Gas supply reliability during peak demand periods this winter in the U.S. likely will depend more than ever on efficient use of available storage capacity.
Precisely how storage utilization will affect U.S. gas markets is uncertain because many new players are offering storage services through mostly untested contractual arrangements. But a positive development is that available gas storage capacity in the U.S. is increasing. And that is due in large part to storage's relative value in markets taking on added luster as a result of Federal Energy Regulatory Commission Order 636, which takes effect Nov. 1.
Order 636 in most cases ends interstate pipeline companies' merchant functions, unbundles pipeline interstate gas transportation services and fees, and opens interstate transmission capacity to access by any qualified shipper on firm or interruptible basis. Interstate pipeline gas storage capacity is among the transportation serviced affected.
As markets set values on controlling or aggregating gas supplies at given points on the U.S. interstate pipeline grid and on transporting those volumes to end use customers, Storage will be valued according to its contribution in each supply chain. And because Order 636 allows storage to play a greater role in the supply chain, its value to producers, shippers, and consumers will grow as well.
A VALUABLE COMMODITY
In a 1992 study of U.S. and Canadian gas storage for Gas Research Institute (GRI), Chicago, Pace Consultants Inc., Houston, counted 427 storage facilities with a combined 2.76 tcf of working gas capacity installed before FERC implemented open access transportation in 1986 under Order 436. Industry and government sources now put U.S. working gas storage capacity levels at about 3.9 tcf.
Most U.S. gas storage facilities were built in market areas to serve seasonal and peak demand. Because interstate pipelines managed supplies for most markets, producers had little need for gas storage capacity.
Order 636 allows interstate pipelines to retain only enough storage and transportation capacity to maintain operational control of their interstate transmission systems and to provide no-notice services. The obligation to assure reliability of supplies falls mainly on end users and indirectly on suppliers and shippers serving them.
Many in the U.S. gas industry are concerned that storage facilities designed to serve pipelines' operational objectives will not be used efficiently by the many producers, marketers, and other suppliers that have firm and interruptible storage capacity.
Gas storage can help assure the reliability, deliverability, and flexibility of supplies fragmented beyond the wellhead by Order 636. If efficiently used and marketed under Order 636 by shippers or suppliers, storage capacity could become a commodity as valuable as gas. That prospect is prompting many interstate pipelines and independent gas marketers to install or expand seasonal and peaking gas storage facilities in supply and market areas.
GAS STORAGE EXPANSIONS
Companies all over the U.S. are positioning themselves to take advantage of gas storage opportunities derived from Order 636.
Among recent developments:
- Tejas Power Corp. (TPC), Houston, said it is ready a year ahead of schedule to provide peaking and swing gas delivery services to a large midwestern utility.
- Mitchell Energy & Development Corp.'s Winnie Pipeline Co. commissioned natural gas storage operations last month at its partially complete Spindletop salt dome storage facility near Beaumont, Tex.
- J. Makowski Co., Boston, recently started state and federal permitting for a 5 bcf storage facility in Steuben County, N.Y. (OGJ, Oct. 11, p. 30).
- MCN Investment Corp., Detroit, filed an application with the Michigan Public Service Commission for approval to develop and operate a natural gas storage field in Washington Township, Mich.
- Coastal Corp. unit ANR Storage Co. and NGE Enterprises Inc., a unit of New York State Electric & Gas Corp. (Nyseg), plan to develop a 2 bcf storage facility near Watkins Glen in South Central New York.
- Nyseg plans to develop the Seneca Lake storage project, also near Watkins Glen, which will have 800 MMcfd of storage capacity.
- Capacity for gas storage at the proposed Young storage field near Fort Morgan, Colo. (OGJ, July 19, p. 25), has been fully subscribed under 30 year contracts, Young Gas Storage Co. Ltd., Colorado Springs, reported.
- Koch Gateway Pipeline Co. is holding an open season for interruptible storage service at its Bistineau site in Louisiana and a corresponding sale of gas in place. The open season will start Oct. 15, and Koch will take requests for as much as 60 bcf of interruptible capacity and 11 bcf of storage capacity until Oct. 22. The open season is subject to FERC approval to sell the gas in place at Bistineau. Koch acquired Bistineau with its purchase of United Gas Pipe Line Co. last November (OGJ, Nov. 16, 1992, p. 23).
- GPM Gas Corp., Houston, signed a 5 year lease for as much as 1 bcf/year of natural gas storage at Richfield Gas Storage System's facility in Morton, Stevens, and Grant counties, Southwest Kansas. GPM also reached a long term sales agreement to supply 45 MMcfd to Western Resources Inc., Topeka, and to supply an added 16 MMcfd during peak winter months. GPM laid a 7 mile, 45 MMcfd pipeline from the storage site to connect with Western Resources' intrastate system in Grant County. Gas will be delivered to Western Resources from GPM processing plants in Oklahoma, New Mexico, and West Texas, as well as from GPM leased storage in Kansas.
SUPPLY AREA STORAGE
The role of supply area storage facilities is growing as suppliers prepare to operate under 636.
Order 636 allows a gas end user with firm transportation capacity to add a relatively secure source of gas to his supply portfolio by acquiring storage capacity from a supply area facility and gain reliability not always possible on the spot market. The strategic value of using storage to increase gas supply reliability is prompting storage operators to develop more capacity in supply areas.
AGA in a 1988 survey counted 429 gas storage facilities in the U.S. and Canada, the newest completed in 1984. Of that number, only 88 installations were in net gas supply states or provinces, and most supply area installations were built to serve local or intrastate markets.
In GRI's 1992 study, Pace reported North American supply area working gas capacity accounted for less than 25% of storage capacity installed before Order 436. Since FERC implemented Order 436 in 1986, Pace found 57 storage projects-new facilities, expansion, or retrofits-undertaken in the U.S. and Canada. Thirty-two of the projects are in supply areas, including 17 in Texas.
In addition, Pace concluded that many storage projects reported in market areas are being developed for the dual purposes of serving U.S. Gulf Coast markets as well as for supply area storage.
"While storage proximity to the market area is critical for some applications, the availability of open access transportation allows supply area storage to serve some market area storage needs," Pace said.
Before open access transportation, market area storage especially contributed to supply reliability by providing seasonal and peak day gas. Under 636, new supply area storage capacity also can augment supply reliability for seasonal and peak day demand.
SEASONAL VS. PEAK STORAGE
The growing role of supply area storage expected under Order 636 is increasing the strategic importance of supply area facilities' deliverability and flexibility.
Both attributes are attainable with salt cavern gas storage installations.
Gas storage facilities-whether in market or supply areas-fall generally into two groups:
- Seasonal or reservoir storage for baseload gas supplies during extended periods of high demand.
- High deliverability storage used to handle short peak demand swings.
In a seasonal storage facility, gas injected into a depleted reservoir or aquifer during the summer becomes part of an LDC or other market area end user's winter heating baseload supply when withdrawn during the following winter. Because of their generally larger storage capacities and slow injection and withdrawal capacities, reservoir gas storage facilities release gas over a period of months. Even at peak flow, the rates of gas withdrawal during the winter often are not much different from the injection rates during the summer.
By contrast, high deliverability gas salt caverns or salt dome storage facilities are designed to supply high volumes of gas for very short periods of time. Because the working gas capacities of such facilities are relatively small and rates of injection or withdrawal relatively high, salt caverns can't long sustain peak deliverability.
SALT CAVERN STORAGE
Because high deliverability facilities in a fully open access gas transportation system can provide supply back up and reliability over several days, more storage operators are developing salt cavern storage projects.
Of the 249 storage projects developed in North America before open access transportation was implemented in the U.S., AGA's 1988 survey counted only 12 in salt caverns.
Pace's 1942 study put those 12 salt caverns' capacity at 29 bcf prior to Order 636 implementation.
Pace found 13 of the 27 gas storage projects developed since Order 636 implementation involved salt caverns. Salt caverns have accounted for 77 bcf of the 252 bcf of gas storage capacity added in North America since 1986.
In addition, Pace concluded six of 16 gas storage projects scheduled to go into service from implementation of Order 636 through 2000 will be in salt caverns. Of the 302 bcf of combined gas storage capacity to come on line during that time, salt cavern facilities will account for about 162 bcf.
Pace said the importance of assuring that baseload gas will be available to end users under Order 636 is underscored by the development of salt cavern gas storage projects in supply regions. Salt caverns have the high deliverability and quick cycling needed to back up baseload gas.
"While certain reservoirs can also provide high deliverability, a salt cavern facility provides the same withdrawal capability with less investment in working gas capacity," Pace said.
STORAGE SERVICE FLEXIBILITY
Pace's GRI study also lauded operational flexibility salt caverns can provide those trying to balance a portfolio of gas services.
"Salt caverns allow high rates of injection as well as withdrawal, and operators can shift from one mode to another within hours," Pace said. "The flip side of maintaining high deliverability is the ability to move large volumes into storage as needed. The ability to cycle quickly between injections and withdrawals is becoming increasingly important and will become more so after Order 636."
Few projects are being built to provide only daily or hourly storage services. The need for dally or hourly storage in some markets is undercut by the availability of pipeline capacity.
But Pace found many storage developers are building storage facilities based on economics of serving seasonal customers, while retaining flexibility sufficient to provide peak demand storage services. In such cases, a storage developer can negotiate contracts or equity participation with seasonal storage customers to assure an adequate return on his project, then augment that income with storage fees for peak daily or hourly service.
Uses of storage facilities can shift as storage operators optimize capacity developed for other applications. For example, gas stored in a facility built to serve intrastate customers might be diverted later for interstate service if the installation can be tied into interstate pipeline systems. Also, surface facilities can be modified to fit new deliverability needs.
BENEFITS ASSURED
William W. Elting, TPC chief financial officer, said gas storage is at the center of strategies being devised to manage open access, nondiscriminatory transportation on U.S. interstate pipelines, as shippers try to maximize the loads on gas transmission facilities they're paving to use.
"Every major user of interstate gas pipelines in the U.S. presently is analyzing his gas portfolio to determine what type of services he will need to fulfill his contracts," Elting said. "Each portfolio is going to have to include storage and will require a shipper to use different types of storage in different ways."
Elting said shippers in some cases will offer storage as a separate service and in other cases rebundled with other transportation services.
"Many marketers, gatherers, aggregators, and producers will be including storage as part of a package of gas supplies and services they will sell to end users," he said. "Conversely, at the other end of the pipeline, LDCs and in some cases large industrial customers, particularly electric generating customers, will buy their own gas storage capacity to rebundle gas they buy to provide the type of service they need to manage their portfolio of supplies."
TPC will offer peaking and swing gas delivery services this winter through Moss Bluff gas storage facility and market center. The company recently finished leaching a high deliverability gas salt dome storage cavern - the facility's second - about 9 months sooner than expected.
The addition increased Moss Bluff's working gas capacity to 5.5 bcf from 1.7 bcf. Peak gas injection rate at Moss Bluff is 150 MMcfd and peak withdrawal 450 MMcfd. TPC this month closed purchase of a 50% interest in Moss Bluff from Phibro Energy U.S.A. Inc., Houston (OGJ, Aug. 16, p. 35). With the closing, TPC became 100% owner of the facility. Moss Bluff is expected to play a central role in TPC's plan to set up integrated gas marketing hubs throughout the U.S. Gulf Coast.
WINNIE'S SPINDLETOP FACILITY
Spindletop gas storage facility being developed in East Texas by Mitchell Energy unit Winnie Pipeline is an example of a storage project where Order 636 is providing an opportunity to provide multiple storage services.
Mitchell so far has spent more than $50 million to leach one salt cavern with working gas capacity of 1.7 bcf. Working gas capacity is to expand to 6 bcf when complete.
Mitchell is leaching a second cavern. That storage cavern will be operable with 6 bcf of capacity by 1995, By 1997, with both caverns complete, combined working gas capacity will be 12 bcf, and Mitchell could add four more 6 bcf caverns for total combined capacity of 36 bcf.
Allen J. Tarbutton Jr., Mitchell Energy's president of gas transmission and processing, said Mitchell intended Spindletop to provide a secure gas supply to East Texas intrastate refining, petrochemical, and industrial customers plagued in the past by weather related supply disruptions.
However, Order 636's no-notice transportation requirements allow any interstate customer in need of nonotice gas supplies to get gas from Spindletop, if the customer has enough transportation space reserved on connecting pipelines. Although supply region storage represents a small part of Mitchell's gas storage business, 636 has increased chances of a facility such as Spindletop serving interstate markets and helped change Mitchell's original plans.
Mitchell has leased storage capacity at Spindletop to three companies, including 1 bcf of capacity under a 10 year agreement with Natural Gas Clearinghouse (NGC), Houston. NGC already is using 500 MMcf of the capacity and will have the other 500 MMcf available when Mitchell completes Spindletop's next storage cavern. Mitchell would have built Spindletop facility with or without Order 636.
"But the opportunities provided by Order 636 are real, and we will pursue that and capitalize on it," Tarbutton said.
WASHINGTON 10 PROJECT
MCN's Washington 10 project northeast of Detroit will involve converting to storage a nearly depleted natural gas field discovered in 1969.
The facility will have storage capacity of 42 bcf and sustainable delivery of 400-500 MMcfd. MCN said the field should be in operation for the 1995-96 winter heating season. Total cost of the project is about $120 million.
Partners with MCN 40% are TransCanada PipeLines Ltd. 40%, Union Gas Ltd 10%, and Panhandle Eastern Corp. unit Panhandle Storage Co. 10%. Each partner will be storing gas at the site tinder long term contracts.
The storage unit will be used to serve markets across the North Central U.S. and in Central Canada. The Michigan reservoir is the first storage venture for TransCanada and for Panhandle Storage. MCN is a partner with operator ANR Storage Co. in a $130 million, 42 bcf storage project in northern Michigan's Kalkaska County (OGJ, Sept. 2, 1991, p. 26). The Blue Lake project is in service and has 8 bcf of base gas with 29.5 bcf of working gas as of the end of September.
NEW YORK PROJECTS
ANR and NGE have a project in South Central New York to develop a salt cavern storage facility with initial storage capacity of 2 bcf of gas and a peak withdrawal rate of about 200 MMcfd. The complex will be connected to the pipeline systems of CNG Transmission Corp. and Columbia Gas Transmission Corp.
Coastal Executive Vice President James F. Cordes said since the project will be developed from existing caverns, it will be possible to complete the project by start of the 1995-96 heating season.
Partners plan to file an application later this year with FERC for construction and an open access blanket certificate to provide storage service.
The companies said an open season will be held later this year for those interested in contracting for peaking storage services at the site.
Nyseg's South Central New York project calls for developing salt cavern storage that will have storage capacity of about 800 MMcf with a peak withdrawal rate of about 80 MMcfd. The project is to be complete in late 1995.
A 4 mile pipeline will connect the storage area to a Columbia Gas Transmission pipeline.
YOUNG STORAGE FIELD
Young Gas Storage held an open season that ended Aug. 30 for contract space at its proposed 5.3 bcf storage site in Colorado. The company said it received firm requests for 350 MMcfd of deliverability, 150 MMcfd greater than the field's capacity.
Public Service Co. of Colorado signed a contract for 180 MMcfd of delivery and 4.8 bcf of storage capacity, and Colorado Springs signed for delivery of 20 MMcfd and storage capacity of 500 MMcf.
General partners in the Young Gas Storage venture are two units of Colorado Interstate Gas Co. (CIG). Colorado Springs is a limited partner.
Young said the field will increase the natural gas storage capacity in Colorado by more than 11%. CIG operates about 57% of the natural gas storage capacity in the state.
Young in July filed an application with FERC to build and operate the storage site. Once approval is received the company will drill about 37 wells and install a 6,000 hp compressor station. About 4 miles of gathering pipelines will connect wells in the field, while 10.8 miles of 20 in. line will connect the field to CIG's pipeline system. The company estimated services will be available for the 1995-96 heating season and development will be complete for the 1998-99 season.
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