Contract Demand

Published: March 15, 2021 | Last updated: July 5, 2023

What Does Contract Demand Mean?

The contract demand (CD) is the maximum volume of gas that a service provider is obliged to deliver on any given day to a consumer under all services or, if required, a particular service at the consumption point. The CD also determines the demand charge or rate, which is the portion of the transportation or storage rate to cover fixed costs whether the gas is consumed or not.

The volume of gas in a contract demand (CD) is contractually specified under a specific rate schedule for each terminal location. This will be the maximum volume of gas the service provider is obligated to deliver on a daily basis. Any quantity of gas delivered in excess of CD has to be scheduled by the customer and is considered interruptible.

A service provider may, on its own discretion authorize gas consumption in excess of CD for limited periods in a particular month, provided the local distribution facilities have enough capacity to cater to higher demand. In such a case, gas delivery will be nominated by the customer based on the gross commodity delivery required to serve the daily load of the customer plus the unaccounted for gas (UFG).

If the gas usage exceeds the gas delivery when demand overrun is authorized, the excess gas used is considered as supply overrun gas and is permitted only 5 days in a contract year. Beyond this, a new contract demand is requested which may be restricted depending on whether the local distribution facilities can accommodate the demand.

Trenchlesspedia Explains Contract Demand

The price of energy is driven by various factors such as weather, government regulations, power outages, source fuels, and geopolitical events. Sometimes, the gas supply in a contract demand may not be sufficient to meet the demands of a particular entity. In such cases, a service provider may at his own discretion, for a limited period of time, authorize gas consumption in excess of contract demand.

Unauthorized consumption of gas in excess of contract demand is considered unauthorized demand overrun gas. Customers are permitted to nominate make-up gas, subject to operating constraints if make-up gas plus aggregate delivery does not exceed the contract demand. On days where there are no operating constraints, the company can authorize make-up gas, which in combination with aggregate delivery exceeds contract demand.

Market Cycles of Natural Gas

There are two cycles, the seasonal cycle, and the storage cycle.

Seasonal cycle – Colder months have a higher demand for natural gas for heating of homes and businesses and hence a higher price. In warmer months, natural gas is used for electricity generation to satisfy peaks during the cooling season, spiking the demand for gas. Spring and autumn are low demand seasons.

Storage cycle – Gas produced in the United States and Canada is sufficient to meet gas demands during spring, summer, and autumn but may not be enough for winter. During off-peak periods, distributors store natural gas and draw from it during the peak demand period.

Natural Gas Supply – Ground to Customer

When energy companies tap into gas reservoirs and find sufficient quantities of natural gas, they install the necessary facilities and equipment required to produce gas in a form that is usable for consumers. The purified gas flows through underground gathering pipelines that transport it to transmission lines that operate at high pressure.

The gas is transported via transmission lines to gas utility companies and distributors where they are connected to low-pressure, local distribution pipeline systems. From these pipelines, natural gas is supplied to homes and businesses. Regulated and competitive retailers buy gas from marketers and producers and sell the gas to the customer at regulated rates or rate determined by a contract. These charges also include costs to cover billing and customer service.

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