We’ve been saying for a while now that the natural gas storage market may be on the verge of a comeback. At the same time, we’ve cautioned that the world has changed since the heyday of gas storage in the mid-to-late 2000s, and that while market participants are clamoring for storage solutions and storage values are rising, what’s driving storage values today is vastly different than what drove the last big capacity build-out (which resulted in a major storage overbuild). As a result, only a handful of storage projects meeting special needs in particular places are likely to reach a final investment decision (FID). In today’s RBN blog, we discuss one such project: a greenfield storage facility under construction at two depleted dry-gas reservoirs 90 miles southeast of Dallas.
In our Squeezebox blog series a few months ago, we took an in-depth look at the changing role and value of natural gas storage over the past several decades — before and after the deregulation and unbundling of the gas market in the early 1990s, then (in the mid-to-late 2000s) the advent of market-based storage rates and plans for LNG imports, and (through the mid-to-late 2010s) the Shale Era’s gas-supply abundance, which (combined with the storage overbuild) led to declining storage values and a virtual halt in the development of new storage capacity. That brings us to what we see as a potential revival of the storage market — and why we think it will look different than storage market cycles in the past. For one thing, today’s demand for storage is being driven largely by extrinsic economics, not intrinsic values.
Let’s take a moment to unpack that. In the period between gas-market deregulation and gas-supply abundance, gas traders and marketers put cheap summertime gas into storage and removed it (typically at higher prices) during the winter months, thereby capturing storage’s intrinsic values. They also learned to play the futures market against intrinsic spreads. However, due in part to the storage overbuild we mentioned — some 1 Tcf of storage capacity was added between 2004 and 2014 — seasonal spreads collapsed and are still fairly unattractive (at least by the standard set back in the heyday). Today, there’s very little value associated with storing significant volumes of gas over multiple months, even along the Gulf Coast where storage demand is on the rise.
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