A closer look at 27 U.S. gas storage systems shows that as many as 20 of them, including the massive Columbia system, National Fuel, Tennessee Gas, Southern Natural and others, could be full well before the end of the storage injection season this year, leaving a substantial amount of gas supply stranded and potentially shut in, according to an analysis by Golden, CO-based consulting firm Bentek Energy.
The cumulative volume of this so called “orphaned gas” left on the market could total 164.8 Bcf by the end of October just based on injection estimates at facilities representing 37% of the nation’s working gas capacity, Bentek said.
“At this time, Bentek is not able to extrapolate from these results to the total population of storage facilities [in the United States],” the firm said in a special report titled 2006 Natural Gas Storage Fill. “It is clear, however, that a number of facilities not addressed in this analysis will fill early, thus, these results are conservative. Unless significantly warmer weather occurs this summer or the market experiences greater hurricane losses than in 2005, the magnitude of orphaned gas could be substantially higher than projected here.”
Bentek based its calculations on the current level of working gas at the 27 storage facilities and an expected injection rate equal to what occurred last year. The survey sample represents about 1,400 Bcf of working gas capacity. There are three “caveats” to Bentek’s methodology: 1) the forward curve in the futures market this year has created a much greater incentive than last year to inject gas into storage; 2) it is assumed that there will be two major hurricanes this year that knock out gas production, reducing storage injections in September and October; and 3) it is based only on storage systems that provide inventory balances — some other important storage systems are excluded.
Despite these particulars, however, the reality of surplus storage levels is clear on many systems, including some of the largest in the nation. Bentek found that nine of the 27 storage systems were more than 70% full at the end of the third week in May. Based on its projections, the Columbia system, along with Blue Lake storage and Tennessee’s Hebron facility could be filled up in July, a full three months ahead of schedule. Those could be followed by Southern Star Central and ANR Storage in August, and National Fuel, Transco-Washington, CIG-Fort Morgan, ANR Pipeline and Transco-Leidy in September. Ten others could be full before the end of October, including Questar-Clay Basin, Southern Natural, Centerpoint, Texas Gas, Tennessee Gas Pipeline, CIG-Boehm, Mississippi River Transmission, Texas Eastern, CIG-Flank and CIG-Latigo.
Bentek calculated the volume of orphaned gas that would result as each storage field fills up. Orphaned gas is defined as the volume that was injected in 2005, but because the facility is full, must find a new home in 2006. The maximum orphaned volume is reached in the second week of October at 2.9 Bcf/d. Through the end of October the cumulative volume of orphaned gas is 164.8 Bcf, “a volume equal to approximately 50% of the annual production in the Powder River Basin,” Bentek said.
“Historically these types of events would have significantly depressed prices, and probably elicited a positive demand response,” Bentek noted. “This is less true today.” Bentek noted that significant demand destruction has occurred due to high gas prices, while high oil prices already have forced generators who can burn either oil or gas to switch to gas. What’s left is very inelastic demand that is unlikely to respond quickly to lower price signals.
“Consequently, a maximum storage-fill scenario carries the potential to drive gas prices sharply lower,” Bentek predicted. “The current situation clearly entails substantial risk.” For more from Bentek Energy, go to https://www.bentekenergy.com/.
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