A lull in gas storage development is occurring because of the current high cost of injected base gas and changes in the way storage is valued, according to storage expert Jay Evans, president of Houston-based Global Gas Group LLC.

There is about 350 Bcf of proposed natural gas storage in North America (some of which has been on the books for many years) but some planners are looking at ways to delay projects until gas prices come down so they can better afford the 170 Bcf in base gas, or cushion gas, required to bring all those proposed fields into commercial operation.

“There was a lot of interest last year in storage development, but with new development you now have the problem of high base gas cost if you have to inject,” Evans said in an interview with NGI. “Instead of the $2.50/MMBtu base gas [of a few years ago] we’re now talking about $5/MMBtu base gas.” Evans, who has helped develop or evaluate more than 50 natural gas storage projects, said he hasn’t seen or heard of a developer canceling a project for that reason, however.

“It hasn’t got to that yet because many see this as a shorter term aberration, like a couple years ago, whereby it will settle down a little bit anyway, and return to a more reasonable level,” he said. Instead of shelving projects storage developers are looking at alternatives such as leasing their base gas or using less base gas just to get the project or expansion up and running at a much lower deliverability level.

“The need [for storage] is there, and I think there will be continuing growth,” said Evans, “but the value has changed somewhat. People are looking less at the summer-winter spreads,” he said. “It’s now more of a marketing value for the other services that storage provides, and with the high cost of injected base gas for new development it starts hampering especially reservoir storage facility development.”

According to NGI‘s database of natural gas storage facilities, base gas makes up about 51% of the total gas in operating storage reservoirs (depleted gas and oil producing fields) compared to only 31% for bedded salt and salt dome storage facilities.

The changes in the value of storage have caused a lot of uncertainty, Evans said. “A lot of people can’t put faith in the consistency of the seasonal price swing anymore” because of the growth of gas-fired power generation and the increasing volatility in the gas market. “People are looking more at the value of other storage services such as parking, loaning, balancing and peak load following for power peak demand. No one is going to go in and say, ‘Okay, we are going to make a $2/MMBtu spread next year.’

“I think it is much harder now to say what the value of storage truly is. Everyone is trying to determine how much they can baseload it with all these other services and try to see if they can justify development on that and what they can do to augment it.”

He noted that it also is much easier to buy assets right now than to develop storage facilities. Development has a time lag but acquisition can generate revenue this year.

Despite the construction lull, there are an adequate number of development opportunities left in North America. Including out-of-service and proposed fields, there are about 475 facilities in North America today. “But depending on market conditions, there are many more that can be developed.”

Another key issue that is affecting salt storage development currently is the drought. “In cavern storage projects you have to look at fresh water supply needs, so depending on where the drought is occurring it could hamper development.” Brine disposal also is always a concern, particularly in the Northeast. Despite those concerns, however, there still are at least 12 bedded salt and salt dome storage facilities either proposed or in development, while several other existing fields are hoping to complete expansions if they can afford their base gas.

For more information on Evan’s Global Gas Group, visit the company’s web site at https://www.nvo.com/ljevans/home/.

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