Aquifer

The natural gas trading market has been getting a lot of attention lately and not in a good way. A couple of weeks ago the Wall Street Journal published two articles describing the fact that traders have started to reduce their presence in natural gas storage.  At about the same time, Oneok, once a big player in energy services shut down its operation that had used natural gas storage and pipeline transportation capacity to provide those services to the industry.   With gas production still coming on strong, more gas being used for power generation and the possibility of serious LNG exports on the way, what’s the problem?  Today we look deeper into turmoil in the natural gas markets.

Storage, the great balancing mechanism of the natural gas market in North America is heading toward another evolution in its usage, flow patterns and economics.  Not too many years ago, natural gas storage was the hottest midstream investment opportunity going, expected to synchronize inbound flotillas of LNG imports with seasonal domestic demand.  Winter vs. summer price differentials were wide, prices were volatile and storage economics looked great.  When shale gas happened, those differentials evaporated along with storage economics.  Today another phase looms for natural gas storage as Marcellus and now Utica production ramp up on top of (or more accurately, underneath) the largest storage region in the world – the Northeast U.S.  This is a big topic with big implications.  So rather than jumping into the middle of the upcoming gas storage transformation, we will walk through a multi-part North America natural gas storage blog series -  its history and status, its challenges, who’s involved, and finally what could be in store going forward.  Today we’ll start with some natural gas storage basics.