The U.S. needs to add 600 to 800 billion cubic feet (Bcf) of natural gas storage capacity ASAP. Independent storage providers (ISPs) are the entities best equipped to build this needed infrastructure, but they continue to be restrained by anachronistic regulatory policies.
The Federal Energy Regulatory Commission's (FERC's) December 2005 rule-making to modify its market power analysis for gas storage facilities is a step in the right direction. The new rules will increase the number of FERC-regulated gas storage facilities authorized to charge market-based rates, compensating facility owners for their financial risk. However, because 200 U.S. gas storage facilities also are regulated by state public service commissions (PSCs), action at the state level will be required as well.
Special delivery
Historically, gas producers and owners of interstate gas pipelines constructed storage facilities in or near producing basins, whereas local distribution companies (LDCs) sited them near load centers. Most of these facilities offer "seasonal" storage service: They are filled during the summer and drawn down to meet peak demand during winter months. But few allow for summer withdrawals or winter deposits. In contrast, new "high-deliverability" storage facilities that ISPs are developing can inject or withdraw gas year-round and can reverse the direction of flow in as little as 30 minutes.
Such facilities would add significant value to the U.S. natural gas system, particularly if ISPs locate them near load centers. They would enable physical hedging against upstream curtailments by giving load centers access to incremental supply sources that are helpful for meeting peak demands. The facilities' injection/withdrawal flexibility in turn would increase the system's operational flexibility, enabling market participants to manage monthly, weekly, daily, and even hourly swings in gas loads. These same features would allow customers to mitigate natural gas price volatility by adjusting their purchase/storage decisions to daily or even hourly changes in prices.
High-deliverability storage would be particularly valuable to gas-fired electric generators, which could peg their gas usage to fluctuating electricity demands while remaining compliant with delivery pipelines' balancing requirements and minimizing their gas procurement costs.
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