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Natgas storage options
Natural gas storage may not be glamorous, but it plays a key role in the natural gas industry in the U.S. (and elsewhere). Not all of the natgas that gets produced gets used right away. More gas is produced in the summer months than is used, so it gets stored and released/used during the winter. Most of it is stored underground.
Our favorite government agency, the U.S. Energy Information Administration, has just published a post that shows natgas storage in the U.S. declined in 2018. And yet, prices for natgas did not go up. It used to be the price of gas was linked closely with how much gas there is in storage. Less gas in storage drives the cost of gas up because traders are afraid we’re running low. The same or increased demand with less supply equals higher prices.
But that truism doesn’t work any more–not in natural gas. Why? Because production itself now replaces some of the storage. We don’t need as much storage as we once did because of the prolific amount of production we have. It shows in the statistics from last year.
We found the following post interesting as it pulls the curtain back and shines a light on how the EIA measures storage in two ways: “design capacity” and “demonstrated peak.”
During the past five years, only a small amount of new underground natural gas storage capacity was built in the Lower 48 states and no new storage facilities have entered operation in that time. EIA measures underground natural gas storage capacity in two ways: design capacity and demonstrated maximum working gas volume (or demonstrated peak). Both of these metrics showed decreases in 2018, with design capacity falling by 0.3%, or 13 Bcf, and demonstrated peak capacity falling by 1.2%, or 54 Bcf.
In 2018, both design capacity and demonstrated peak fell by the largest increment since 2012. Declines in design capacity resulted from closures of unused facilities and reductions in capacity at individual facilities, while declines in demonstrated peak capacity resulted from less natural gas entering storage facilities since 2013. The slowed growth in underground natural gas storage capacity in the Lower 48 states in recent years is in clear contrast to 2012 and 2013, which saw big increases in salt storage in the South Central region (formerly known as the Producing region). Salt storage generally offers higher deliverability rates than other types of storage and can capitalize on intra-day power prices, as well as sudden changes in price related to extreme weather. However, the 2018 data show less use of salt facilities in the South Central region, resulting in decreased design capacity and demonstrated peak capacity in the region.
Several market trends affect the need for new underground natural gas storage infrastructure:
Rising natural gas production that makes more natural gas available to meet end-use needs and the resulting infrastructure buildout that makes it easier for natural gas to reach consumers.
Increasing natural gas exports—both pipeline and liquefied natural gas (LNG)—which provide an additional outlet for excess natural gas besides storage facilities.
Changing natural gas market fundamentals have reduced seasonal spreads, or differences in natural gas prices between the traditional summer injection and winter withdrawal periods. The availability of more natural gas and shrinking seasonal differences in natural gas prices have reduced market incentives to build new underground storage facilities.
New, extensive pipeline connections from shale basins to customers have created a more flexible network that can more easily balance natural gas needs geographically.
Underground natural gas storage infrastructure in the Lower 48 states still plays a key role balancing natural gas supply and demand needs, despite the slowdown in developing new facilities. The natural gas market in the United States is getting bigger—total average U.S. gross production of natural gas grew by more than 48% between 2009 and 2018. Underground storage facilities remain key to ensuring natural gas reliability, moderating natural gas price risk, supporting contributions from renewable sources of energy, minimizing constraints, and managing efficient flows of natural gas on the grid.
Maximum design working natural gas capacity by state, November 2018
click for larger version
Source: Form EIA-191, Monthly Natural Gas Underground Storage Report Note: Map displays integer values but categorizes states based on non-rounded figures. See this year’s Underground Natural Gas Working Storage Capacity Report for additional state and regional information on underground storage capacity.
