The US natural gas market has seen substantial growth in recent years but additions of new storage capacity have not kept pace, something expected to fuel volatility as the market continues to expand to meet rising gas demand, according to industry executives at the CERAWeek by S&P Global conference.
“If you look back at 2010 until today, natural gas demand has grown 50%. Pipeline infrastructure has only grown 25%,” Toby Rice, CEO of Appalachian gas producer EQT, said in a March 18 interview on the sidelines of CERAWeek. “The volatility comes in with natural gas storage infrastructure only growing 10%.”
“What that means is, storage is not going to be the buffer on price,” Rice said. “Price is going to be the thing that influences — that balances supply and demand.”
Others representing all segments of the industry, from global commodities traders to midstream and LNG companies, stressed how the transformation of the domestic market could be expected to make new storage capacity a premium asset.
“We have so much more going on now with big industrial burn, with obviously, the LNG export facilities which from time to time come down for various reasons, and it’s going to cause continued volatility in the spot markets until we can handle that [with additional storage],” Rich Brockmeyer, head of North American natural gas and power for Gunvor, said March 20 during remarks at CERAWeek.
Market need
Over the last decade, total Lower 48 gas demand rose from about 74 Bcf/d in 2014 to just over 106 Bcf/d in 2023, according to data from S&P Global Commodity Insights. On the supply side, annual average Lower 48 gas production rose from 70 Bcf/d in 2014 to nearly 103 Bcf/d in 2023.
Working underground storage capacity has remained largely flat over the same period, data from the US Energy Information Administration showed.
Rising LNG exports has been a major component of demand growth and is expected to be the main driver of additional gas demand growth over the coming years. By 2028, LNG feed gas demand is expected to be nearly twice the 13 Bcf/d recorded in 2023, S&P Global data showed.
Gas market participants have discussed the need for new storage capacity proximate to the US Gulf Coast to manage variable demand at liquefaction facilities, such as when trains come offline.
LNG terminals are “living, breathing” facilities that require flexibility, Martin Hupka, president of LNG and net-zero solutions for Sempra Infrastructure, said.
“As more and more LNG comes on, the storage question is going to become more and more significant because those plants are going to require that [flexibility],” Hupka said March 20 on a CERAWeek panel alongside Gunvor’s Brockmeyer.
Storage economics, projects
Variability from wind and solar and increasing demand from LNG terminals are all increasing demand for storage, which is translating into higher rates, said Cynthia Hansen, president of gas transmission and midstream for pipeline operator Enbridge.
“As we look at re-contracting storage, our prices that we’re getting have increased from on average 50% to 200% depending on the location,” Hansen said March 20 in an interview at the conference.
Like many other firms, Enbridge is developing “low-cost” brownfield rather than greenfield storage opportunities.
“We still have conversations about… greenfield opportunities,” Hansen said. “But it has to be economic and we have to have those long-term contracts to support it.”
Enbridge expects to bring the 6.5-Bcf working-gas expansion to the Tres Palacios facility in Texas into service later this year. Its Aitken Creek asset in Canada has permits to expand by 40 Bcf.
Being integrated with existing pipeline assets improves the economics of these projects, Hansen said.
Near the Gulf Coast, storage operator Mississippi Hub recently proposed to expand its existing natural gas storage capacity and add three new 10-Bcf salt caverns, building upon its current 22 Bcf of working salt storage capacity.
Other operators are pursuing greenfield projects, such as Trinity Gas Storage’s 24-Bcf storage facility near Dallas, Texas. The project has an in-service target of Q2 2024.
S&P Global analysts are tracking over 100 Bcf of new storage projects in development.
Source: Platts
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