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Natural gas storage

What Is Natural Gas Storage?

Natural gas storage refers to the practice of holding already produced natural gas in specialized facilities for later use. This process is a fundamental aspect of commodity markets and the broader energy sector, enabling the efficient management of supply and demand for this critical energy resource. Natural gas storage facilities serve as crucial buffers, absorbing surplus gas during periods of low demand and releasing it to meet increased consumption, thereby helping to mitigate price volatility and ensure energy security.

History and Origin

The concept of natural gas storage evolved out of the necessity to balance the relatively steady production of natural gas with its highly variable consumption patterns. Early long-distance pipelines, while efficient for transportation, lacked the flexibility to adapt quickly to fluctuations in demand. The first successful commercial underground gas storage project was established in 1915 in Welland County, Ontario, Canada, utilizing a depleted natural gas well that had been repurposed for this new function. The following year, a similar operation began in the Zoar field near Buffalo, New York34, 35.

A significant shift in the regulatory landscape, particularly in the United States, occurred with the Federal Energy Regulatory Commission (FERC) Order 636 in 1992. This order mandated "open-access" to interstate pipeline and storage facilities, effectively unbundling gas supply from its transportation and storage. This move fostered a more competitive market, allowing a wider range of participants to utilize natural gas storage services32, 33. Today, the Federal Energy Regulatory Commission (FERC) continues to regulate and authorize natural gas storage projects to ensure market efficiency and reliability31.

Key Takeaways

  • Natural gas storage acts as a strategic reserve to balance the discrepancy between continuous production and fluctuating consumer demand.
  • The majority of natural gas storage occurs underground in facilities such as depleted reservoirs, aquifers, and salt caverns.
  • Weekly reports on natural gas inventories are closely monitored market indicators that influence natural gas prices.
  • Government agencies, like the Federal Energy Regulatory Commission (FERC) and the U.S. Energy Information Administration (EIA), provide oversight and data on natural gas storage.
  • Effective natural gas storage contributes significantly to energy reliability, especially during periods of extreme weather or unexpected supply disruptions.

Formula and Calculation

While there is no complex mathematical formula for "natural gas storage" as an investment metric, key operational quantities are measured and reported to describe storage facility performance and gas volumes. These include:

  • Total gas storage capacity: This represents the maximum physical volume of natural gas that a storage facility can hold.
  • Total gas in storage: The total amount of natural gas present within the storage facility at any given moment.30
  • Base gas (or cushion gas): This is the volume of natural gas that must be maintained as a permanent inventory within the storage reservoir. It is essential for maintaining sufficient pressure to ensure adequate deliverability rates and is generally not considered recoverable for sale.
  • Working gas capacity: Calculated as the total gas storage capacity minus the base gas, this figure indicates the volume of gas that is available for withdrawal and commercial use.
  • Working gas: This term refers to the total gas in storage minus the base gas, representing the actual volume of gas available for injection or withdrawal from the facility.

The net change in working gas over a period is determined by the difference between injections and withdrawals:

Net Change in Working Gas=Injections−Withdrawals\text{Net Change in Working Gas} = \text{Injections} - \text{Withdrawals}

These measurements are vital for market analysis and operational planning within the natural gas industry.

Interpreting Natural Gas Storage

Interpreting natural gas storage data is crucial for anyone involved in the energy markets, from traders to policymakers. The U.S. Energy Information Administration (EIA) releases weekly reports on the levels of working gas in underground storage, a key indicator for market sentiment28, 29.