After being relegated to the back burner during the shale boom, the natural gas storage market is showing signs of a comeback. Market participants are clamoring for storage solutions, storage values are rising, and storage deals and expansions are bubbling up. However, that won’t necessarily lead to a widespread build-out of new storage capacity like the one that transpired in the pre-shale storage heyday of the mid-to-late 2000s. That’s because the world has changed, and what’s driving storage values today is vastly different than what drove the last big capacity build-out. In today’s RBN blog, we look at the emerging developments in the storage market, what’s driving them, and the implications for Lower 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 built out starting in the middle of the last century. Today, it is at another inflection point. After wandering in the doldrums for much of the Shale Era, storage is re-entering the limelight. Underpinning the renewed interest in storage is the imperative to safeguard against the negative impacts of severe gas supply disruptions, particularly in markets like California and Texas, where consumers have felt the disastrous effects of temporary gas and power shortages, along with record-high 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 shifts in the gas market have contributed to the focus on storage, primarily rising LNG export demand on the Gulf Coast but also the increased reliance on natural gas in the power sector and worsening pipeline constraints for getting gas supply to high-demand markets. And, reliability issues have been felt more acutely in the wake of extreme market events of the past few years, the two biggest influences being the specter of major weather-related market convulsions in the aftermath of Winter Storm Uri, the major ice storm that wreaked havoc on gas and electricity markets across Texas and the Midcontinent in mid-February 2021, and Russia’s war on Ukraine, which sent domestic gas prices soaring last year to pre-shale levels and the highest in 14 years. Moreover, as we said in The Final Countdown series, the gas market is headed for more turmoil in the coming years as the growing concentration of LNG export capacity on the Texas and Louisiana Gulf Coast will intensify competition for gas in the region, even as production growth and supply availability are challenged by pipeline constraints.
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