High production, low prices mean little change in natural gas storage capacity

Traditional storage slow to fill/deplete, natural gas owners prefer to not withdraw too early in season because it cannot be quickly refilled

High levels of natural gas production and relatively low natural gas prices are affecting markets for seasonal natural gas storage, including the value of additional storage capacity, according to the US Energy Information Administration.

For the second year in a row, no new natural gas storage facilities were added, and the slight changes, both positive and negative, at existing storage fields resulted in national storage capacity remaining essentially flat for the year.

Source: U.S. Energy Information Administration, Monthly Natural Gas Underground Storage Report

EIA measures natural gas storage capacity in Nov. each year, which is typically when net storage withdrawals begin.  Natural gas storage facilities have traditionally served as a physical hedge against high wintertime prices.

Storage allows natural gas distributors or large natural gas consumers to buy and store less-expensive natural gas in the summer, and then to withdraw natural gas in the winter, when prices are typically higher.

In recent years, however, natural gas prices have been exhibiting decreased seasonality, making some kinds of underground storage less financially attractive. EIA uses two distinct measures of natural gas storage capacity:

Demonstrated maximum working gas volume is the sum of peak volumes reported by the 385 active storage facilities in the Lower 48 states, regardless of when the individual peaks occurred over the five-year reporting period ending in Nov. 2015.

In the graphic below, this measure is compared to the five-year period ending Nov. 2014. At the national level, the difference is small, increasing by just 0.1 per cent from 4,336 Bcf to 4,343 Bcf.

In addition to geographical regions, EIA categorizes storage types based on geology. Traditional storage, such as depleted fields, provides the bulk of storage by volume, and it typically is filled during the spring, summer, and fall, and then is withdrawn during the winter.

Source: U.S. Energy Information Administration, Monthly Natural Gas Underground Storage Report

However, an increasingly popular type of storage is salt cavern storage, which consists of leached caverns in salt deposits, mostly along the Gulf Coast.

While far smaller in volume, salt storage can be cycled in and out many times a year, allowing the stored natural gas to be withdrawn quickly to meet market needs, such as to provide heating during cold snaps or to take advantage of arbitrage when prices spike for other reasons.

Because of this seasonal usefulness, salt facilities in the South Central region saw a significant increase in demonstrated working gas volumes between Nov. 2014 and Nov. 2015, rising by 5.8 per cent, as many salt facilities hit new peak levels in Nov. 2015.

By contrast, traditional storage in the adjacent Mountain region saw a significant decrease, falling by 6.3 per cent, because a few facilities that reached peak levels in 2010 are no longer included in the five-year period ending in November 2015.