While the impacts of shale gas and lower overall natural gas prices could eventually alter the status quo, currently gas storage in the West looks adequate, according to sources at Pacific Gas and Electric Co. (PG&E), a partner in the region's newest underground storage facility, Gill Ranch in Northern California (see Daily GPI, Oct. 5, 2010; Sept. 27, 2007).
PG&E has a 25% interest while the developer/operator, Portland, OR-based NW Natural, holds 75% of the $150 million, 20 Bcf facility near Fresno, CA, giving the region adequate reliability for the natural gas system, according to the San Francisco-based combination utility's gas storage experts. Gill Ranch began commercial operations last October.
"Facilities such as Gill Ranch go beyond reliability requirements and provide customers with the ability to take advantage of lower-priced gas during periods of lower demand and to manage price volatility in the near term," said a PG&E spokesperson. During its development the Gill Ranch backers indicated that the project could eventually be expanded, but for now any expansion plans appear to be on hold.
Gill Ranch has the capacity to expand, but that will have to await more favorable market conditions, the PG&E sources said. They noted that this is the only project the California utility has with the NW Natural unit, and they are not looking at additional projects at this point.
Nevertheless, elsewhere in the state there are at least four other gas storage projects in various stages of development. In addition, PG&E has a compressed air energy storage project ongoing as part of a smart grid research effort drawing a $25 million federal stimulus funding grant from the U.S. Department of Energy.
The proposed new projects include three in the Sacramento area and a revival of long-standing plans to develop the Ten Section storage field in Southern California. Among the ones in and around Sacramento are a project called Central Valley Gas Storage LLC by Illinois-based Nicor Inc. and the expansion of the existing Wild Goose facility north of Sacramento.
New gas supplies from the Rockies, such as the ones coming in the El Paso Natural Gas Ruby Pipeline now under construction, could also play a role in boosting storage development, industry sources said. "The increase in gas delivery capacity to California, coupled with storage capacity in the state, increases the ability of the market to move gas into California when the demand prices on the national level are at their lowest," according to PG&E storage experts.
Similarly, the PG&E sources see shale gas as a factor, too.
"Shale gas has dramatically changed the supply situation in North America," according to PG&E's gas experts. "We have nearly doubled our reserves and the flowing supply was increased dramatically, resulting in lower prices and reduced volatility to the benefit of all consumers."
PG&E sees shale gas as a "North American issue," since the continent now has abundant natural gas supplies and it doesn't export much gas at this point. "Exporting this [shale extraction] technology could increase the global supply of natural gas with newly developed supply regions being closer to customer demand," the utility's gas experts said.
PG&E officials were circumspect in responding to NGI on questions about other impacts on gas storage and whether the utility's parent company might pursue some storage opportunities on a nonutility basis in the future. While there are no new "technology breakthroughs" on the horizon for storage, there is what the utility sees as an "ongoing evolution" that has produced more sophisticated reservoir modeling and horizontal drilling techniques that can improve the economics of existing and new underground storage.
Alternative transportation fuels could have an impact on the use of gas storage, but this would come mostly from the electric sector, PG&E said. Natural gas used in transportation is still too small an overall segment to have an impact, but the advent of greater use of electric vehicles could increase the demand for peak-time electricity supplies, and a lot of those added supplies would come from gas-fired electric generation.
Now that Gill Ranch is operating, PG&E officials said they have "no gas storage projects under active development."
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