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Arizona Storage Proposal Grabs Stakeholders' Attention

Awash in natural gas storage proposals, but short on follow-through in getting one built, Arizona energy stakeholders again have their hopes raised this month by the prospect of a major project proposed by a Houston-based developer in an area between Phoenix and Tucson. The Arizona Corporation Commission (ACC) has been briefed on the 5 Bcf proposal and could eventually hold hearings on it if utilities it regulates contract for storage.

Prospective customers include the state's major electric and natural gas utilities. Calls into some of the utilities for their thoughts on the latest gas storage proposal were not immediately answered Friday.

While the ACC has no formal proceeding currently, a commission spokesperson told NGI Friday that the state regulators have been contacted by Multifuels LLP, and the regulatory panel "would likely have a public proceeding if a company it regulates begins to purchase the fuel and applies to us to seek revenue recovery [in retail utility rates]."

An Arizona legislative committee in its lower House Thursday voted 5-3 to recommend that Multifuels be given an exemption for state water requirements protecting groundwater. The developer needs the exemption to proceed with its plans for creating a large underground storage facility near Eloy, AZ, about 50 miles northwest of Tucson.

The developer proposes to inject wastewater brine as part of the feasibility testing and the eventual preparation of the underground cavern that could store billions of cubic feet of gas. The Arizona Department of Environmental Quality insists that state law prohibits the brine injection because of the possible threat to groundwater supplies, and its representatives apparently have raised concerns about the project.

Regulators have looked at other storage proposals in the past because the state now has no gas storage facilities. Six years ago the ACC held a discussion focused on the issue of storage and the commissioners at that time all expressed support for storage development in the state (see NGI, Sept. 1, 2003).

Last November El Paso Natural Gas Co. (EPNG) conducted a binding open season for a proposed 2 Bcf storage facility, comprised of four salt caverns, to be located in Pinal County, AZ (see NGI, Nov. 10, 2008). The in-service date of the first cavern was set for 2013.

The project was subsequently abandoned by El Paso for various reasons, but in essence because, as a company spokesperson told NGI, the geology for the proposed site turned out to not be "as favorable as had originally been thought." Nevertheless, El Paso still thinks the broader landscape in Arizona is conducive to supporting a commercial underground storage operation.

El Paso's proposed site was four to seven miles southwest of the site now being contemplated by Multifuels, said the El Paso spokesperson, noting that his company did not seek a state exemption to the water rules as the backers for the latest proposal are doing.

There are at least three other identified areas for potential gas storage in Arizona. They are located in the north, west and northeast areas of the state. The nearest storage available to El Paso now is in New Mexico.

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