IS TEMPERATURE THE SINGLE MOST IMPORTANT FACTOR IN how gas storage is used? Or are other variables involved? Can we answer these questions - and verify the results?
Since FERC Order 636, natural gas storage has grown into a high-profile asset in the industry. As a result, the industry has responded by changing the way it uses this storage. The exact nature of this adjustment is not apparent at a glance; one must first analyze industry data.
For example, in its 1995 study of natural gas storage, The Value of Underground Storage in Today's Natural Gas Industry, the Energy Information Administration showed storage operators were withdrawing more gas from storage in the summer and injecting more in the winter. Many in the industry were surprised by the degree that this was occurring.
This change in the role and use of storage relates in part to its use as a system-balancing tool. Before Order 636, when pipelines owned the gas flowing in their systems, they could use that gas to achieve system balancing. Now, it is up to individual shippers to acquire the right amounts of gas and service to sustain system reliability. Under competition, these shippers also can take advantage of arbitrage opportunities that surface in a price-volatile commodity market.
Our analysis of storage suggests certain characteristics about its use and provides us with some interesting and useful results. First, it appears that the industry's operating behavior follows almost the same "script" from year to year. Second, while storage use has grown more flexible since Order 636, it still reflects risk-averse behavior or an inability to respond to certain market signals.