

• Explain how pipeline and transportation invoices are validated and how settlement discrepancies are resolved
• Pipeline invoices = actualization
• Transportation settlement inputs
  • Reservation & Demand charges
  • Commodity transportation charges
  • Fuel charges
  • Imbalance charges
  • Penalty charges
  • Storage-related charges
  • Park and loan charges
  • Capacity release charges
  • Tariff rates
  • Scheduled quantities
  • Actual quantities
• Transportation shadow invoices
• Invoice variance reports
  • What if you cannot reconcile?
  • Dispute management
• Best practices in validating pipeline statements:
  • Validate transportation invoices separately from commodity invoices.
  • Tie pipeline charges to contracts, tariffs, path, schedule, fuel, and operational events.
  • Document discrepancy causes.
  • Maintain clear dispute records.
  • Lock settlements after approval and require approval for adjustments.

Settlement and Accounting

• Explain how to validate and approve invoices, perform accounting entries, Authorize payments
• The monthly close process
• Settlement validation
  • Supplier & Pipeline invoices
  • Customer or counterparty invoices
• AP & AR invoices
• Net payable and net receivable positions
• Approved, pending, and disputed invoice statuses
• Accruals & accrual reversals
• Revenue and expense posting
• Inventory accounting, if applicable
• GL coding
• Sub-ledger to GL reconciliation
• Managing cash disbursements and receipts
  • Dealing with prepayments
  • When a trading partner short pays and overpays
• Managing prior period adjustments
• Best practice in invoice and cash management
  • Pay only validated and approved invoices
  • Track disputed invoices separately
  • Reconcile settlement subledger to the general ledger
  • Separate accruals from actuals
  • Tie cash application back to invoice, settlement record, counterparty, and original transaction

Monthly Gas Reporting

• Close the lifecycle by reviewing key reports, controls, and feedback loops.
• Common reports:
  • Forecast vs actual report
  • Procurement coverage report
  • Deal blotter
  • Confirmation status report
  • Nomination status report
  • Scheduled vs actual report
  • Imbalance report
  • OFO exposure report
  • Delivered cost report
  • Position report
  • Credit exposure report
  • Mark-to-market report
  • Commodity invoice variance report
  • Transportation invoice variance report
  • Dispute aging report
  • Accrual vs actual report
  • AP/AR aging report
  • GL reconciliation report
  • Executive dashboard
  • Audit trail review
• Best practices in monthly reporting
  • Lessons learned and process improvement
  • Use exceptions to improve forecasting, procurement, scheduling, and settlement accuracy
  • Maintain audit support from forecast to payment
  • Use management reporting to identify recurring process issues

Round-Table Discussion