While the abundance of gas now in storage has analystspredicting soft prices in the coming months, others suggest thecharacter of storage operations will be changing as more and moremarketers take title to storage capacity from LDCs. Storage held bylocal distribution companies and power generators typically hasbeen used to ensure supply. Marketers holding storage or optimizingstorage assets under contract with LDCs see storage as a financialopportunity in addition to a supply insurance policy. Thearbitrageurs will handle their storage differently when suppliesget tight, said Pete Kinsella, Columbia Gas Transmission vicepresident of marketing and volume management.
“You have diversity in the holders of firm storage, and withthat comes a broad spectrum of agendas on the part of the users,which just makes operating and selling storage a little bit morechallenging.”
Picture this scenario: an extremely cold December with pricespikes. LDCs would draw down some storage but still would buy a lotof gas on the market and pass the higher gas prices through totheir customers, Kinsella said. Marketers holding storage wouldview the cold weather and attendant high prices as a financialopportunity and would draw from storage more heavily. “This isgoing to be the first winter where we see a good chunk of firmstorage actually owned by marketers. They’re not just acting asagents for LDCs. We’re going to be taking a look with interest atwhat they’re doing this winter.”
Marc Tronzo, vice president of Woodward Storage, which managesstorage of a number of LDCs, agreed. “As more utilities turn theirstorage over to marketers to manage their assets, you’re going tosee just more pure financial storage trades than you wouldoperational storage.” James W. Hart, vice president of commercialservices for Columbia Gulf Transmission, also has seen a shift inthe way storage is viewed by the industry. “It has reached thepoint now where the economics are the driver, and I don’t seeanything changing that. There may be some enhancements. There maybe some impact as the electric unbundling matures. You may see gasstorage as a surrogate to electric storage.”
As for current storage levels, they’re high, to say the least.PaineWebber’s Natural Gas Group Thursday noted gas in storage was2,615 Bcf, or 82% full for the week ending Aug. 21, according tothe American Gas Association (AGA). For the same week in 1997,storage was 66.7% full, and it was 63.7% full for the same week in1996. “Barring any supply disruptions (such as hurricane activityin the Gulf of Mexico), we expect continued weakness in wellheadprices for the next two months before heating demand begins tosupport and later lift gas prices.”
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