With more than 67 Bcf of working capacity proposed, Louisiana tops the list of states and provinces in North America with the most proposed gas storage, followed closely by Texas with 65.3 Bcf, Alabama with 62.5 Bcf and Mississippi with 55.6 Bcf of proposed working gas storage capacity, according to a new gas storage and LNG database and map produced by Intelligence Press, Inc. Despite the big numbers, however, storage developers say it isn’t exactly a boom time for the storage sector.

With about 456 Bcf of working gas capacity proposed in North America in about 50 new and existing fields, gas storage appears to be on a major expansion track currently. High and volatile gas prices indicate a significant and growing need for more price protection, and storage is an important tool that could help meet that growing need. But according to storage planners, the significant changes that have taken place in the market, in particular the demise of the merchant energy sector and the loss of most of the top marketing companies, have brought new storage capacity sales nearly to a standstill.

“It’s tough finding customers without the energy merchants in the market anymore,” said Mark Cook of SG Resources, which is developing the 12 Bcf Southern Pines Energy Center in Greene County, MS, and the proposed 16 Bcf Pine Prairie Energy Center in Evangeline Parish, LA. “When Southern Pines had its original open season, it was oversubscribed by three times. It offered 12 Bcf and got requests for 36 Bcf back from respondents and all of it pretty much was at the money. But they were all energy merchants.

“Well, they are all gone now,” he noted. “They don’t exist anymore. So now we are having to go back to the individual utilities and pipelines. But they have never really traded storage themselves. They have no profit motive; it’s just for reliability and price protection so it’s a different sell. It is a lot slower sell to those utilities than it was to the merchants who ran the optionality models and got to a value very quickly because they looked at the trading value.”

Cook noted that a lot of companies continue to struggle with credit problems and business strategy and direction. Liquefied natural gas (LNG), rather than storage, is the top news of the day.

“People want to know where LNG is coming into this area [of the Gulf Coast] and where it might make sense to have storage to support an LNG strategy. That just has people kind of hesitating right now,” said Cook.

He said producers have shown greater interest in storage, but they are more focused on LNG, new production, and their production decline rates. “A lot of them are looking to take on more of a merchant role and may take transportation and storage and provide the premium services that the big energy merchants did before.” He noted that ChevronTexaco’s and Apache’s gas used to go through Dynegy. ExxonMobil’s gas went through Duke. Producers now have taken back those gas sales roles. But capacity management and optimization are not what they have done historically.

“I think they understand storage’s value, but it’s is just a lot slower getting them to commit to something they haven’t done before.”

The depressed power market also has caused significant trouble for storage developers. A few years ago, new gas-fired power plants were being announced daily and storage developers knew storage would be a part of the fuel management of those plants. However, a lot of those new gas-fired merchant power plants and most of the older gas-fired plants aren’t needed and aren’t running.

“From August through September of 2003, the load in Florida was 250-300 MMcf/d less than the previous year,” said Cook. “Sure, the weather was a little milder, but they also relied more heavily on resid, oil and coal; it was so much cheaper than gas.”

Cook hopes gas-fired power generation eventually will drive storage development and others will step into the market to fill the void left by the marketing companies. “It’s got to turn around. I’m going to starve to death if it doesn’t,” he said.

“We are staying in front of people and educating them. Every time the market moves up or down it helps people recognize that if they had some storage they could have done this, this or this.”

At a press briefing earlier this week sponsored by Energy Daily, FERC Chairman Pat Wood said the Commission also may step in to help the market realize the importance and the value of storage. He indicated that the Commission may relax the requirements for obtaining market-based rates for storage. Such a move could have a dramatic impact on storage development by giving developers greater flexibility in negotiating contracts for service.

“We have been talking internally [at FERC] about other things we can do, as we did for LNG, that changed the regulatory structure for storage to make it more inviting to actually come in and invest in a project,” Wood said. “It is a pretty important item for us right now. I would say it is relatively high on the agenda.”

“You do need more market-area storage,” Wood said. However, he indicated that market-area storage expansion has slowed.

Cook said what the market really needs right now is more salt cavern storage. Traditional reservoir storage may require 25 Bcf of gas in the ground before it can deliver 200 MMcf/d. “In a $6/MMBtu gas market, you are talking about $150 million to get 200 MMcf/d of deliverability,” he said. “When you use a salt cavern with 12-turn service all you need to get that same 200 MMcf/d is 2 Bcf of gas, which costs $12 million rather than $150 million.

“What’s it worth in today’s really strict credit market to have that extra cash to get the same deliverability? It costs more on a per unit basis to develop salt cavern storage compared to traditional reservoirs, but on a deliverability basis, salt is so much cheaper, so it is a efficient tool to use in today’s environment as compared to what people had to do traditionally.”

Intelligence Press Inc.’s new CD of Natural Gas Storage and LNG in North America shows that while salt storage (bedded salt and salt dome) accounts for only about 4.7% of total North American working gas capacity, it accounts for more than 26% of total current deliverability.

Other key statistics are provided on the 517 storage fields and the 142 LNG facilities in North America, including proposed and operating LNG import terminals, satellite LNG and peak shaving facilities.

The Intelligence Press Inc. storage data show that Michigan has the most working storage capacity at 585.7 Bcf, followed by Pennsylvania with 407 Bcf and Texas with 395 Bcf.

El Paso Corp. is the largest storage operator by working gas capacity with an 11% market share, followed by Dominion with 10%, Kinder Morgan with 9%, NiSource with 6% and Duke with 5%.

In addition, there are at least 33 proposed LNG import terminals in North America with more than 31 Bcf/d of proposed sendout capacity. For more information on Intelligence Press, Inc.’s CD containing a map, data and charts on Natural Gas Storage and LNG Facilities in North America, contact James Geanakos at (703) 318-8848 or visit https://intelligencepress.com/.

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