[BETA] Fortnightly

On a cold day, natural gas from storage reservoirs may supply as much to markets as gas from producing wells. The ability to store gas underground not only ensures reliable delivery during periods of heavy demand, but also allows more level production and pipeline flows throughout the year. Thus, some believe that the cost of storage should be spread over all gas delivered during a year, not just gas delivered from storage sites to end-use customers during the winter. They believe storage improves the efficiency of the overall system and lowers cost of service to all customers throughout the entire year.

Gas reservoirs are increasingly important to the industry's inventory management.1 For heating years 1989-90 through 1993-94, average monthly injections and withdrawals per storage field rose significantly from an earlier five-year time period (heating years 1982-1983 to 1986-1987). Average injections during the heating season (November-March) increased 37 percent over the mid-1980s average, while working gas levels (the amount of gas available in storage to serve markets) increased by only 9 percent. Similarly, average withdrawals during the nonheating season (April-October) increased by 47 percent, while working gas levels increased only 10 percent. Withdrawals between

heating seasons 1986-1987 through 1991-1992 also increased systematically, even accounting for differences in the weather.

Data for 1991 through 1993 also show that the industry was able to operate with declining amounts of working gas. Interestingly, in addition to saving money by reducing their stocks of gas in storage, companies were also reducing their exposure to price risk between seasons.2

In today's active and transparent cash market, the rate at which storage reservoirs can be filled and emptied is crucial. Gas commodity market prices may now vary as much between days as they once varied between seasons. Newer salt-cavern storage sites that can be filled and emptied in less than a month enable companies to take advantage of daily and weekly price movements. (Many older, depleted oil and gas producing storage reservoirs take a year to fill and empty, and thus offer little flexibility and less strategic value.) High-deliverability salt-dome storage complements an inventory management style of almost constant injecting and withdrawing of gas. The attempt to keep stock levels low between seasons becomes almost irrelevant because the entire stock is turned over several times a year. Not surprisingly, new storage construction for 1994 through 1999 plans salt-cavern facilities that represent 68 percent of withdrawal capability but only 28 percent of working gas capacity.

Taking Storage to Market

Storage is a key adjunct to the development of natural gas trading or market centers. A market center offers various transaction services, at transparent prices, that support natural gas trading within liquid markets (em that is, markets evincing a similarity in the bid and offer prices for gas, transportation, and storage rights. This similarity of bid and offer prices arises when market centers are accessible to many candidate buyers and sellers.

Nearly all the physical services available at market centers involve some form of storage: short-term gas sales, parking of gas for short periods of time, loaning of gas, and balancing