While current gas storage capacity may be adequate to meet seasonal demand, increasing gas price volatility shows a need for more capacity and there are several actions the Federal Energy Regulatory Commission (FERC) could take to speed up development, FERC staff said in a presentation last week.
Staff told the Commission that additional gas storage capacity “may be the best way of managing gas commodity price volatility.” Staff recommends that the Commission take a closer look at several regulatory changes that might spur storage growth.
“Creative ratemaking approaches along with certificate and policy choices may increase storage development,” staff said, suggesting the Commission might reexamine cost-based pricing flexibility, the criteria for market-based rates or its certificate review process and service policies.
“Consideration could be given to cost-of-service adjustments, such as return on equity premiums or accelerated depreciation, or a modification could be made to the certificate requirement that calls for a cost-versus-revenue study after three years,” staff said in its presentation. “In regard to market-based rates, a possible approach may be to grant market-based rates to independent storage projects or possibly adjusting the current market power test when it comes to storage. Another approach could be to develop new optional certificate procedures or otherwise grant appropriate waivers.”
There has been some gas storage growth in recent years, including 75 Bcf of storage capacity approved by FERC over the last two years, 57 Bcf that entered service over that same time period and another 54 Bcf pending at the Commission. But much more storage capacity is needed, staff said, citing the National Petroleum Council’s estimate of 700 Bcf of new storage capacity needed by 2025.
About 116 Bcf of gas storage capacity is expected to be added through 2005, staff said, but some regions still lack adequate storage capacity. In the Southwest, for example, there is almost a complete lack of storage in part because of geology but also because historically El Paso Natural Gas provided “full requirements service” to east-of-California customers. “Essentially there was no demand for separate contracts for storage services,” staff said. “All of the requirements of the full-requirements customers were met by El Paso.”
That has changed now, however, since El Paso’s contracting has been completely restructured and all of its customers now are on normal contract demand requirements. Storage is much more in demand, particularly in light of plans by El Paso for new balancing requirements on its system.
New England also is in need of more storage. Geological limitations have led to numerous above ground liquefied natural gas storage tanks in New England and LNG trucking from the Distrigas terminal to many of those tanks, but LNG storage does not provide all of the benefits of traditional reservoir and salt dome storage, staff noted.
“Any region at the end of the pipe that is prone to price volatility could benefit from storage,” staff said in responding to a question from Commissioner Sudeen Kelly. “The trick…is the cost-benefit ratio. It’s very hard to match the costs and the benefits, especially with the more expensive salt dome storage.”
Staff noted that there also may be public policy interests in mitigating gas price volatility but the market might be placing less value on volatility mitigation and therefore less value on developing high cost storage projects. “But yes more storage would reduce the risk for extreme price volatility,” staff said. “Likely bearing the very high [gas prices] for a very short period is still the optimal route” for customers in some regions.
©Copyright 2004 Intelligence Press Inc. Allrights reserved. The preceding news report may not be republishedor redistributed, in whole or in part, in any form, without priorwritten consent of Intelligence Press, Inc.
© 2020 Natural Gas Intelligence. All rights reserved.
ISSN © 2577-9877 | ISSN © 1532-1266 |