July 15, 2002
The Gas Storage Market: What Does it Tell Us?
in the gas storage market. Why do LDCs and pipelines own storage and what do they use it for? New storage fields, especially market area storage, are being considered. If constructed, customers will benefit. But when will a saturation point be reached? Economists will answer "The market will decide." Hopefully, however, the decision will be made before we create stranded investment in natural gas.
Survey Results: A Few Surprises
We developed a questionnaire to analyze the characteristics of the natural gas storage market. The questionnaire was distributed to companies identified in the October 1994 and January 1995 issue of Gas Daily's Gas Storage Report as having working gas in storage.3 A total of 47 companies were identified, and 32 responded (em a response rate of 68 percent. Of the 32 that responded, 15 were pipelines, 16 were LDCs, and one was a storage company that was eliminated from the survey. The data were tabulated according to responses by totals, pipelines, and LDCs.
Type of gas storage facilities owned? As Table 1 indicates, depleted gas fields tend to be the storage facility of choice, followed by aquifers, depleted oil, salt caverns, and liquefied natural gas (LNG). Differences in type of gas storage facilities owned between pipelines and LDCs do not appear significant. LDCs own depleted oil, salt caverns, and LNG to the same degree, while pipelines possess an equal amount of salt caverns, and LNG facilities. One interesting finding is the higher-than-expected ownership of LNGs. However, although 16 percent of the pipelines and LDCs in the sample indicated that they own LNG, we do not know the capacity.
(Given the multiple responses by respondents, the percentages do not add up to 100 percent. While information was not collected on the capacity of working gas in the facilities, one would expect a positive correlation between such a number and the data listed in Table 1.)
Reasons for owning gas storage facilities? The possible responses were: hedging (em purchasing and injecting gas when prices are lower, and withdrawing that gas when prices are higher; surrogate for reserves (em avoidance of curtailment and reduced reliability of gas service at peak periods; balancing gas supply (em better use of pipeline transportation facilities; deferring or cancelling new
transportation and distribution facilities; leasing storage to third parties; improved operating efficiency. Responses were prioritized by degree, with 1 representing "Most Important" (see Table 2).
We designed this question to investigate how gas storage is currently used, not why it was originally built. In fact, the decision to build may reflect different factors that no longer affect actual use (em regulatory change, for example. In addition, some of the responses are not mutually exclusive: Balancing gas supply and improving operational efficiency are similar functions, and were ranked second and third, respectively, for both LDCs and pipelines.
Pipelines cited the following reasons for owning storage facilities, in order of importance: leasing, balancing gas supply, improving operating efficiency, deferring new facilities, surrogate for reserves, and hedging. LDCs cited the following reasons, in order of importance: surrogate for reserves, balancing gas supply, improving operating