Natural gas storage proposals are alive and well in Arizona, but when one of them is going to turn into an actual project is still anybody’s guess, following last Tuesday’s (Aug. 26) Federal Energy Regulatory Commission staff conference in Phoenix. FERC staff promised a “report” on the meeting, but nothing more tangible emerged.

The lack of a developing project at this point belies the fact that there is healthy competition in Arizona for gas projects, but demand is flat.

“There are a number of storage projects competing for support and ready to go forward once there is suffcient market support for any of them,” said one of the speakers at the all-day conference on “Southwestern Gas Storage.”Arizona’s top energy regulator, Marc Spitzer, chair of the Arizona Corporation Commission (ACC), described a rapidly growing southwestern natural gas market in need of additional gas storage infrastructure.

“We have a population growth that is putting demands on the infrastructure in a lot of areas, ” said Spitzer, who tried to underscore the need for redundancy in his state’s gas infrastructure.

As part of the current lack of sufficient market support, James F. Wilson, a principal in the Washington, DC-based economic/financial consulting firm, LECG, LLC, cited various reasons for the situation, including plenty of supply, moderate prices, slack demand, uncertainty about the contract conversion about to take place on El Paso Natural Gas’ system, and El Paso easy absorption of big daily load swings.

Noting that FERC should not make the mistake that the current torpor over Arizona storage means that federal regulators should try to “fix” the situation with a joint open season, Wilson said there are “a few impediments” that FERC could appropriately address. Perhaps the biggest impediment is its “policy on cost-based rates for storage” unless there is proof of no market power.

Wilson is adamant about his contention that FERC blew it earlier this year when it rejected Red Lake Gas Storage’s request for market-based rate authority for a proposed salt cavern natural gas storage facility in Mohave County, AZ (see, NGI, June 9).

“The Red Lake decision was wrong,” Wilson said. “There is no market power here; there is strong competition and weak demand. And the market is large, including northern California. The Red Lake decision is probably having a chilling effect on storage development.”

Wilson reiterated after speaking at the FERC workshop last Tuesday that generally the market in the Southwest is “large and competitive,” therefore negating FERC’s concerns about market power abuses. “Northern California is very much a part of the southwestern market; in fact, the primary supply competition in the southwestern market (between Canadian and Southwest/Permian supplies) occurs on and through the PG&E (utility) system. PG&E system shippers switch large quantities between the Redwood (NW( and Baja (SW) paths in response to small price changes.”

ACC’s Spitzer noted that the very recent “gasoline crisis” in his state, prompted by a pipeline breakdown, has caused people generally in Arizona to think about the importance of their energy infrastructure. “People don’t usually think about infrastructure; they take it for granted, except when it’s not there as the whole power blackout in the East showed.”

Paul Amirault, a senior executive with EnCana’s Wild Goose Storage, urged that “light-handed regulation” be applied to non-utility storage development in the Southwest. He said EnCana had no current projects identified in Arizona, California or other western states, but is adding a field in Alberta and one in Louisiana. Wild Goose also is undergoing an expansion in California that will be partially completed and available in November. It will boost the project’s deliverability from 200 MMcf/d to about 320 MMcf/d, Amirault said. By April next year when the expansion is completed, Wild Goose deliverability will be at the 700 MMcf/d level.

El Paso Natural Gas Co. used the forum to confirm its purchase of the Copper Eagle Gas Storage project, proposing to develop Arizona’s first-ever natural gas storage facility west of Phoenix. El Paso also touted an open season it plans this winter to assess whether, and when, the proposed Arizona project may get off the ground (see Daily GPI, Aug. 27).

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