Gas storage is a strategic asset for any energy portfolio, more critical than it has ever been, as the volatile power market becomes one of the gas industries’ fastest growing customer bases, a panel of natural gas, power and pipeline executives said Wednesday. Speaking at Ziff Energy Group’s North American Gas Storage Conference in Houston, panelists said that despite the current economic downturn and low commodity prices, natural gas storage has become a critical component for all facets of the energy delivery business.

“It’s a whole different environment than it was five years ago,” said Mike Joyce, managing director of generation and gas asset development for Reliant Energy Inc. Today, power generators — which are becoming overwhelmingly gas-driven — need supplies on demand, and the “importance of storage is likely to increase” for utilities and pipeline companies. However, serving those needs will not be easy because with the United States divided into regional markets, “each has its own unique needs.”

Like other panelists in the morning session, Joyce believes gas demand by generators has only begun to grow. Despite reports that power plant construction has been curtailed, Reliant estimates that by 2003, 74% of the new generators will be combined cycle facilities, and another 26% will be peaking facilities. With natural gas the primary fuel, Reliant sees “room for expanded storage services” in all parts of the country.

“The electric generation segment is by far the most rapid growth in the natural gas industry,” said Keith Meyer, vice president of marketing for CMS Panhandle Co. “It is a very important segment for the gas industry.” With most of the new power generators forecasted to be gas-powered facilities, CMS has long been preparing for the convergence of the industries. “Power islands are developing at the intersection of pipelines and multiple NERC regions…forcing a physical convergence of gas pipelines and power industries,” Meyer said.

Power demand, said Meyer, has increased storage demand, with storage providing the “glue between the…pipe and the power market.” As the convergence occurs and more generators require gas, it can only deliver so much at a time, and there will be “burdens” placed on the pipeline delivery system. “These can best be met with some sort of storage system.” Meyer also noted that unlike previous markets, the power market requires 24-hour service because demand “doesn’t end at 5:30 or 6 p.m.”like other more predictable end users. Power generation is a much more volatile business, which makes storage a “valuable component of overall fuel management.”

While there currently is adequate gas storage capabilities, the growth in power generation in just the next 10 years will require storage to grow. The Midwest, said Reliant’s Joyce, has the “largest area of disparity” regarding natural gas storage. Reliant estimates that the Midwest now has about 24.7 Bcf/d of total storage deliverability. However, by 2010, it will need an estimated 8 Bcf/d more — and only 0.1 Bcf has been proposed to date. The second largest area is the South Atlantic region, with 3.7 Bcf/d current storage deliverability and no expansions yet planned.

However, Reliant estimates there will not be adequate storage anywhere in the country by 2010 at current power growth rates. “The bottom line is that this is on the horizon as the generation plague,” said Joyce. “Storage is still critical.”

Gwoon Tom, storage products manager for Southern California Gas Co. (SoCalGas), said storage is key to its daily system demand, made more important because of pipeline constraints. SoCalGas has a take-away capacity limited to 3,876 MMcf/d because the system is not able to take in all of the capacity from the pipes serving its market. However, on peak operating days, SoCalGas uses almost all of its take-away capacity, and has to rely on inventory to meet demand.

“Even on the days when capacity is low, it is still limited by the injection capacity,” Tom said. “Storage is very much a part of our system.” The company expanded its storage capacity recently and, said Tom, it expects to expand again in the near future.

Nicor Gas’s Theodore Lenart, assistant vice president of supply ventures, said his local distribution company (LDC) has had to redefine its gas storage fundamentals. As a gas-only Midwest utility, Nicor holds a storage and pipeline portfolio to fulfill its nearly two million customers’s needs. What is key, said Lenart, are Nicor’s gas storage hub tie-ins with six major interstate pipelines — Natural Gas, Northern Natural Gas, Midwestern Gas, ANR Pipeline, Northern Border Pipeline, Alliance — and Nicor’s transmission system. “It offers us a lot of choices,” said Lenart.

“In winter, a significant amount of sendout comes from storage,” Lenart said. “It is not uncommon for Nicor to have one-half of its daily sendout from storage.” However, with a predictable load and good weather forecasts, Lenart said that “storage is very valuable for serving peak periods.” Since the early 1990s, Nicor has moved more toward serving power plants, which he said have been weighted toward natural gas.

“Our new market is the power generator,” said Lenart. “These are the customers who are looking for not a lot of inventory at the site, with high ‘injectability’ and withdrawal capacity.” For these power customers, storage has played an even bigger role for Nicor — and expectations are for the power market to grow even more for the utility.

“Power plants are looking for storage balancing,” said Lenart. “They want three-to-five days of storage inventory, no-notice swing capacity, with an injection and withdrawal capacity of up to 80% of the plant’s maximum requirements.” Storage offers Nicor the ability to offer “reliable and flexible connections to the gas supply, market liquidity, and gas delivered at high pressures.”

Nicor also plans more storage expansions in the future, said Lenart. It is now awaiting regulatory approval to expand its Troy Grove field, which would increase withdrawal capacity to 1.4 Bcf/d from 1.1 Bcf/d, and increase top gas inventory by 5 Bcf. Also, Nicor has “other on-system storage expansions and off-system storage opportunities,” but he declined to elaborate.

Reliant’s Joyce said there is a “new focus” on underground storage, with more interest in compressed air energy storage, or CAES. However, other types of storage still are not viable alternatives, he said. Batteries are still only for small applications, and the other emerging technologies — flywheels, super magnetic energy systems, super capacitors and regenerative fuel cells — have yet to fulfill their promise.

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