Storing gas is storing energy. It’s like a gigantic battery, providing support for other forms of energy that are intermittent (like renewable energy) or boosting existing energy supply when energy demand exceeds plans. In this sense, it has both a supply support role, and a demand management role. But gas storage is a cost – how is value created from this investment?
Types of Gas Storage
Gas storage can be defined as the contracting of storage capacity within a gas transport of storage facility that allows for injection, storage and withdrawal of gas. In WA there are two types of gas storage – underground gas storage and pipeline (park and loan) storage services. This post focuses on the value of underground gas storage.
Supply Side
For large volume gas users that depend on that energy to generate electricity, or run a mining or manufacturing process, gas storage is an insurance policy. Upstream gas processing facilities are occasionally subject to failure creating gas supply interruptions 1. Storing gas provides back up supply during these events, without the need to quickly find replacement supplies, which if available, are likely to be at a significantly higher price 2. More relevant to the current and future energy mix, is the role gas storage can play in supporting intermittent (renewable) generation. Gas is typically contracted and supplied at a constant daily rate (daily quantity) – with some flexibility above and below that rate. Gas transport (through pipelines) is also contracted at a fixed daily rate with some flexibility on hourly delivery to achieve that daily quantity. But this daily quantity and hourly flexibility is inadequate to provide back-up energy for periods where renewable generation is not operating (unserved energy needs). Gas storage provides the additional capacity to manage large shortfalls in energy production from intermittent generation. The capacity contracted from the storage provider, and the daily quantity from the gas supplier must together meet peak unserved energy needs, while at the same time, allowing gas to flow into storage (as future inventory) when renewable generation is peaking. Together, renewable generation and gas storage, as part of a portfolio of supply sources, allow the energy user create value by reducing gas consumption.
Demand Side
Historically, Gas Storage services developed in climates where significant seasonal temperature change had enormous impact on energy consumption. In North America there are 379 underground gas storage facilities with combined inventory capacity of 4.7 Tcf. Gas consumption in winter (January) climbs 60% higher than summer (June) 3, predominantly from demand for gas for space heating in residential and commercial markets. In these markets supplementing a daily quantity of energy supply with gas storage is essential in meeting the additional demand. In WA, the temperature change is less extreme, and penetration of gas for space heating is lower being supplemented by other energy sources. Also, most large users of gas operate industrial or mining processes that require a reasonably constant supply of gas to meet operational needs. A key market in WA where gas storage does add value is in electricity generation. Electricity demand can double from low demand periods in early AM (midnight to 5am) to the evening peak (5 – 7PM). Various sources of energy are dispatched by the market operator to meet rising and falling demand – with gas having an increasingly variable role to play. Large scale gas generation (mid merit) typically sat in the middle of the dispatch arrangements with coal generation occupying the bottom or base load and other generation occupying the very top (oil or sometimes gas peaking plants). Mid merit gas generation plants now face much greater uncertainty because of renewable generation. The rising and falling demand is sometimes supported by renewable generation but sometimes not supported (depending on sun & wind). This results in an underlying “unserved” demand fluctuating to a greater extent during the day, far greater than can be supplied from a mid merit generator with a traditional gas supply and gas transport contract flexibility. Gas storage has a significant role to play in meeting that demand fluctuation. The value of storage is reflected in a higher electricity price achieved in the market.
Future
Large scale energy consumption is becoming more variable – subject to changes in demand in uncertain markets and from competition from new sources of supply. The large-scale energy supply mix is changing, with intermittent (renewable) generation requiring much larger supply swings from gas fired generation to meet both fluctuating demand and unserved energy needs. BrightSource Consulting can assist large scale energy suppliers and consumers manage this uncertain future by developing supply options, including gas storage, to meet changing energy needs. With significant experience in all parts of the supply chain – including gas supply contracts, gas storage contracts and gas transport contracts – BrightSource can help optimise your supply portfolio and create value in matching supply options to future energy needs.
1. The most significant of these was the explosion at the Varanus Island gas plant in June 2008 that curtailed around 35% of the State’s gas supply for 2 months, with full supply not restored until December of that year.
2. During the above supply interruption, back up gas supplies were trading up to 10 times established market price
3. US EIA website