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Two Open Seasons Test Arizona Gas Storage Interest

On-again, off-again natural gas storage interest in Arizona is on again, with two proposed underground facilities conducting nonbinding open seasons that a former storage proponent in the state, El Paso Natural Gas Co., is monitoring, although it has no equity interest in either proposal.

The proposed Arizona facilities are by Connecticut-based NGS Energy and Houston-based Multifuels LP's Picacho Peak Gas Storage LLC.

Both projects are located in the Picacho Basin in Pinal County near Eloy, AZ, and would be tied into the El Paso and Transwestern Pipeline interstate systems. NGS's proposed project is targeting a 2012 start while the Multifuels is eyeing a two-phase commercial launch, with the first phase in 2013 followed two years later by the second phase.

The NGS open season began at the beginning of February and runs through Thursday. The Connecticut-based company did not respond to inquiries about the level of interest so far and whether the company thinks Arizona can support two storage projects. Multifuels' open season began Feb. 16 and concludes on Friday (March 5).

A prime potential customer for gas storage in the state, Pinnacle West Capital Corp.'s Arizona Public Service (APS) utility, still supports at least one storage project, although a Phoenix-based utility spokesperson told NGI last Monday that the "current conditions are not as good as they were a couple of years ago" for developing Arizona's first underground gas storage facility.

The current emphasis on more renewable-based power supplies and more demand-side management, along with the recession-induced lack of sales growth, make it "more of a challenge" to site gas storage, the spokesperson said. From strictly a reliability standpoint, however, APS could still support a project if one was built, he said.

Last spring NGS Energy and El Paso signed a deal to develop a natural gas storage facility in Pinal County, but the terms were never disclosed. The Memorandum of Acquisition and Understanding (MAU) that gave NGS first call on El Paso's storage project assets in Arizona is still in effect, although El Paso is not an active participant in the project, according to a Houston-based El Paso spokesperson.

"We support storage in the region -- either NGS's or Multifuels' proposed projects," said an El Paso manager in the company's Colorado Springs, CO-based business development office.

El Paso also continues to work with a customer group, the Arizona Storage Coalition, to "identify issues related to the interface between El Paso's transportation pipeline system," the El Paso spokesperson said.

The MAU provides NGS with an exclusive due diligence period and right to purchase all acreage, wells, geological and technical data and rights currently held by El Paso. The storage project is located in the Picacho Basin and would include a nine-mile pipeline header system that could connect to Transwestern, El Paso and other new and proposed gas-fired plants. NGS said it plans to develop a 20 Bcf storage facility utilizing aboveground evaporation ponds on the site.

Thus far NGS has not obtained any of El Paso's assets from its past forays into storage in the state, and the El Paso spokesperson confirmed that his company is keeping a close eye on the proposals from NGS and Multifuels.

NGS has said it intends to turn the Picacho salt basin into a highly cyclable storage asset that can provide the Arizona market with flexibility it currently needs and will need with continued growth, according to NGS President Laura Luce, although in the near term utilities in the state are projecting basically flat growth in retail sales as has been the case the past two years.

Federal Energy Regulatory Commission filings will occur this summer with operations slated for summer 2012, according to NGS, and Multifuels projects doing the same only a year later with the start of its first phase in 2013.

Arizona currently has no gas storage facilities. Six years ago the Arizona Corporation Commission held a discussion focused on the issue of storage and the commissioners at that time all expressed support for storage development.

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