Storage projects fill as fast as they can come

Projects fill as fast as they can come on line

Florida, Arizona among hot spots that need supply

NELSON ANTOSH, Copyright 2004 Houston Chronicle Published 6:30 am, Sunday, December 12, 2004

The rapid growth in the gas storage business is forcing operators to seek out the highest growth areas and build where no one has built before.

In the storage business, that means finding ways to serve big markets that aren't near any of the usual underground formations used for storage. And it may also mean turning to a whole new approach.

While Falcon Gas Storage has found suitable depleted fields in New York to serve the huge East Coast market, Florida doesn't offer any such options. The Houston company is looking to build a storage facility under Mobile Bay off Alabama that will send gas via pipeline under the Gulf of Mexico to Florida.

Falcon is also evaluating a project in the Four Corners area, near where New Mexico, Colorado, Arizona and Utah meet, to serve the Phoenix and Tucson, Ariz., markets.

Carving out storage

Energy company Unocal, which considers storage to be a growth business, also has its eye on serving the Phoenix area, where there aren't a lot of obvious storage possibilities nearby. For that reason they looking to develop a bedded salt project, using water to carve out a cavern underground.

The location is being kept under wraps until the land deal is finalized, according to Unocal Midstream & Trade President Joe Blount Jr. of Sugar Land. Unocal will also have to gain the options to drill.

Another of its bedded salt storage projects is located on the edge of sand dunes in Texas' Winkler County, near the town of Kermit. Only about two years old, the storage space within the first three caverns is sold out, and customers are waiting in line for the next two to be completed, said Blount.

While Kermit appears to be in the middle of nowhere, those caverns are connected to pipelines that feed the gas-fired electricity generating plants that have sprung up in New Mexico, Arizona and even California.

Similarly, Unocal's Windy Hill project in northeast Colorado is designed to serve power plants in the Rocky Mountain front. The drilling is just completed into bedded salt. "We've sunk a fair amount of capital into it, but it looks very promising. Probably some of the best dollars we've ever invested," said Blount.

Saltville and Beaumont

Duke Energy Gas Transmission last winter finished construction on a cavern in a Virginia town with the not surprising name of Saltville. The underground formation there is bedded salt, as well.

Duke acquired three salt dome caverns in Moss Bluff and two in Egan, La., in 2000 and has been expanding the business ever since, said spokesman Danny Gibbs in Houston. It just got federal approval to develop a new location in Copiah County, Miss.

Duke's storage capacity in North America has zoomed from 75 billion cubic feet in the late 1990s to more than 250 billion cubic feet at present, according to Gibbs.

In the Beaumont area, Unocal plans to turn one of its old oil fields into salt caverns to store natural gas that will be imported by tankers full of liquefied natural gas. The LNG terminals along the coast are expected to add new life to the Gulf Coast storage business. The downside of storage here is it's far from the colder climes where demand is highest, and the pipelines have little extra capacity during those periods.

Unocal recently tested the market for interest in its Sabine project with what is called an open season and was pleased with the results. An open season is asking potential customers to say how much natural gas they would be willing to ship on the line.

The potential customers cannot be disclosed, but they were "all serious LNG players," said Blount.

Price swings and growth

This growing flow of imported gas will add to the price volatility of natural gas, in Hopper's view, contrary to instinct.

This is because economics dictate that the ships be unloaded and kept moving. During periods of low demand this gas will go into storage, but during periods of high demand it won't be enough to really make a difference. "No matter how much LNG you bring it, it's going to have to be filled by storage."

It all comes down to population growth. More people means that more furnaces will be fired up in the winter and more air conditioners turned on in the summer, he said, assuring that the peaks will grow. There has always been a big demand peak in the winter, but there is now a smaller peak in the summer because of gas-fired electricity generating plants.

This reduces the amount of time available for injecting gas into storage, explained Wright. Whereas there used to be 200 days for injecting gas, now you have to "slip it in" during the shoulder season, which is the spring and the fall.

"You have to work harder than you used to," he said.

nelson.antosh@chron.com