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NGS Energy Set to Enter Arizona Storage Market

NGS Energy and El Paso Corp. have signed a deal to develop a natural gas storage facility in Pinal County, AZ, the companies said Friday. Terms were not disclosed.

The deal gives Westport, CT-based NGS an exclusive due diligence period and right to purchase all acreage, wells, geological and technical data and rights currently held by El Paso. The storage project is located in the Picacho Basin and would include a nine-mile pipeline header system that could connect to Transwestern Pipeline, El Paso Natural Gas Pipeline and other new and proposed gas-fired plants. NGS said it plans to develop a 20 Bcf storage facility utilizing above-ground evaporation ponds on the site.

The Picacho salt basin will be developed into a highly cyclable storage asset to provide the Arizona market with flexibility it currently needs and will need with continued growth, said NGS President Laura Luce.

FERC filings will occur this summer with operations slated for summer 2012, according to NGS.

Arizona currently has no gas storage facilities. Six years ago the Arizona Corporation Commission held a discussion focused on the issue of storage and the commissioners at that time all expressed support for storage development (see Daily GPI, Aug. 19, 2003).

Last November El Paso conducted a binding open season for a proposed 2 Bcf facility, composed of four salt caverns and to be located in Pinal County (see Daily GPI, Nov. 4, 2008). 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.

Earlier this year an Arizona legislative committee voted to recommend that a storage project proposed by a Houston-based developer be given an exemption from state requirements protecting groundwater (see Daily GPI, Feb. 23). The developer needed 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 had proposed to inject wastewater brine as part of the feasibility testing and the eventual preparation of an underground cavern that could store billions of cubic feet of gas. According to the Arizona Department of Environmental Quality, state law prohibits brine injection because of the possible threat to groundwater supplies.

Other NGS storage facilities include Tres Palacios Gas Storage in Southeast Texas, Leaf River Energy Center in Eastern Mississippi and Windy Hill Gas Storage in northern Colorado.

Last year NGS subsidiary Tres Palacios Gas Storage LLC began commercial operation at its Matagorda County, TX, storage project (see Daily GPI, Oct. 2, 2008). All three caverns at the Tres Palacios facility are expected to be in service by 2010 with total capacity of 36 Bcf and the capability to inject up to 1 Bcf/d and withdraw up to 2.5 Bcf/d.

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