HNG Storage said it is reviving two long dormant gas storage projects, one that will add about 1.6 Bcf/d of deliverability in Louisiana and another that will boost peak deliveries by more than 600 MMcf/d in Kansas. The company expects to have them both on line in 2006.

HNG President Craig Taylor said improved storage economics played a role in the company’s decision to restart projects that have been sitting on the drawing board since the early 1990s. But it really was a complex history of factors that led to their revival. He also said despite favorable gas prices, the storage market is still recovering from a tumultuous period after Enron’s collapse.

HNG is re launching its former Sulphur Mines storage project in Calcasieu Parish, LA, and has renamed it Liberty Gas Storage. The salt cavern could end up providing 1.6 Bcf/d of deliverability and 16 Bcf of working gas capacity.

“We originally planned the project in 1993, and we went through a FERC application but decided not to do the project because the rules were changing,” Taylor said. “We spent a couple years developing it and then basically shut down the development, waiting for the market and regulatory climate to improve. Then we lost control of the caverns. The company that owned the caverns was sold and then sold again and then again. We finally started back up about three years ago to get the caverns back under option and start redeveloping it.”

Taylor said the in the meantime field’s capacity grew significantly since first being planned as a 4 Bcf cavern in the early 1990s because of ongoing brine production at the site. “These caverns were being created to provide brine as a feedstock to a chemical plant.” What once were expected to hold only 4 Bcf of working gas and deliver 400 MMcf/d, now will be able to hold 16 Bcf and deliver 1.6 Bcf/d.

The caverns are owned by Williams Midstream Co. and are under lease to HNG. Liberty will be connected to Transcontinental Gas Pipe Line, Texas Eastern, Tennessee Gas and Florida Gas.

HNG also still is planning to develop the Kiowa storage project as a greenfield merchant facility in Kiowa County, KS. The 7.5 Bcf bedded salt facility, which was first announced in 1994, also is expected to be in service in 2006. It will provide about 625 MMcf/d of deliverability and will be connected to Panhandle Eastern, ANR Pipeline, Northern Natural and Southern Star Central.

Kiowa was on hold in the early 1990s because of market conditions by it also was impacted by a gas explosion and leak at Oneok’s Yaggy salt cavern in Hutchinson, KS. The explosion killed two people and the state of Kansas banned all salt cavern storage facilities until it regulations could be rewritten. The moratorium on salt cavern storage was lifted earlier this month. (see Daily GPI, Jan. 24, 2001; Aug. 21, 2002).

“There were some real shoddy operators over there at Yaggy that had converted those wells; they did it really cheaply and didn’t put the proper instrumentation in and weren’t monitoring what they were doing. It was a half-assed operation. It gave gas storage a bad name.

Kansas has one-third of all the salt caverns in the United States and has been leaching caverns longer than any other state. “Over the years, they just never applied modern technology or caught up on the regulatory front,” said Taylor. “It was time for them to overhaul their regulations. It’s just unfortunate that an accident is what caused them to do it.”

The new regulations, which are basically modeled after those in Texas and Louisiana, are more strict on engineering and operational requirements on caverns, he said. “You have to use more instrumentation and do regular tests on your cavern.” Despite new regulatory scrutiny and requirements, however, HNG will be moving ahead with Kiowa.

“As a practitioner in the business, I would prefer them not being as prescriptive as they are because they aren’t leaving much room for creativity, but the regulations are not onerous or anything,” he said.

Meanwhile, other factors have been inhibiting gas storage development, Taylor noted. “The storage business has been in turmoil because the primary buyers and users of storage in the 1990s are half bankrupt at this point.”

The marketers were the primary movers and shakers in the storage business in the latter half of the last decade. “Once Enron went down and all the other guys got into financial trouble, the natural users and people who paid for storage were all hurt and tried to unload all their storage positions,” he said. “There was a disruption in the marketplace for a while. The storage market is picking up, but it’s a different set of people that are interested in it today.”

Taylor expects the producers and other gas suppliers to step in and fill the storage void left by the marketers. “The major oil and gas producers and the local distributors are once again interested because the middleman is diminished in stature now,” he said.

“Everybody is cautious at this point, but with $4-5/MMBtu gas the economics of storage are greatly enhanced. There are fundamental economic reasons that storage is and should be healthy, but there’s also some fundamental reasons that it’s been in turmoil because of who the customers and users have been. That’s what is getting sorted out in the marketplace right now.”

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