Storage Changing With Entry of Marketers
While storage operators are pleased with the abundance of gas
inventory built up this summer, they are a little concerned about
recent changes in storage dynamics as more marketers take title to
storage capacity from LDCs.
Storage held by local distribution companies and power
generators typically has been used to ensure supply. But marketers
holding storage or optimizing storage assets under contract with
LDCs see storage as a financial opportunity in addition to a supply
The arbitrageurs will handle their storage differently when
supplies get tight, said Pete Kinsella, Columbia Gas Transmission
vice president of marketing and volume management. "You have
diversity in the holders of firm storage, and with that comes a
broad spectrum of agendas on the part of the users, which just
makes operating and selling storage a little bit more challenging."
Picture this scenario: an extremely cold December with price
spikes. LDCs would draw down some storage but still would buy a lot
of gas on the market and pass the higher gas prices through to
their customers, Kinsella said. Marketers holding storage would
view the cold weather and attendant high prices as a financial
opportunity and would draw from storage more heavily. "This is
going to be the first winter where we see a good chunk of firm
storage actually owned by marketers. They're not just acting as
agents for LDCs. We're going to be taking a look with interest at
what they're doing this winter."
Marc Tronzo, vice president of Woodward Marketing, which manages
the storage of a number of LDCs, agreed. "As more utilities turn
their storage over to marketers to manage their assets, you're
going to see just more pure financial storage trades than you would
operational storage." James W. Hart, vice president of commercial
services for Columbia Gulf Transmission, also has seen a shift in
the way storage is viewed by the industry. "It has reached the
point now where the economics are the driver, and I don't see
anything changing that. There may be some enhancements. There may
be some impact as the electric unbundling matures. You may see gas
storage as a surrogate to electric storage."
As storage becomes more of a financial play, it could place more
demands for operational flexibility on storage operators. "I guess
the pipelines in the past have kind of had a lot of leeway with
storage," Tronzo said. "The pipelines were left with more
operational latitude because the utilities weren't optimizing. The
pipelines had a lot of latitude in the past to operate their system
however they wanted. In the future, when the price goes to four
bucks and everybody has gas in storage. everybody's going to be
trying to bust gas out of storage."
LDCs' storage costs are passed through to customers, but as more
marketers hold storage, it could put downward pressure on storage
prices. "Before, storage was basically driven by the need to have
the gas available, and people were not so much concerned with the
carrying costs," Hart said. "Now the owners of storage are looking
at how they will price that in the upcoming season. Now people are
looking at it as, 'Well, can I cover the fees associated with
storage. Can I cover the time value of money, and can I make a
profit on top of that at some reasonable rate of return. Everything
is being driven by the economics now as opposed to the public
convenience and necessity."
As for current storage levels, they're high, to say the least.
The American gas Association reported working gas as of Aug. 21 was
2,615 Bcf, or 82% full. PaineWebber's Natural Gas Group noted for
the same week in 1997 storage was 66.7% full, and it was 63.7% full
for the same week in 1996. "Barring any supply disruptions (such as
hurricane activity in the Gulf of Mexico), we expect continued
weakness in wellhead prices for the next two months before heating
demand begins to support and later lift gas prices."
National Fuel hasn't seen all that much difference in storage
operations this year compared to last year, said spokeswoman Julie
Coppola. "At about this time last year on Sept. 1st of 1997, we had
135 Bcf of gas in storage, and today we have 141 Bcf of gas in
storage." National Fuel's single largest storage customer is
National Fuel Gas Distribution.
Storage customers have been able to take a wait-and-see approach
to injections this summer, noted Coppola and Kinsella. "We were
light on withdrawals last year just because it was such a warm
winter. There wasn't as great a need in terms of total volumes to
be injected this summer. It gave the customers more flexibility.
They had more flexibility in that they had less to inject over the
course of the summer so they could take some wait-and-see
approaches. Certain months they were hitting it pretty hard, and
other months we saw them kind of back off."
Joe Fisher, Houston