The executive summary stresses the importance of the U.S.
natural gas storage system and the different services and benefits it provides.
“These resources not only
help meet seasonal fluctuations and short-term surges in demand but also
provide critical backup during unplanned disruptions. Many storage facilities
are strategically co-located with baseload and peaking electricity generation sites
to enhance supply flexibility and grid reliability. Storage supports a diverse
set of market participants, including pipeline operators, local distribution
companies (LDCs), electric utilities, and independent operators, by ensuring
continuity of service and stabilizing prices in volatile market conditions.
Market participants utilize storage for supply and optionality.”
The multiple roles of natural gas storage include balancing
seasonal demand, tempering price volatility, providing emergency support, and
enabling grid flexibility and renewable integration. Gas storage operators fill
storage reservoirs in the off-season when prices are usually cheaper. They may
buy and replenish supplies when prices are low and release and sell when prices
are high. They also provide price volatility protection for consumers.
The report stresses the need
for more natural gas infrastructure, including pipelines and storage fields, in
light of increased gas production and demand growth. However, the report also
notes that “LNG storage capacity more than doubled between 2021 and 2023,
growing from 28.3 Bcf to 67.3 Bcf, largely driven by export growth and expanded
use in areas without underground infrastructure.” The need for more gas
storage is indicated by several regions exceeding 90% of underground storage
utilization.
As more natural gas is used
to power the grid, the seasonality of gas has changed to accommodate higher
summer usage to power cooling demand.
The report identifies four
areas where capacity constraints, delivery challenges, and planning gaps are
occurring: 1) Storage capacity constraints, which are common in winter but are
becoming common in summer as well. 2) Limited withdrawal rates – can cause
bottlenecks and limit optionality for storage providers. 3) Project development
timelines – permitting and regulatory red tape are a major cause, and permit
reforms are needed. 4) Market signals – they often do not reflect the full
range of gas storage value.
Recommendations include: 1)
Targeted Expansion in high-demand regions where capacity utilization averages
above 90%. 2) Faster, Clearer Project Approvals – streamlined, more efficient
permitting. 3) Improved Integration with Energy Planning – consideration of gas
storage in state and regional energy planning. 4) Recognition of the Full Value
of Gas Storage, including its value in reliability, resilience, emergency
preparedness, and consumer protection. 5) Support for Low-Carbon Pathways –
this includes storing renewable natural gas and hydrogen, including blending
hydrogen with natural gas.
Gas storage bridges the gap
between continuous natural gas production and variable demand.
The main body of the report
begins with gas storage basics, as I have written about
previously. It also addresses LNG storage. It notes some of the features of
LNG:
“The liquefaction process requires cooling the gas
molecules to around -260° Fahrenheit. The volume of LNG is about 600 times
smaller than natural gas in its gaseous state, which helps improve storage and
shipment efficiency. Today, LNG is most commonly stored at import or export
terminals, peaker plants, or satellite facilities.”
Descriptions and features of LNG storage are shown below:
Oddly, perhaps, I was just
wondering how fast natural gas moves in pipelines. The report gives an answer
below, along with some strategies for LNG storage.
“Increasingly, LNG storage can also be co-located with
electric power plants. Natural gas flows at a rate of around 20 to 30 miles per
hour, depending on linepack conditions, so co-location helps optimize pipeline
capacity and improve reliability for electricity producers and consumers of
electricity and natural gas. Pipeline capacity optimization, service
reliability, and mobile or temporary LNG facilities are important
considerations for the strategic deployment of LNG and the location of peak
shaving and satellite facilities along the gas distribution system.”
Floating Storage Units (FSUs), or Floating Storage and
Regasification Units (FSRUs) on ships, are another common form of LNG storage.
A discussion of linepack is
important as it is commonly used to prepare for demand increases
“Linepack is not a formal storage facility but an
inherent feature of natural gas pipeline systems. Gas system operators,
including local distribution companies (LDCs), can manage the amount of gas
within transmission and distribution pipelines by adjusting pressure levels.
This ability to “pack” additional natural gas molecules into the system serves
as a short-term buffer against hourly fluctuations in supply and demand.
Linepack helps enable system operators to respond to rapid intraday changes in
demand, even in instances when upstream supply may be temporarily insufficient.”
Compressed natural gas (CNG)
refers to natural gas that is compressed to less than 1 percent of its volume
at standard atmospheric pressure. CNG may be stored and used where pipelines
are unavailable or gas storage is not viable due to unsuitable geology. It is
stored in cylinders and delivered via truck.
Natural gas storage
facilities are owned and operated by interstate pipeline companies, local
distribution companies (LDCs), LNG peak shaving operators, and independent
operators, as shown below.
Regional storage, peak
capacities, and new additions by year are shown in the figures below.
The report goes on to discuss
in more detail market interactions, seasonality, reliability, resiliency,
demand and consumption, and how storage is compared to the five-year average, a
typical metric for assessing storage level adequacy. As the graph below shows,
summer withdrawals have more than doubled since 2010. Winter demand, in
comparison, has remained fairly constant.
The role of natural gas in
integration and backup support for intermittent renewables generation is often
not fully appreciated. When those resources go offline due to clouds, the loss
of wind speed, night, and less seasonal light, it is often natural gas
generation that kicks on to replace the loss. As the table below shows, the
U.S. natural gas storage system has about 144 times the energy storage capacity
and daily deliverability as pumped hydro and batteries combined.
Market-based valuation of
natural gas storage can be complex. The intrinsic
value of a project or contract results from the seasonal
difference, or spread, in natural gas prices. It is calculated by comparing the
seasonal difference between summer (injection) and winter (withdrawal) prices.
These seasonal spreads have diminished in recent years due to more natural gas
being exported and by increasing summer demand for it, due to its growing use
for electricity generation. The extrinsic
value of gas storage refers to the optionality outside of
intrinsic value that flexibility storage provides in response to market
changes. Responses to price movements, uncertainty, and volatility drive
extrinsic value.
“Thus, extrinsic value can be calculated as the
incremental value that storage owners can earn by re-optimizing withdrawals and
injections according to spot and forward price movements.”
As the loss of intrinsic value due to the decreasing
seasonal spreads has affected storage asset owners, the focus on taking
advantage of extrinsic value has grown. ‘Sell high, buy low’ is the formula for
taking advantage of extrinsic value. Price volatility, shown below, is a major
driver of extrinsic value. The authors note that the same market valuation
framework, mainly for extrinsic value, can be used for LNG storage.
Another type of value
is regulatory value, which has to do with providing desired
services for things like ensuring reliability and resiliency, sometimes
referred to as dividends. Cost-of-service ratemaking is the mechanism for
recovering this value, where the regulator allows a certain rate of return in
return for the reliability services provided.
The next section of the
report covers constraints, challenges, and future outlook. All new gas storage
facilities are capital intensive and require ongoing maintenance and monitoring
with drilling and maintaining of wells, upgrading outdated wells and equipment
for safety, and monitoring things like deliverability. The report does not
mention horizontal wells in gas storage fields. I worked on an early horizontal
well in a gas storage field in West Virginia back in 1996, the purpose of which
was to increase deliverability. LNG storage is particularly capital-intensive
since it must be maintained at very low temperatures, which is costly.
Bottlenecks in pipelines, often due to inadequate regional pipeline capacity,
can create problems for storage owners by preventing them from moving, buying,
or selling gas during ideal times for such actions. Deliverability limitations,
usually from the geology of the reservoir, can make it harder to deliver gas
when needed, decreasing potential profit. Storage capacity and capacity
utilization are the main factors when evaluating the need for additional
storage capacity. The graphs below reflect the topics discussed above.
The lack of new gas storage
developments could affect the supply-and-demand balance, resulting in increased
price volatility. The AGA’s natural gas demand outlook to 2030 is shown below.
They note that geopolitical shifts and regulatory changes
are wildcards that can affect future natural gas demand. Since FERC and the DOE
are the main permit approval agencies for gas storage and LNG projects, the
current administration will likely limit or throw out any potential regulatory
hurdles and seek to speed up project timelines, as is the goal of needed
bipartisan Congressional permit reform.
In the report’s conclusion,
the following statement highlights concerns and the need for new gas storage
facilities to be built.
“Despite its indispensable value, natural gas storage
faces significant challenges. Aging infrastructure, high capital costs,
regulatory complexity, and pipeline bottlenecks continue to constrain expansion
and optimization. Additionally, while the value of storage has evolved from a
reliance on seasonal price spreads to increased dependence on market
responsiveness, many regions in the U.S.—particularly the East, Midwest, and
Mountain—are experiencing storage capacity constraints that have not kept pace with
the rapid growth in production, demand, and pipeline infrastructure. As
electrification accelerates and data center energy needs rise, these storage
limitations could exacerbate volatility and reliability concerns.”
They also stress the need for
local and regional market analysis in evaluating where to expand storage:
“Regional and local market analyses can pinpoint where
additional storage may deliver the greatest strategic value and reveal how
market participants currently price existing assets. By comparing realized
actual market indicators, such as injection/withdrawal behaviors or storage
market rates, stakeholders can spot underserved markets, optimize capacity
deployment, and sharpen commercial strategies. These insights also equip
regulators and policymakers to target infrastructure investments and regulatory
reforms that uphold reliability and advance other goals.”
References:
Assessing
the Value of Natural Gas Storage: A Strategic Asset for Grid Reliability,
System Resilience, and Operational Flexibility in a Changing Energy Landscape. American
Gas Association. April 29, 2025. Value-of-Storage-FINAL.pdf
No comments:
Post a Comment