Storage seen as key to managing US gas supply, demand

Paula Dittrick
Senior Staff Writer

HOUSTON, Dec. 13 -- As US imports of liquefied natural gas grow, storage will prove crucial to managing daily variability between supply and demand.

LNG brings a new set of risks to the gas supply chain, said Samuel W. Miller, executive vice-president and chief operating officer for NiSource Inc., Merrillville, Ind.

Miller and William Hogue, marketing advisor for EnCana Gas Storage Inc., Calgary, discussed the effects of LNG imports on natural gas storage during a Dec. 9 energy briefing sponsored by Lukens Energy Group, Houston.

Economic incentives to import LNG are growing in the US because of rapidly rising gas prices in Canada and the US since 2000 and because LNG supply costs are dropping through the application of improved technology.

US gas demand is expected to grow beyond levels that can be supplied by traditional imports from Canada and domestic production. The US Energy Information Administration has projected that LNG imports will provide 10% of US gas supply by 2010.

LNG is expected to increase pressure on pipelines leading from LNG terminals and the market area near import terminals. Meanwhile, the underground gas storage industry expects rapid growth nationwide. Both NiSource and EnCana are working on new storage facilities.

Four LNG terminals operate in the US today, and about 40 new terminals have been proposed for the US, along with various expansion proposals. The terminal proposals involve the East Coast, West Coast, and Gulf of Mexico. Only a few of the proposed terminals are expected to be built.

Jay P. Lukens, president and CEO of Lukens Energy, said LNG imports will influence gas storage values and play an evolving role in US gas market fundamentals.

Supply disruptions
NiSource, a gas transmission, storage, and distribution company, has a pipeline that interconnects with the existing LNG terminal at Cove Point, Md., which was reactivated in August 2003. The other two pipelines from Cove Point are Transco and Dominion.

"During the first year of operation, there were seven significant supply disruptions to Cove Point that ranged in magnitude from 0.5 to 5 bcf for each event, and the duration of the event ranged from 1 day to 2 weeks," Miller said.

Dominion purchased the Cove Point terminal from Williams Cos. Inc. in 2002 and restarted operations in mid-2003, delivering 187 bcf of natural gas in its first 12 months of renewed service.

The Cove Point LNG terminal's supply disruptions were caused by numerous factors, including shipping delays triggered by hurricanes and other factors, a port strike in Trinidad, a fire in Trinidad, and pipeline maintenance issues, Miller said.

"This level of fluctuation is very different from the scheduled flow of supply that we normally seen in production and supply pipelines," he said.

Miller said potential sources of LNG to the US are diversifying. Currently, most LNG comes from Trinidad, but additional sources include Norway, Nigeria, Algeria, and Egypt.

In addition to variable LNG supply, the US also experiences "significant demand swings" day to day, Miller said, noting increases in heat-sensitive load, increasing peak day needs, and price volatility.

The National Petroleum Council has estimated 351 bcf of new eastern storage capacity will be required during 2005-25 to fulfill industry's needs.

EnCana's Hogue noted that the NPC also said the US needs 700 bcf of incremental storage nationwide by 2023.

"This past year, we have seen dribs and drabs with 1 bcf here and 1 bcf there. We need major projects to come on that are 10-15 bcf projects that can really put a dent in this curve," Hogue said.

New storage
Gas storage infrastructure is changing, Hogue said. All the good storage locations have been used so the industry is left with what he calls "the B players" as candidates for new gas storage sites.

"What we are finding in trying to identify candidates is that they are farther away from the pipeline grid so it's really getting more expensive to develop these candidates," Hogue said. EnCana is working to develop more storage on the Gulf Coast.

Starks Gas Storage LLC, an indirect, wholly owned subsidiary of EnCana Gas Storage, has applied with the US Federal Energy Regulatory Commission to develop the Stark underground gas project 25 miles west of Lake Charles, La. Starks initially plans to develop 8 bcf of capacity.

Hogue said EnCana expects FERC approval in August 2005, and the proposed facility is expected to be operating at 100% capacity in the third quarter of 2006. If FERC approval were to come sooner, the facility might be operating at 100% by the second quarter of 2006, he said.

NiSource subsidiary Columbia Gas Transmission Corp. and a subsidiary of Piedmont Natural Gas jointly are developing Hardy Storage Co. LLC, which proposes to develop gas storage from a depleted natural gas field in Hardy and Hampshire Counties, W.Va.

The field, which will have capacity to store 12 bcf, is expected to be in operation by November 2007.

Contact Paula Dittrick at

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