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Enstor Says Storage 'Dodges Bullet' in Gulf Hurricanes, Dampens Market Volatility

While it may not be much comfort, natural gas consumers nationwide would have faced an even more precarious supply and price situation entering this winter had the industry not finished last winter with a larger than normal amount of gas in storage and maintained typical injections throughout much of the year, a Houston-based independent storage developer told FERC last Wednesday.

"Had storage inventories been near-empty at the beginning of this year, the destruction of these hurricanes [in the Gulf] would certainly have created greater price volatility and fewer supplies during the upcoming winter," said Patrick DeVille, vice president of marketing for Enstor, during FERC's fourth annual "State of the Natural Gas Infrastructure Conference" in Washington, DC.

"From a storage perspective only, we have dodged a bullet," but the market may not be so lucky in the future, said the official from Enstor, which owns and operates the 21 Bcf Katy storage facility west of Houston.

In addition to the ample storage level at the close of last winter, "the current structure of the forward price curve on the Nymex is still giving economic incentive to holders of storage capacity to continue injecting even through the month of November. The current price curve is also providing incentives to holders of storage inventories to deplete their inventories to historically low levels by the end of this winter. In effect, we will have large amounts of storage inventory that will be drawn upon heavily during the four months [from] December 2005 through March 2006 due to the economic incentives to do so," DeVille said.

The industry finished the 2004-2005 winter heating season with 1.239 Tcf of gas still in storage, which was above the 1 Tcf that was in storage at the close of the 2003-2004 winter and above the five-year average of 1.022 Tcf. The industry has put an additional 1.69 Tcf into storage since the April 1 start of the injection season.

"Fortunately, we will not feel the effects of Hurricanes Katrina and Rita on gas storage this winter... However, these disasters have served as a warning that more storage infrastructure is needed in the production and market areas," he noted.

Additional flexible storage services could be provided to the domestic gas market either by greenfield development or "more quickly and with little cost" if FERC adopted "certain supportive regulatory policies" for storage, according to DeVille. Specifically, he urged the Commission to waive the "shipper-must-have-title" rule for independent storage operators to allow them to extend their storage capability downstream to the market using transportation that they hold.

Moreover, "we encourage the Commission to continue granting market-based rates to new storage facilities that are brought online. We would further encourage the Commission to utilize its [new authority under the energy bill] to grant market-based rates to facilities that would not meet the current tests for market power in precisely those areas where storage services are needed most," he said.

FERC's storage policy has been high on the list of Chairman Joseph Kelliher's things to do. "I certainly share that goal... We will act in the near future to take the first step" toward reforming the agency's storage pricing policies, he said at the conference.

He agreed that storage reforms would be "timely" following the two hurricanes that struck the Gulf. "We are currently discussing what approach" to take on this issue, he told reporters.

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