May 27, 2019 By King
Lack Of New Natural Gas Storage Capacity
Natural gas of course is increasingly our go-to fuel to grow the economy, reduce greenhouse gas emissions, backup wind and solar, and be our essential energy source to export to a mostly poor and energy-deprived world.
This ongoing U.S. “Dash to Gas” ensures a known necessity for us: we need more geological sites to store natural gas to meet the ebb and flow of demand.
Since the shale revolution took flight in 2008, U.S. natural gas prices have remained low and stable (see Figure below).
While this is great for American families and businesses, it’s made building new gas storage capacity less of a priority.
Literally, this reduced incentive for gas storage has been the only negative of the U.S. shale boom
But, not building new storage capacity has been a logical decision.
Storage facilities are a primary tool to mitigate price risks and used by pipelines to maintain operational flexibility and system balance.
The spikes in pricing, particularly in the cold winter months when demand spikes, have greatly subsided.
A flatter price trend makes it harder for storage operations to make money, a business that is about “buying low and selling high when prices go up.”
As a result, almost all pending new storage projects and capacity expansions have been delayed or canceled.
Meanwhile, U.S. natural gas production and use continue to surge to record heights every year (see Figure below).
The constant reality for the U.S. gas market and prices is record production colliding with record consumption.
Our domestic usage comes from more power and industrial demand mostly.
In the Shale-Era since 2008, U.S. gas production has increased 60%, demand is up nearly 35%: yet, gas storage capacity has grown just 14%.
Wind And Solar Are Intermittent
Perhaps our most fundamental energy fact is that natural gas will continue to play a central role in the U.S. electric power system.
That’s because as we continue to seek ways to cut greenhouse gas emissions, the harsh reality for some is that wind and solar are intermittent sources of power, unavailable most of the time (capacity factors only around 30% even on good days).
It’s something that cannot simply be wished away: the intermittency of renewable generation will require flexible, fast-ramping generation.
As such, the obvious requirement to backup these renewables was, is, and will continue to be very flexible, economical natural gas peaking plants.
“Natural Gas Is The Flexibility Needed For More Wind And Solar.”
Gas will be what provides electric grid reliability, namely via load and generation profile following, frequency regulation, backup power, and spinning reserves.
Obviously, battery storage is growing in importance, but these systems don’t fully support the full range of flexibility needed, including for seasonal and daily variations.
Thus, batteries cannot displace gas-fired generation, which is uniquely suited to mitigate the intermittency of renewables.
It’s no wonder then that EIA says gas will easily supply the most amount of incremental capacity in the coming decades, at 235,000 megawatts.
For perspective, this is a whopping 10 times more than what onshore wind will give us.
This all means that we are actually in the early stages of unprecedented growth in natural gas being produced and used in the U.S (see Figure below).
So, our power system itself could easily face severe supply constraints if no incremental infrastructure is specifically built for the electricity sector.
This clearly centers on building more sites to store natural gas.
For reference, depleted fields account for over 80% of working gas storage capacity.
Rising Gas Exports
Besides the shale revolution itself, our LNG export boom to the world is probably the most transformative change for the U.S. gas market in its history.
This is a new dynamic that really kicked off back in February 2016, and we will become the third largest seller this year and lead the market by 2024.
It will be U.S. suppliers along the Gulf Coast that will be called upon to support potential global supply disruptions.
This will surely extend utilization of the region’s storage facilities.
As our LNG suppliers are forced to react to international events (e.g., freezing cold winters in Asia that need gas for heating), the boom in exports will add a variability to the market that more U.S. gas storage will need to buffer.
In other words, there will be even greater portions of U.S. demand (and remember that exports are a baseload demand market) that cannot be regularly predicted.
This will make it harder on producers to plan ahead of time, making gas storage even more crucial to our market.
Without new gas storage capacity, our market could drastically (and needlessly) tighten
Moreover, exports will be seasonal, making new capacity that much more vital.
In total, LNG exports are the driving force behind what could be a ~25 Bcf/d increase in U.S. gas demand over the next six to eight years.
And we should be encouraging all of this: gas exports offer us massive economic, environmental, and security benefits for us.
U.S. natural gas exports are a moral imperative, helping an overwhelmingly poor world get access to modern energy while also reducing greenhouse emissions.
“COP21 Means More Natural Gas and the U.S. Must Help.”
In particular, as a newer major player in our gas market, Appalachia (WV. OH, PA), now producing nearly 40% of our gas, must see major new investments to not just build more pipelines but also to build the gas storage sites to meet the growing needs of Appalachia itself and the other states and even countries that are increasingly relying on it.
The good news?
The U.S. government is wisely prioritizing the gas storage issue: “Secretary Perry Announces Appalachian Ethane Storage Hub Report.”