Growing intermittent demand for natural gas along the US Gulf Coast is fueling something of a renaissance in the salt dome storage market as LNG exporters, power generators and pipeline operators bid up prices for the South Central region’s most flexible storage injection and withdrawal capacity.
Earlier this month, storage owner and operator Enstor was among the latest to enter the fray, announcing a non-binding open season to solicit bids for a proposed expansion of its three-cavern, 22.4 Bcf Mississippi Hub. As part of its Cavern Expansion Project, Enstor is proposing to construct, own and operate three additional gas storage caverns, each with about 10 Bcf of working gas capacity.
Enstor’s proposed expansion comes amid rising prices for storage capacity, especially in salt domes, and follows a spate of storage development projects and asset deals announced in recent years.
Last October, Gulf Coast Midstream Partners announced its own open season for gas storage services at its Freeport Energy Storage and Carbon Sequestration Hub, or FRESSH, in Texas. The project backers intend to offer multiple inventory cycle storage for the Texas Gulf Coast intrastate gas market. Although the Phase I buildout will offer just 12 Bcf of working gas capacity, that capacity is in high demand again.
For veterans in the US gas industry, the renewed interest in US gas storage is reminiscent of the late 2000s – something of a golden era for the industry when a major buildout of storage capacity took place, just prior to the advent of shale gas production.
Rates, contract terms
“We’re back to where we were … at the peak of the last cycle in the 2000s,” said Edmund Knolle, commercial lead at FRESSH, speaking of the rebound in storage rates. According to Knolle, salt dome storage operators are now commanding rates that have climbed back to the low- to mid-20 cents range, per dekatherm/month, depending on the kind of service offered.
“That would have gone down to the low single-digits at the bottom of the cycle,” he said, referring to much of the 2010s when the US storage market was relegated to something of an industry backwater.
Over the past several years, storage contract terms have also lengthened as buyers compete for capacity. According to Peter Abt, senior vice president of origination at Enstor, the development of new salt cavern storage requires longer-term contracts of seven to 10 years since many banks won’t finance projects supported by shorter-term leases, which had become common until more recently.
During the 2010s many storage contracts were renewed or sold to new parties under a one-year or two-year tenor, according to Abt. Now, though, many interested buyers, especially in the Gulf Coast salt storage market, are willing to pay up – and sign on for significantly longer-term contracts.
Intermittent demand
Even beyond the Gulf Coast’s premium salt storage market, growing price volatility and increased demand intermittency has fueled renewed interest in US gas storage assets that offer buyers such as LNG exporters, power generators, utilities and pipeline operators short-term storage optionality.
“LNG demand is not really baseload, it fluctuates throughout the day,” said Abt.
The same is increasingly true for many gas-fired power plants, which are dispatched only when renewable generation declines. Because pipelines are designed for ratable flows, many buyers are required to take gas even when it’s not needed. In those situations, selling that supply into the spot market often involves significant financial loss, according to Abt.
The premium that those buyers are willing to pay for salt dome storage reflects the enhanced capability that such facilities can offer with five, six, seven or even more full storage cycles annually. By contrast, even the best depleted reservoir or hard-rock cavern storage may offer three or four full turns per year, according to Knolle.
Even beyond the Gulf Coast, though, the need for increased gas storage injection-and-withdrawal flexibility has fueled a spate of deals in recent years. Late last year, Williams announced an agreement to acquire MountainWest Pipelines, giving the company access to 56 Bcf of total additional storage capacity, located primarily in Utah, Wyoming and Colorado. The latest deal announced by Williams came just months after the company acquired NorTex Midstream giving it 36 Bcf of storage in the Dallas-Fort Worth market area. In 2021, the company’s acquisition of Sequent Energy also added to its pipeline and storage optimization strategy.
Some of the other recent storage-related deals in the US gas market include Energy Transfer’s acquisition of Enable Midstream and Berkshire Hathaway’s move to purchase storage and transmission assets from Dominion Energy.
