The Gas Storage Market: What Does it Tell Us?

Fortnightly Magazine - April 15 1996
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The authors asked pipelines

and LDCs how they used storage.

Leasing activity proved a surprise.

Since deregulation, the natural gas industry has seen tremendous changes in every sector. Competitive pressures have reorganized business strategies so much that only those firms that adapt will survive. One area that stands ripe for change is the natural gas storage market.

Why build gas storage fields?

For the local distribution company (LDC), gas storage fields grew in part from the obligation to serve. Utilities have taken this obligation seriously: Customers have relied on it, state legislators and regulators have enforced it. In some northern states, storage backs up a pipeline's ability to meet supply demand during extended sub-zero weather. Storage also prepares for a possible freeze-off in the production area, sub-zero weather in the market area, or facility-related outages in general. Certainly, no regulator would want to explain to the General Assembly why an LDC could not meet gas-supply demand on a cold winter day. No reason would suffice.

Since few transportation customers existed prior to 1984, most LDC storage fields were built to serve sales customers. In the "old" days, producers produced; pipelines took title to the gas in the production areas and transported it to the city gate where LDCs took title.

The Current Environment

Times have changed. Today LDCs are searching for ways to expand their business ventures. Nonregulated businesses stand high on the priority list. We found that leasing storage to generate cash currently occupies a low priority, but appears to be growing in importance. LDCs often do provide limited-duration storage and balancing as an integral service to transportation customers.

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