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AGL Breaks Ground for 12 Bcf of East Texas Storage

May 12, 2008
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AGL Resources Inc. subsidiary Golden Triangle Storage Inc. broke ground last Wednesday for its 12 Bcf natural gas storage project on the Spindletop salt dome on the southern edge of Beaumont in Jefferson County, TX. Golden Triangle joins a panoply of other storage, intrastate and interstate pipeline projects to serve regional growth in unconventional gas production and regasified liquefied natural gas (LNG).

"The project will add much-needed storage, enhance the region's growing energy infrastructure and provide local economic benefits," said Dana Grams, president of Pivotal Energy Development, the division of AGL Resources overseeing the project.

Golden Triangle received its certificate from the Federal Energy Regulatory Commission (FERC) at the end of last year (see NGI, Jan. 7). "During our open season [see NGI, April 23, 2007] we received bids for approximately three and a half times the 6 Bcf working gas capacity of the first cavern," Grams said. "More storage in the area is critical given the increasing importance of the Beaumont region as an energy crossroad where new natural gas supplies, including LNG imports, meet the nation's pipeline network that delivers gas to market."

The project is to have two caverns hollowed out of the Spindletop salt dome, approximately a half-mile to a mile below ground. It also will include a nine-mile header system pipeline to link the storage facility with transmission pipelines. The pipeline will parallel existing rights-of-way for most of its length. Golden Triangle will increase storage capacity in Jefferson County and is expected to enhance the area's position as a national energy hub and increase the functionality of both its existing and planned energy infrastructure, the company said. It will offer high-deliverability storage at a liquid market point; access to multiple supply sources, including LNG imports; and potential interconnections to six existing and planned pipelines serving diverse markets with counterseasonal demand.

The project will interconnect with three intrastate and three interstate pipelines. The intrastates are: Centana Pipeline, Kinder Morgan Texas and Energy Transfer's Texoma line. The interstates are Florida Gas Transmission, Texas Eastern Gas Transmission and the pipeline serving ExxonMobil's Golden Pass LNG terminal.

Golden Triangle plans to initially offer up to 12 Bcf of working capacity in the two caverns. By adding caverns, the project could continue growing to a maximum of 28 Bcf. Initial commercial operations are slated to begin in late 2010 to early 2011, with the second cavern expected to come on-line in 2012. With both caverns operating injection capability will be up to 300 MMcf/d, and withdrawal will be up to 600 MMcf/d, said David Schultz, Pivotal Energy Development managing director of business development.

"The project's built for six-turn service, and it could have some capability to do more than that," Schultz told NGI. "We're having some conversations with customers that range up to nine and down to four [turns]."

The two caverns will serve growing production from unconventional basins, such as the Barnett Shale, as well as expanding supplies of LNG. "Mother Nature was good by putting a salt dome at Spindletop, Schultz said. Historically for Beaumont it's been a great benefit...Beaumont is kind of a hub between the LNG that's coming in; the unconventional reserves of the Barnett Shale will reach that area. Traditional offshore supplies as well as traditional Texas supplies all kind of flow through that southeast Texas corridor. Some consultants will call it LNG Alley."

The Gulf Coast/Southeast region and its evolving energy outlook have inspired another term, at least at research and analysis firm Bentek Energy LLC. In a recent report Bentek predicted that Gulf area storage could experience a phenomenon it calls "trough trolling," the opposite of peak shaving whereby gas is stored when prices drop precipitously and then sold later when balanced market conditions return (see NGI, May 5).

"We agree that there's a big potential for downside volatility in the marketplace when a lot of LNG is coming in and a lot of conventional gas is coming in and a lot of Barnett Shale gas is coming in and the locational price begins to crater because there may be a locational bottleneck," Schultz said. "If customers have the ability to buy gas at a discount, put it in storage and in a week it turns around they can take it back out, those are the guys that want a lot of turns versus the more traditional LDC approach, which is, 'I want to put it in the ground when it's cheap and take it out when it's really cold.' Then that might produce some bottlenecks. The whole marketplace is changing and what the paradigm is going to be is going to be based on individual customers and the kind of mix of their business."

Schultz said he's confident that Golden Triangle's location will make it less subject to downside volatility than some other facilities in the region.

The Golden Triangle project timetable has been moved back somewhat from what was outlined in the first half of December when Golden Triangle received environmental clearance for the project from the Federal Energy Regulatory Commission (see NGI, Dec. 17, 2007). The project was announced in December 2006 (see NGI, Dec. 11, 2006). Golden Triangle filed for its FERC certificate last year (see NGI, July 9, 2007).

"Because of its proximity to new sources of supply and its ability to serve diverse markets with high deliverability, the project offers customers significant market advantages," said AGL Resources CEO John W. Somerhalder II.

Seeking to allay fears that natural gas as a fuel source might fall out of favor anytime soon, Somerhalder told shareholders last week that current energy market fundamentals are very favorable to natural gas now and for the foreseeable future, given its environmental and efficiency advantages.

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