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Technology Corridor

Fundamentals in the energy markets are converging to increase the need for incremental gas storage.
Fortnightly Magazine - July 2004

storage service. Will your storage provider offer liquidated damages if he does not deliver? The ultimate test of faith is if your storage provider offers liquidated damages in its storage services tariff if he does not deliver. If this is offered to you as a consumer, then you have a very reliable storage service.

What Storage Developers Want

Most successful storage developers have the ability to take on some level of risk to successfully see a project to completion, but this risk has to be encouraged by some reasonable customer commitment and support from the regulators. Independent storage developers have added the most new capacity in recent years and are likely to continue doing so. By definition, the independents are not affiliated with interstate pipelines or local distribution utilities, and thus they typically do not have market power, or other conflicts of interest. With an entrepreneurial spirit and a focus on storage, they often are better equipped to deliver new projects than an integrated utility company. Independents seek lighter-handed regulation, which has been successful in markets like California and was recently acknowledged by the Federal Energy Regulatory Commission in its Affiliate Rules Order 2004A. The marketplace generally will benefit from such usage, as the aggressive use of storage (no matter by whom) will serve to dampen volatility in the gas markets.

Primarily, storage developers need creditworthy customers to sign up for reasonable term contracts from 3 to 5 years. Assuming a development opportunity can be found in the market of need, it takes 3 to 5 years to plan, permit, and construct a new natural gas storage facility. Storage developers require firm commitments by customers well in advance of the service startup in order to undertake the financial risks of development. Incentives are often available to customers that commit early and support development.

Customers need to think outside of the box to find the right storage for their business model and the right developer to deliver economical and reliable new storage projects to market. If we can get the right forces together, new storage projects will be developed and will help the energy marketplace to be more reliable and affordable.


 

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