The energy industry continues to struggle to develop enough natural gas storage capacity to keep pace with the growing U.S. market, and several new gas storage facilities will have to be added each year just to keep up, according to North American gas storage executives.

However, Rick Daniel, president of AEC Storage and Hub Services, said recently that the mature North American storage market doesn’t offer many opportunities for “low-hanging fruit, where you can go into a region and find a very obvious storage development opportunity at low cost that can easily be brought on.” Instead, it has become a “technology play,” where companies work the economics by finding the “best quality reservoir” to ensure “optimum development.” That, he said, won’t always work.

A lot of attention has been placed on how quickly the U.S. demand for gas will grow, Daniel said, which by some accounts will be up 42% from 1998 levels to 31.3 Tcf in 2015. Less attention has been placed on storage capacity, which he said for the same period is only projected currently to grow 25% to 4 Tcf. That storage growth won’t match peak day demand, which is projected to grow 37% to 152 Bcf by 2015.

Daniel, whose company operates the Wild Goose Storage Inc. facility in Butte County, CA, said the lack of storage capacity is especially acute in California, but there, regulatory problems make development even more burdensome. Companies may be ready to move in and add more natural gas storage capacity in California, but would find the regulatory process daunting.

AEC Storage, a subsidiary of Alberta Energy Co. Ltd., has filed an application with the California Public Utilities Commission to double the Wild Goose field’s size and triple the withdrawal capacity after a successful open season (see NGI, June 25).

“There’s obviously a need for more storage capacity in California,” Daniel said. But he said it takes a “long time” to develop storage in a particular area, including finding a suitable reservoir location and development of the salt cavern. He said that under “normal regulatory processes,” AEC does not expect to have more capacity at Wild Goose before April 2004. However, “most of that (time) is regulatory, not construction time.”

El Paso Corp.’s Byron Wright predicted that in the next two to three years, several storage capacity additions would be added across the United States. Wright said pipeline companies would add capacity as they prepare for the expected rise in gas-fired generation demand. Storage investments will allow pipelines to balance their loads on a “day-to-day basis,” he said.

AEC claims to have 22% of the independent storage capacity in North America, and Wild Goose is the only independent gas storage facility that is licensed in California, Daniel said. Overall, he said independents hold about 13% of the total North American natural gas storage capacity, totaling about 559 Bcf of working gas volume. Another 48%, or 2.1 Tcf, is controlled by federally regulated interstate pipelines and 39%, or 1.7 Tcf, which is operated by state-regulated utilities.

Because most North American storage facilities are operated by utilities and interstate pipelines, Daniel said that there is not enough of an economic incentive to optimize capacity. “There are opportunities they are not moving on,” he said of energy companies, mostly because of regulatory reasons. Investors are discouraged by what he called “over-regulation,” and added that he “wouldn’t hold my breath” waiting for many regulatory changes.

Daniel said one possibility being overlooked is expansion of existing facilities, which he said AEC is focusing upon. He said there was an “awful lot” of capacity the energy industry could develop from existing facilities.

Storage capacity also is difficult to predict, Daniel said, and even more so now because of fuel switching. However, while the storage industry is “well positioned to capture new opportunities,” he warned that it could lose them to alternatives “such as overbuilding pipeline capacity.”

Not many new gas storage projects have been announced, and Daniel suggested that the reason may be in how strategically important storage has become in the past with the “high level of mergers and acquisitions as companies scramble to acquire what they view as an important part of the value chain” into the future.

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