Facility abandonment top cause behind base gas storage decline: EIA official
Total levels of base gas in storage have been on a steady decline since early 2003, but not all these reclassifications have translated into a subsequent uptick in working gas capacity, according to an official with the Energy Information Administration.
A number of factors have contributed to a decline in base gas storage levels of 92 Bcf between February 2004 and 2005, according to Roy Kass, lead survey statistician with EIA. "Recently, it's been more common for abandonment," Kass told Inside FERC's Gas Market Report.
EIA's most recent monthly storage data shows that the overall level of base gas declined to 4.204 Tcf as of February, compared with 4.296 Tcf for the same month in 2004. In contrast, base gas hovered almost exclusively from 4.3 Tcf to 4.38 Tcf between 1994 and late 2003.
Kass noted that EIA's monthly base gas statistics reflect not only reclassifications of base gas to working gas capacity, but also facility abandonment. Whenever a company abandons a storage facility, EIA subsequently removes the facility's base gas cushion from its statistics, he said.
In addition to increased facility abandonment, many storage fields "don't need as much base [gas] as they once needed," Kass added. For example, companies may install additional compression to allow more base gas to be converted to working capacity, he said.
Facility abandonment was the primary factor behind a 3.6 Bcf reduction in Columbia Gas Transmission's base gas levels in 2004 after it divested several non-core storage fields, primarily in West Virginia, according to spokesman Kelly Merritt. The 1% reduction in its overall storage base "has had no impact on daily or seasonal storage," Merritt said.
In addition, Merritt cited the abandonment of another storage field in Pennsylvania due to coal mining activities in the region. "As the mining approaches the field, we have to abandon it," he said. "If it's going to destroy the wells, it becomes a safety issue."
None of the lost capacity was converted to working gas capacity, Merritt noted, and the comparatively higher gas costs in recent years have not been a consideration in the company's decisions regarding the West Virginia and Pennsylvania storage field abandonments.
But price does factor into decisions of other storage operators when it comes to converting base to working capacity, according to Andrew Weissman, chairman of Energy Ventures Group.
"Gas sitting in base gas has no value. Gas in working gas is potentially worth a whole lot," said Weissman, adding that there is "tremendous economic incentive" with gas prices at their current levels to reclassify whatever base gas storage operators can to top capacity.
The strong price of gas of late was one of the drivers behind National Fuel Gas' recent conversion of base gas to working capacity at the Ellisburg storage field in Pennsylvania, according to spokeswoman Julie Coppola Cox. "In this price environment, [for] anything involving capacity changes with respect to storage or pipelines, prices do influence those decisions," she said.
National Fuel, along with joint owners Dominion Transmission and Tennessee Gas Pipeline, filed an application with FERC last year to modify its operations at the Ellisburg pool. In December 2004, FERC authorized the companies to convert base gas volumes at Ellisburg to 42.9 Bcf from its certificated capacity of 45.9 Bcf and working volumes to 55.53 Bcf from 52.53 Bcf.
The companies in their application to FERC said "operating practices" have allowed them to boost late-season deliverability at Ellisburg to as much as 723,000 Mcf/day from its initially certificated 500,000 Mcf/day, although they did not anticipate increasing deliverability to the full potential capacity.
Cox said National Fuel accepted the FERC order in January, conducted an open season for the new working gas capacity in February and commenced delivery of nearly 660,000 Mcf this March to two customers. This sale, National Fuel in its Apr 27 earnings release, netted the company an additional $2.6-mil for the second fiscal quarter.
The last time National Fuel reclassified base gas to working gas took place in 2002, when it converted 200,000 Mcf of gas at its Holland field in New York.
"We're always looking for ways to make our storage fields more valuable to the company, and we continue to evaluate the performance of these fields," said Cox.
Though Cox declined to elaborate on the company's methods behind the conversion of base to working gas, she added that the company "is not using anything untested. We used ... established techniques and employed efficiency strategies" to maintain operational integrity at the Ellisburg field.
And she did note that the company "did not add compression or anything else to achieve this conversion."
According to Weissman, the shift of base gas to working capacity is a double-edged sword, as the level of conversion implies that the market did not necessarily manage to fill storage last year at as fast a pace as many in the industry believe. However, he added, "As long as it's not just a paper change, it makes more gas available, which is important."
Weissman, who holds a bullish view on gas and oil prices over the longer-term, said the addition of storage capacity is imperative. "Even with reclassifying some base gas and adding new storage facilities, we don't have nearly enough. Additions made are good, but they still leave us with less than we need," said Weissman.
He predicted that a repeat of the winter of 2002-03 could leave the US with much less available storage than the 730 Bcf end-of-season level recorded in EIA's monthly statistics for March 2003. "Even if we had a normal winter, having what people thought was full storage might not be enough," he said.
Created: 5/18/05 |
