Fast-changing dynamics in Gulf Coast natural gas, electricity and LNG export markets are increasing the value of gas storage in Texas, Louisiana and Mississippi — or, more specifically, the merit of quickly injecting and withdrawing gas to respond to market swings. As a result, interest in developing gas storage projects with high “deliverability" rates has taken off, with billions of cubic feet of new storage capacity already coming online and a lot more in the works. In today’s RBN blog, we’ll begin a look at why so many market participants — power generators, LNG operators/offtakers, midstreamers, marketers and traders — are chasing the “extrinsic” value of gas storage and where the new storage projects are being built.
A year ago, in our Squeezebox blog series, we examined 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. That bounty — combined with a major storage overbuild — led to declining storage values and a virtual halt in the development of new storage capacity.
But things are changing. 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 value. (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 have only recently recovered somewhat. Today, even with that rebound in seasonal spreads, there’s less intrinsic value associated with storing significant volumes of gas from one season to the next than there was back in the heyday. However, with gas supply rising and an increasing proportion going to exports, there’s a growing anticipation that the market will need additional storage capacity, mostly to support downstream operations.
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