Major New Market-Area Storage, NE Hub, Authorized

A major underground storage project proposed by NE Hub Partners L.P. in northern Pennsylvania got a final nod from FERC last week, bringing some closure - or at least a temporary cease-fire - to a long-simmering dispute that has pitted NE Hub against CNG Transmission and North Penn Gas.

The Commission's decision was a major setback for CNG and North Penn Gas, an affiliate of Penn Fuel, which are opposed to the project since it would be located directly beneath their existing storage facility, the Tioga Storage Complex. The joint owners have argued all along that their facility would be "irreparably" damaged if NE Hub were permitted to drill through it in order to leach the two proposed salt caverns where it plans to store gas.

In spite of these concerns, FERC found NE Hub's proposed storage facilities would "help alleviate a growing need for competitively priced supply sources in the market area, primarily the high deliverability/seasonal services," the order said [CP96-53]. "Balanced against this need, we have determined...that the facilities can be developed with minimal risk of damage to the...Tioga Storage Complex."

It further ruled there was sufficient market support for NE Hub's storage project. The company has entered into long-term firm agreements with Southern Connecticut Gas, Aquila Energy Marketing and Tejas Power for 1.87 Bcf/d of the 5-6 Bcf/d of total working gas capacity of the two storage caverns. This would put the amount of working gas capacity under contract between 31.2% (based on 6 Bcf/d) and 37.4% (based on 5 Bcf/d). This, combined with the fact that NE Hub will be held at risk for recovery of the project costs since it will be allowed to charge market-based rates, is enough to establish need for the storage project, FERC concluded. The proposed facilities would have an estimated injection rate of 250 MMcf/d and a maximum withdrawal rate of 500 MMcf/d.

The Commission contracted with AGM Inc., a reservoir engineering and geotechnical consulting firm, to address the many concerns raised by CNG and North Penn. AGM made two key recommendations, which FERC directed NE Hub to comply with in order to preserve the integrity of the Tioga Storage Complex. First, NE Hub's first cavern should be drilled before starting the drilling of the second cavern to mitigate any risk to the CNG-North Penn facility; and second, it should set two intermediate casing strings, one above and one below the Oriskany Sandstone Formation, that can contain the Oriskany bottom-hole pressure at a maximum of 0.75 psi per foot of depth.

Apart from that, "we find that NE Hub's proposed operating pressure limits are within a range that will contain the cavern's storage gas, prevent leaks of gas loss, ensure cavern stability, minimize cavern closure (due to creep), and prevent subsidence," the order noted.

Directs Brine Treatment

The Commission also attached several conditions to NE Hub's certificate. In order to ensure against any damage, "we are conditioning the certificate...to require that none of the brine produced in developing the proposed salt caverns may be reinjected underground by NE Hub or any other party," it said. In addition, it limited the scope of the certificate to just the two proposed caverns, saying that NE Hub will have to seek further certificate authority "in the event [it] plans in the future to construct additional caverns under the Tioga Storage Complex or underground brine production or disposal facilities for any function other than natural gas storage."

Moreover, FERC banned NE Hub from all construction and leaching activities until USN's brine evaporation/salt plant has received the necessary state and federal approvals. USN is a third-party company that NE Hub contracted with to dispose of the brine produced from leaching the caverns. "We are also providing that in the event USN does not construct its plant, NE Hub must stop all construction/leaching activities."

Protesters argued that NE Hub's storage project lacked agreements for needed interconnections with pipelines, and should be rejected on that basis, but FERC said it wasn't persuaded by the arguments. It noted the Tioga project won't be operational for at least another two years, giving NE Hub sufficient time to build an interconnect either with nearby Tennessee Pipeline or CNG. In the event the proposed interconnect is not completed by then, NE Hub said it plans to lease space on North Penn's Hinshaw pipeline to move gas in and out of storage on an interim basis.

Concluding that NE Hub lacked significant market power, the Commission gave the company the authority to sell firm and interruptible storage services at market-based rates. "However, our approval...is subject to reexamination if future circumstances significantly affect NE Hub's market status. For example, NE Hub's construction of additional storage caverns, or the entrance of an affiliate into the storage or transportation market, could alter the balance of competitive forces."

Susan Parker

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