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Clock Runs Out on Mississippi Gas Storage Project

Time has run out for Leaf River Energy Center LLC's proposed expansion of natural gas storage and pipeline facilities in Mississippi as FERC has declined to extend the tardy project's completion deadline.

The Federal Energy Regulatory Commission issued a certificate for the project in October 2008 (see Daily GPINov. 4, 2008) and amended it in May 2011 and March 2013, each time extending the deadline for completion. Houston-based Leaf River requested a third extension last month, until March 2019, "...because current market conditions have limited near-term demand" for storage capacity.

The existing Leaf River facility is in Jasper County, MS. According to the Leaf River website, the facility "is ideally located to act as a bridge between the neighboring shale plays and the higher-valued Northeast, Mid-Atlantic and Southeast markets." The company is taking bids through Friday (March 18) for up to 3 Bcf of firm storage service to be available June 1 at its existing facility.

"Leaf River states that demand for storage services should rebound once the market stabilizes and gas demand for power generation and industrial applications increases," FERC said in its order issued Tuesday [CP12-26, et al]. "Leaf River states that this three-year extension of time will allow Leaf River to obtain new customer commitments and proceed with construction once the market changes.

"In the 7.5 years since the initial authorization in the October 2008 order, Leaf River has made no progress in constructing and placing into service Cavern No 3A and Compressor No. 7, and the associated piping. An imprecise and speculative assertion of a potential change in market conditions and new customer commitments for the additional storage service is not sufficient reason to grant any additional request for an extension of time."

The value of natural gas storage capacity has declined in recent years as the nation's prolific shale plays have been able to provide an abundance of readily available supply. Expanded development of gas-fired power generation -- and its spiky demand profile -- as well as exports of liquefied natural gas from the Gulf Coast have yet to raise the value of storage capacity.

One year ago, FERC refused to allow Tres Palacios Gas Storage LLC to abandon unused storage capacity for which it could not find a market (see Daily GPIMarch 19, 2015). Earlier this year storage operator Houston-based Ryckman Creek Resources LLC and its parent, Peregrine Midstream Partners LLC, filed for Chapter 11 bankruptcy (see Daily GPIFeb. 5).

Meanwhile, the recently sealed leak at Sempra Energy's Aliso Canyon storage field in California has drawn state and federal regulators' attention to the safety of gas storage facilities (see Daily GPIFeb. 1).

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