LNG Export Exigencies - Gulf Storage may Benefit from Unplanned LNG Outages
In LNG Exports - Where Is All That Gas Coming From? , we discussed the key risks associated with the pipeline projects that are designed to provide the feed gas for the LNG export terminals that are planned for the Gulf Coast region. Today, we focus on another aspect of the transportation infrastructure that may be of assistance to LNG exporters -- natural gas storage.
Once all of these new export facilities are in place, a key component for pricing volatility will be any unexpected problems that occur at the facility that can result in a flood of gas with nowhere to go. However, a key relief valve for such unexpected problems can be the ability to send gas headed for export to a storage facility. The use of storage facilities can act as a shock absorber so gas can be stored until either the LNG terminal is back in service or the gas is able to be marketed without a huge impact on pricing.
Luckily, there are substantial gas storage facilities in the Gulf region. According to the Energy Information Administration (EIA), there is over 1 Tcf of working gas storage available in the Gulf region, but much of that storage is in depleted production fields that are not as useful for short term injections and withdrawals. The preferred type of storage for such quick turns is salt dome storage. According to the EIA statistics, almost 500 Bcf of the 1.4 Tcf of storage available in the Gulf region is this type of salt dome storage.
Our focus today is on the interstate providers of salt dome gas storage services that are required to provide a quarterly report on the customers to whom they provide storage services. We look not only at how much storage is available from these providers, but also whether all of that storage is currently contracted, as well as when the storage contracts with the current customers are set to expire. Any potential customer or feeder pipeline to an LNG facility will want to understand the storage situation for the facilities that they can access. Because this information is critical for potential LNG customers, it is also critical for those financing these projects, as well as for stakeholders trying to understand how the projects will impact flows and pricing on the proposed sources of gas.
Existing Storage Infrastructure
There are 65 separate storage facilities in the Gulf region states of Alabama, Arkansas, Mississippi, Louisiana and Texas. Thirty-three of those fields are salt dome facilities, and thirteen of those facilities are operated by interstate natural gas companies representing over 63% of the total salt dome storage available in the region. The companies that control these facilities, and their respective working gas storage capacities, are listed below:
Based on the most recent customer information filed by these 12 companies, approximately 80 Bcf of storage capacity is not currently under contract representing about one-fourth of the total capacity. Some of the fields are completely contracted, while others appear to have substantial unused capacity.
The following chart shows how much each company has contracted as a percentage of the total contracted capacity.
As readers of our report Second Wave LNG Schedules Trumpeted by FERC - Smooth Sailing Ahead? will know, the decisions on the export terminals are not expected any time soon, and the construction cycle is quite long; therefore, it is also important to understand how much storage capacity currently under contract may become available in the next few years. As shown below, all but about 43 Bcf of the salt dome storage capacity currently under contract will be up for renewal between now and 2022.
The amount of capacity that becomes available will likely depend on who currently owns that capacity. In particular, marketing companies may choose to retain that capacity, as its value may increase with the growing presence of LNG export terminals. In contrast, traditional utilities may relinquish such storage if they have a new supply source for gas not tied to the area where the storage is located.
Current Holders of the Capacity
The top ten companies that currently hold capacity in these Gulf region salt dome storage fields is an interesting mix of traditional utilities and gas marketing companies.
Of particular note are the contracts held by the three traditional utility companies: Southern Company, Atlanta Gas Light and Tennessee Valley Authority. Given the close proximity of these utilities to the Gulf supply basin, they may not be very willing to relinquish the capacity when it comes up for renewal.
Future Infrastructure
Enable Midstream recently held an open season for a new pipeline, the Gulf Run Pipeline project. According to the open season announcement, the project is designed to “support the increasing demand for natural gas along the Gulf Coast” and will not only connect to multiple supply basins, but will also provide shippers access to three storage facilities, Cadeville , Perryville , and Arcadia Gas Storage , the last two of which are both salt dome storage fields. Gulf Run also lists four LNG-related pipeline interconnects with Golden Pass, Driftwood, Port Arthur and Creole Trail. While Gulf Run indicated in its open season that the total available capacity could be 2.75 Bcf/d or more depending on the open season results, Gulf Run said it is committed to developing the project based exclusively on the 1.1 Bcf/d of firm transportation service it will provide to its undisclosed cornerstone shipper for a primary term of 20 years. The service commencement date for Gulf Run is proposed to be as early as the second half of 2022. Based on our review of similarly sized projects, this in-service date is attainable provided that Gulf Run can pre-file the project with FERC in the first half of 2019.
As the LNG export projects move through the process, we will continue to watch and report on the contracting on these Gulf region salt dome storage facilities.
Insights Coming Soon
- Washington Update
- MVP Logic Tree and Progress