There is a complex system of processing plants, pipelines, compressors, meters and other pieces of equipment necessary for the safe production and movement of natural gas. The natural gas produced must be processed to remove water or other contaminants that would damage appliances or be unsafe if it were left unprocessed. Additionally, the gas is put into a complex system of pipelines, sometimes traveling many miles before it reaches the end-user. With each of these steps the expenses or costs can increase and that cost is passed on to the consumer.
For example, natural gas produced in South Texas could be sold at $4.00 per Mcf. The gas is processed and $1.00 is added to the cost for cleaning the contaminants from the raw gas. After processing, the gas is put in a pipeline. To get the gas into the pipeline it must be compressed. Just like putting air into an automotive tire, the gas must be compressed at a higher pressure to get it in to the pipeline. That compression adds $0.50 to the price. The pipeline charges a transportation fee to move the gas from South Texas to the local distribution utility who serves your location. The pipeline charges $1.00. Since the distribution utility serving you must be assured that the pipeline has the capacity when the temperature drops, the distribution utility pays a reservation fee or capacity fee to the pipeline company. That could be an additional $0.50. Now an additional $3.00 has been added to the original $4.00 per Mcf, resulting in a $7.00 Cost of Gas charge on a customer’s bill. Sometimes there are even more parties involved in getting the natural gas from the field of production to the end-user.
The local distribution utility serving you must make sure it has a reliable, adequate supply to meet customers’ needs, plan for many types of contingencies, and maintain constant communication with the suppliers of gas to ensure a safe and reliable supply of gas to its customers.