After being relegated to the background during the shale boom, the natural gas storage market is showing signs of a comeback. Market participants are demanding storage solutions, storage values are increasing, and storage offerings and expansions are increasing. However, this will not necessarily lead to a widespread expansion of new storage capacity as happened in the pre-shale storage heyday of the mid-to-late 2000s. This is because the world has changed and what is driving storage values today is very different from what drove the last big capacity development. In today’s RBN blog, we look at emerging developments in the storage market, what’s driving them, and the implications for sub-48 storage capacity.
Storage has long been a critical balancing mechanism in the gas market. The role and value of storage, however, has changed dramatically since it was first constructed in the middle of the last century. Today, it is at another turning point. After languishing in the doldrums for much of the Shale era, storage is stepping back into the spotlight. The renewed interest in storage is critical to protecting against the negative impacts of severe gas supply disruptions, particularly in markets such as California and Texas, where consumers have felt the disastrous effects of temporary gas shortages and electricity, along with record prices. in recent years. [It’s telling that the California Public Utilities Commission (CPUC) voted unanimously August 31 to approve an increase of storage capacity at SoCal Gas’s Aliso Canyon facility to 68.6 Bcf, citing winter reliability concerns. The facility has a maximum capacity of 86 Bcf but has been capped at 41 Bcf or less as a safety measure ever since a massive leak was discovered at the site in 2015. See Los Angeles, I’m Yours and California Sunset.]
Fundamental changes in the gas market have contributed to the focus on storage, primarily increased demand for LNG exports to the Gulf Coast, but also increased reliance on natural gas in the power sector and worsening pipeline constraints to deliver gas to high-demand markets. In addition, reliability issues have been felt most acutely in the wake of extreme market events in recent years, the two biggest influences being the specter of major weather-related market upheavals in the wake of the winter storm Uri, the main ice storm that caused. havoc in the Texas and Mid-Continent gas and electricity markets in mid-February 2021, and Russia’s war against Ukraine, which sent domestic gas prices soaring last year to pre-war levels shale and the highest in 14 years. In addition, as we said a The Final Countdown seriesThe gas market is headed for more turmoil in the coming years as the growing concentration of LNG export capacity in the Texas and Louisiana Gulf Coasts will intensify competition for gas in the region, even when production growth and supply availability are challenged by pipeline constraints.
