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

The Commission’s decision was a major setback for CNG and NorthPenn Gas, an affiliate of Penn Fuel, which are opposed to theproject since it would be located directly beneath their existingstorage facility, the Tioga Storage Complex. The joint owners haveargued all along that their facility would be “irreparably” damagedif NE Hub were permitted to drill through it in order to leach thetwo proposed salt caverns where it plans to store gas.

In spite of these concerns, FERC found NE Hub’s proposed storagefacilities would “help alleviate a growing need for competitivelypriced supply sources in the market area, primarily the highdeliverability/seasonal services,” the order said [CP96-53].”Balanced against this need, we have determined…that thefacilities can be developed with minimal risk of damage tothe…Tioga Storage Complex.”

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

The Commission contracted with AGM Inc., a reservoir engineeringand geotechnical consulting firm, to address the many concernsraised by CNG and North Penn. AGM made two key recommendations,which FERC directed NE Hub to comply with in order to preserve theintegrity of the Tioga Storage Complex. First, NE Hub’s firstcavern should be drilled before starting the drilling of the secondcavern to mitigate any risk to the CNG-North Penn facility; andsecond, it should set two intermediate casing strings, one aboveand one below the Oriskany Sandstone Formation, that can containthe Oriskany bottom-hole pressure at a maximum of 0.75 psi per footof depth.

Apart from that, “we find that NE Hub’s proposed operatingpressure limits are within a range that will contain the cavern’sstorage 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’scertificate. In order to ensure against any damage, “we areconditioning the certificate…to require that none of the brineproduced in developing the proposed salt caverns may be reinjectedunderground by NE Hub or any other party,” it said. In addition, itlimited the scope of the certificate to just the two proposedcaverns, saying that NE Hub will have to seek further certificateauthority “in the event [it] plans in the future to constructadditional caverns under the Tioga Storage Complex or undergroundbrine production or disposal facilities for any function other thannatural gas storage.”

Moreover, FERC banned NE Hub from all construction and leachingactivities until USN’s brine evaporation/salt plant has receivedthe necessary state and federal approvals. USN is a third-partycompany that NE Hub contracted with to dispose of the brineproduced from leaching the caverns. “We are also providing that inthe event USN does not construct its plant, NE Hub must stop allconstruction/leaching activities.”

Protesters argued that NE Hub’s storage project lackedagreements for needed interconnections with pipelines, and shouldbe rejected on that basis, but FERC said it wasn’t persuaded by thearguments. It noted the Tioga project won’t be operational for atleast another two years, giving NE Hub sufficient time to build aninterconnect either with nearby Tennessee Pipeline or CNG. In theevent the proposed interconnect is not completed by then, NE Hubsaid it plans to lease space on North Penn’s Hinshaw pipeline tomove gas in and out of storage on an interim basis.

Concluding that NE Hub lacked significant market power, theCommission gave the company the authority to sell firm andinterruptible storage services at market-based rates. “However, ourapproval…is subject to reexamination if future circumstancessignificantly affect NE Hub’s market status. For example, NE Hub’sconstruction of additional storage caverns, or the entrance of anaffiliate into the storage or transportation market, could alterthe balance of competitive forces.”

Susan Parker

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