In the gas transmission industry, commercial and operational demands often collide, creating complex challenges for business leaders. This conflict arises from the need to balance profitability and customer satisfaction with the technical requirements of ensuring a safe, reliable, and efficient gas supply. The tug-of-war between these demands can lead to operational inefficiencies, strained customer relationships, and financial losses if not properly managed.
This article delves into how commercial and operational demands can conflict in a gas transmission business, using real-life examples to illustrate the points made.
Commercial demands in a gas transmission business are driven by the need to maximise revenue, control costs, and meet customer expectations. These demands are influenced by several factors:
On the other hand, operational demands are concerned with the technical and logistical aspects of transporting gas. These include:
The conflict between commercial and operational demands arises when the pursuit of one set of objectives negatively impacts the other. Below are some real-life examples that illustrate this tension.
One of the most common conflicts in the gas transmission business is between the need for maintenance and the drive to maximise revenue. For instance, in 2010, a gas transmission company in the U.S. faced significant pressure to maintain its aging infrastructure while also meeting its commercial commitments. The company had a large customer base that relied on a steady supply of gas, and any disruption could lead to financial penalties and loss of business.
However, the company’s pipelines were aging and required extensive maintenance. To avoid costly downtime, the company deferred maintenance, opting to keep the gas flowing to meet its commercial obligations. This decision eventually backfired when a pipeline failure led to a major explosion, resulting in fatalities, environmental damage, and significant financial losses. The company faced lawsuits, regulatory fines, and a loss of customer trust, which far outweighed the short-term gains from deferring maintenance.
This example illustrates how prioritising commercial demands over operational ones can have dire consequences. A more balanced approach, where maintenance is planned and executed in a way that minimises disruption while ensuring safety and reliability, would have been a better strategy.
Another example of conflict between commercial and operational demands is managing peak demand periods. During extreme weather conditions, such as cold winters, the demand for gas spikes as residential and industrial customers increase their consumption for heating. Gas transmission companies are under pressure to meet this increased demand to fulfil their contracts and avoid penalties.
However, during these peak periods, the operational strain on the network also increases. Pipelines operate at higher pressures, and compressor stations run at full capacity, leading to higher risks of equipment failure and accidents. In 2018, during a particularly cold winter, a gas transmission company in Europe faced this exact dilemma. The company pushed its infrastructure to the limit to meet the increased demand, but this led to a compressor station failure, which caused a major supply disruption. As a result, the company had to curtail gas deliveries, leading to significant financial penalties and reputational damage.
This example highlights the importance of balancing commercial demands with operational capacity. Instead of pushing the system to its limits, the company could have implemented demand management strategies, such as offering customers incentives to reduce consumption during peak periods or investing in infrastructure upgrades to handle higher loads more safely.
Gas transmission companies must comply with a myriad of regulations, including those related to environmental protection, safety, and operational standards. Compliance often involves significant costs, such as upgrading equipment, implementing new technologies, or conducting regular inspections. However, these costs can conflict with the commercial goal of controlling expenses to maximise profitability.
In a real-life scenario, a gas transmission company in South America was faced with the challenge of complying with new environmental regulations that required the reduction of methane emissions from its pipelines. The company estimated that the cost of compliance would be substantial, involving the replacement of outdated equipment and the implementation of new monitoring technologies.
To control costs, the company initially took a minimalist approach, making only the most essential upgrades. However, this strategy backfired when a regulatory inspection revealed several violations, leading to hefty fines and a mandated shutdown of a critical section of the pipeline. The shutdown not only resulted in lost revenue but also damaged the company’s reputation and relationships with customers.
This example demonstrates the dangers of prioritising cost control over regulatory compliance. A better approach would have been to proactively invest in compliance measures, spreading the costs over time and avoiding the risk of regulatory penalties and operational disruptions.
In the gas transmission business, the conflict between commercial and operational demands is inevitable. However, companies that recognise and carefully manage these conflicts can mitigate risks and avoid the pitfalls of prioritising short-term gains over long-term sustainability. Real-life examples from the industry highlight the importance of balancing revenue generation with safety, reliability, and regulatory compliance.
By adopting a proactive approach to maintenance, demand management, and compliance, gas transmission companies can achieve a more harmonious balance between commercial and operational objectives, ultimately leading to greater success in the long run.