NATURAL GAS ACT EXAM QUESTIONS AND ANSWERS
Wellhead - CORRECT ANSWER✅✅Point at which oil and gas are produced.
Producers - CORRECT ANSWER✅✅About 550,000 gas wells produce in the United States. Gas comes
from two types of fields: associated gas/casinghead gas and non-associated gas.
Gas is gathered in small-diameter pipelines (called gathering lines) from all the wells in a field; run
through processing facilities in the field to remove water and impurities; compressed to boost its
pressure so that it will flow into a large transmission pipeline; and transported to storage or marketing
centers.
Associated Gas/Casinghead Gas - CORRECT ANSWER✅✅Gas that is produced along with oil from oil
wells, separated from the oil, and then sent into gas pipelines.
Non-Associated Gas - CORRECT ANSWER✅✅Gas that is produced in gas-only fields that have no
accompanying oil production.
Gathers and Gas Processing - CORRECT ANSWER✅✅Producers may also construct and operate the
gathering lines and field processing facilities, but the increased size of this market in recent years has
brought new entrants into this business.
Transmission Pipelines - CORRECT ANSWER✅✅Large pipelines of high-strength steel form an
"interstate highway" system of over 280,000 miles for natural gas to travel. Most of the pipelines are
buried underground.
Interstate pipelines are regulated by FERC using many of the principles of utility rate regulation, such as
conditioning new pipeline construction on certificates of public convenience and necessity
(determinations that the pipeline is "needed" in terms of helping to economically deliver gas to an area
with demand, among other factors) and regulating rates of service.
Many intrastate pipelines also exist and are regulated by a state agency, often the public utility
commission. State agencies, often the oil and gas conservation commissions, also regulate the smaller
gathering lines.
,Midstream - CORRECT ANSWER✅✅Refers to the activities that occur between the upstream producers
and the downstream end users, mainly transmission pipelines, storage facilities, and sometimes
gathering and processing.
Distributors or Local Distribution Companies (LDCs) - CORRECT ANSWER✅✅In urban areas, there is
usually a "gas company" that purchases gas delivered to the "city gate" by a transmission company and
then distributes the gas using gas mains under the streets to serve homes for heating and cooking and
commercial and industrial businesses. They are usually investor-owned utilities regulated by the state
public utility commission, but, in some cases, municipalities own and operate the gas distribution
business.
If the weather becomes so extreme that even a cutoff of the industrial customers is inadequate to free
up enough gas to serve the firm customers, LDCs typically establish priority lists to allocate gas among
the firm customers.
Industrial Users and Power Plants - CORRECT ANSWER✅✅Gas is used as fuel in many industrial
processes like boilers and blast furnaces.
Industrial Bypass - CORRECT ANSWER✅✅Unlike residential and commercial users who buy gas from the
area's LDC, industrial users may take gas directly from the pipeline. Most power plants also take gas
directly from a pipeline or a spur off the pipeline.
To address variability in demand, what two different methods are often employed? - CORRECT
ANSWER✅✅First, depleted oil and gas reservoirs nearer to consuming areas are converted into gas
storage units by injecting gas into the reservoir during off-peak days and drawing it out during peak
days. As gas has become the premier fuel for power plants, gas storage facilities have greatly expanded,
and this alleviates, but doesn't eliminate, the problem of supplying peak demand.
Second, many industrial users that use very large quantities of gas year-round, such as petrochemical
plants or steel mills, maintain alternative coal or fuel oil facilities to which they can switch if gas is not
available or becomes relatively expensive compared to substitute fuels. These large, flexible customers
are quite desirable for a pipeline company, which is always seeking to maximize the use of its facilities
every day of the year. To attract such customers, pipeline companies designed "interruptible" rates,
which allow industrial users to buy gas at low rates on condition that they can be cut off if the pipeline
space is needed, say, for residential gas heating on very cold days.
, Load Factor - CORRECT ANSWER✅✅Ratio of average demand to peak demand. An industrial user with a
steady demand has a "high load factor." If a firm has an average demand of 8 units and a peak demand
of 10 units, its load factor is 80%.
Usage/Commodity Charge - CORRECT ANSWER✅✅An interruptible customers pay a rate based
primarily on the amount of gas it actually transports through the pipeline. Charge per unit of gas
(measured by volume or heat content) delivered to the buyer. The customer pays little of the fixed cost
of the pipeline because the pipeline serves the user only when spare capacity exists.
What kind of two-part rate does a "firm" customer (such as a residential consumer) pay? - CORRECT
ANSWER✅✅1. Usage/Commodity Charge
2. Reservation/Demand Charge
Reservation/Demand Charge - CORRECT ANSWER✅✅The firm customer pays for the right to demand
service even on the coldest day. The pipeline reserves space to meet this customer's demand at all
times. The customer pays this charge whether it uses the service or not.
Natural Gas Act (1938) - CORRECT ANSWER✅✅FPC was delegated authority to: (1) establish just and
reasonable rates for interstate transportation and interstate sales for resale of natural gas in interstate
commerce; (2) grant certificates authorizing the transportation and sale of natural gas in interstate
commerce; and (3) grand certificates for the construction and operation of facilities for such sale and
operation.
Gave FPC/FERC jurisdiction over the transportation of natural gas in interstate commerce, the sale in
interstate commerce of natural gas for resale for ultimate public consumption, and the natural-gas
companies engaged in such transportation or sale.
Regulated companies were prohibited from ceasing operating such facilities or terminating certificated
transportation and sale unless granted abandonment by the FPC. Retails sales for ultimate public
consumption and "production and gathering" were specifically exempted from the FPC's jurisdiction.
Wellhead - CORRECT ANSWER✅✅Point at which oil and gas are produced.
Producers - CORRECT ANSWER✅✅About 550,000 gas wells produce in the United States. Gas comes
from two types of fields: associated gas/casinghead gas and non-associated gas.
Gas is gathered in small-diameter pipelines (called gathering lines) from all the wells in a field; run
through processing facilities in the field to remove water and impurities; compressed to boost its
pressure so that it will flow into a large transmission pipeline; and transported to storage or marketing
centers.
Associated Gas/Casinghead Gas - CORRECT ANSWER✅✅Gas that is produced along with oil from oil
wells, separated from the oil, and then sent into gas pipelines.
Non-Associated Gas - CORRECT ANSWER✅✅Gas that is produced in gas-only fields that have no
accompanying oil production.
Gathers and Gas Processing - CORRECT ANSWER✅✅Producers may also construct and operate the
gathering lines and field processing facilities, but the increased size of this market in recent years has
brought new entrants into this business.
Transmission Pipelines - CORRECT ANSWER✅✅Large pipelines of high-strength steel form an
"interstate highway" system of over 280,000 miles for natural gas to travel. Most of the pipelines are
buried underground.
Interstate pipelines are regulated by FERC using many of the principles of utility rate regulation, such as
conditioning new pipeline construction on certificates of public convenience and necessity
(determinations that the pipeline is "needed" in terms of helping to economically deliver gas to an area
with demand, among other factors) and regulating rates of service.
Many intrastate pipelines also exist and are regulated by a state agency, often the public utility
commission. State agencies, often the oil and gas conservation commissions, also regulate the smaller
gathering lines.
,Midstream - CORRECT ANSWER✅✅Refers to the activities that occur between the upstream producers
and the downstream end users, mainly transmission pipelines, storage facilities, and sometimes
gathering and processing.
Distributors or Local Distribution Companies (LDCs) - CORRECT ANSWER✅✅In urban areas, there is
usually a "gas company" that purchases gas delivered to the "city gate" by a transmission company and
then distributes the gas using gas mains under the streets to serve homes for heating and cooking and
commercial and industrial businesses. They are usually investor-owned utilities regulated by the state
public utility commission, but, in some cases, municipalities own and operate the gas distribution
business.
If the weather becomes so extreme that even a cutoff of the industrial customers is inadequate to free
up enough gas to serve the firm customers, LDCs typically establish priority lists to allocate gas among
the firm customers.
Industrial Users and Power Plants - CORRECT ANSWER✅✅Gas is used as fuel in many industrial
processes like boilers and blast furnaces.
Industrial Bypass - CORRECT ANSWER✅✅Unlike residential and commercial users who buy gas from the
area's LDC, industrial users may take gas directly from the pipeline. Most power plants also take gas
directly from a pipeline or a spur off the pipeline.
To address variability in demand, what two different methods are often employed? - CORRECT
ANSWER✅✅First, depleted oil and gas reservoirs nearer to consuming areas are converted into gas
storage units by injecting gas into the reservoir during off-peak days and drawing it out during peak
days. As gas has become the premier fuel for power plants, gas storage facilities have greatly expanded,
and this alleviates, but doesn't eliminate, the problem of supplying peak demand.
Second, many industrial users that use very large quantities of gas year-round, such as petrochemical
plants or steel mills, maintain alternative coal or fuel oil facilities to which they can switch if gas is not
available or becomes relatively expensive compared to substitute fuels. These large, flexible customers
are quite desirable for a pipeline company, which is always seeking to maximize the use of its facilities
every day of the year. To attract such customers, pipeline companies designed "interruptible" rates,
which allow industrial users to buy gas at low rates on condition that they can be cut off if the pipeline
space is needed, say, for residential gas heating on very cold days.
, Load Factor - CORRECT ANSWER✅✅Ratio of average demand to peak demand. An industrial user with a
steady demand has a "high load factor." If a firm has an average demand of 8 units and a peak demand
of 10 units, its load factor is 80%.
Usage/Commodity Charge - CORRECT ANSWER✅✅An interruptible customers pay a rate based
primarily on the amount of gas it actually transports through the pipeline. Charge per unit of gas
(measured by volume or heat content) delivered to the buyer. The customer pays little of the fixed cost
of the pipeline because the pipeline serves the user only when spare capacity exists.
What kind of two-part rate does a "firm" customer (such as a residential consumer) pay? - CORRECT
ANSWER✅✅1. Usage/Commodity Charge
2. Reservation/Demand Charge
Reservation/Demand Charge - CORRECT ANSWER✅✅The firm customer pays for the right to demand
service even on the coldest day. The pipeline reserves space to meet this customer's demand at all
times. The customer pays this charge whether it uses the service or not.
Natural Gas Act (1938) - CORRECT ANSWER✅✅FPC was delegated authority to: (1) establish just and
reasonable rates for interstate transportation and interstate sales for resale of natural gas in interstate
commerce; (2) grant certificates authorizing the transportation and sale of natural gas in interstate
commerce; and (3) grand certificates for the construction and operation of facilities for such sale and
operation.
Gave FPC/FERC jurisdiction over the transportation of natural gas in interstate commerce, the sale in
interstate commerce of natural gas for resale for ultimate public consumption, and the natural-gas
companies engaged in such transportation or sale.
Regulated companies were prohibited from ceasing operating such facilities or terminating certificated
transportation and sale unless granted abandonment by the FPC. Retails sales for ultimate public
consumption and "production and gathering" were specifically exempted from the FPC's jurisdiction.
