Misery Loves Company – Natural Gas Storage Facilities

Financials Natural Gas
April 3, 2017

The natural gas pipeline industry is not the only segment of the gas sector recently subject to challenging market conditions, new regulatory hurdles, and litigation. Natural gas storage facilities, formerly a sleepy industry and market backstop, may be incurring additional regulatory costs on top of demanding market conditions.

Natural gas storage is valuable to companies primarily due to two strategies: reliability-based and market-based delivery. Local natural gas distribution companies (or LDCs), by far the largest user of wholesale storage services in the United States, tend to use storage in both ways. LDCs may use local storage to enhance reliability by moving supplies out of storage to balance their systems during periods of peak demand. But LDCs also use large commercial storage facilities as a way to hedge against high winter gas prices and thus reduce the overall cost of their gas supplies. They do this by typically purchasing gas when prices are low and storing it for use during times when prices are high. But with increasing natural gas dependence among utilities, has firm contracting at major storage facilities increased in recent years? If so, did those facilities benefit from the warmer winter months?

Firm Storage (2017/Q1) 

Company

Contract Capacity (MMBtu)

Transcontinental Gas Pipe Line Company

192,821,998

Columbia Gas Transmission

228,173,644

ANR Storage Company

57,242,585

Panhandle Eastern Pipe Line Company

45,166,053

Just last month, the U.S. Energy Information Administration reported that warmer than normal winter weather resulted in the first recorded net natural gas injection during a week in February. For the week ending February 24, the amount of natural gas in storage in the Lower 48 states increased 7 billion cubic feet (Bcf). In previous years, some weeks during March had recorded injections, but net injections of natural gas into storage do not typically occur until April 1.

Underground natural gas storage can be used to effectively balance a variable market with a nearly constant supply of natural gas provided by the inter- and intrastate pipeline systems. Storage fields are essentially warehouses that provide a ready supply of natural gas that can serve a market with high peak demands in warm or cold weather. Generally, more natural gas is used during the winter because many homes are heated by natural gas, especially with more power generators turning to natural gas in recent years.

Recent increases in the amount of gas-fired power generation have resulted in daily variances in the amount of natural gas being used. This has made natural gas storage facilities more important than ever before. Nonetheless, there is only one interstate storage project pending FERC certification, which involves a minor amendment, and no additional capacity has been added since 2013.

Also, due to a nearly 4.2 Bcf natural gas leak in 2015 at the Aliso Canyon Underground Natural Gas Storage Facility near Los Angeles, California, Congress passed the Protecting our Infrastructure of Pipelines and Enhancing Safety Act of 2016 (PIPES Act). The PIPES Act requires the Pipeline and Hazardous Materials Safety Administration’s (PHMSA) to issue, within two years of the Act’s passage, “minimum safety standards for underground natural gas storage facilities.” The PIPES Act has been the subject of significant pushback from the states, operators and trade groups. Just last week, the state of Texas and the Texas Railroad Commission, which has, in the absence of federal regulations, regulated gas storage sites since the 1950s, petitioned the Fifth Circuit Court of Appeals to review the PIPES Act, primarily challenging PHMSA’s experience to safely implement the rule. While the litigation is just getting underway, it’s possible that the rule may be impacted by the current Presidential Administration’s preference for states to take the lead on regulations.

Natural Gas Storage Projects