COMMODITIES 2025: US Gulf Coast gas storage at crossroads in 2025 as prices, contract lengths rise

This is part of the COMMODITIES 2025 series where our reporters bring you key themes that will drive commodities markets in 2025.

Final investment decisions on new US Gulf Coast gas storage offering flexible, high deliverability injection-and-withdrawal capacity could slow in 2025 as an increasingly competitive market pushes buyers to their limit.

Since the early 2020s, storage rates for multi-cycle, high-deliverability capacity have increased by three-fold or more in some US Gulf Coast gas markets. At the same time, buyers have begun bidding up contract term lengths with many now willing to sign-on for capacity leases of up to 10-20 years.

The market forces that are putting upward pressure on storage prices and contract lengths are many.

Among them are the increasing penetration of renewables in the US power generation stack, rising LNG feedgas demand, and growing pipeline constraints along the US Gulf Coast, among other factors.

Separately and combined, all of those market forces have made gas demand increasingly intermittent. When demand unexpectedly goes offline, having a place to store nominated gas – even for a matter of hours – can potentially avert a heavily discounted sale into an oversupplied spot gas market.

While some LNG exporters, power generators, utilities and others are willing to bid up for flexible storage capacity, for many others, prices are now too high and contract term-lengths too long.

Rates, contract terms

According to Edmund Knolle, chief commercial officer at Gulf Coast Midstream Partners, gas storage rates in the Gulf Coast salt dome storage market have been up over the past year. For newbuild storage capacity, Knolle said he sees deals getting done in the low-to-high 20 cents per dekatherm/month range.

"I've heard low 30s [cents per dekatherm/month] in some cases," he said in a recent interview.

"In many cases, those are existing storage facilities that are getting those kind of rates. Every project is different – you know, there [are] projects that could be out there that would require even higher [rates] than that, because they have to build even more pipe," he said.

In a recent interview, Boardwalk Pipelines CEO, Scott Hallam agreed that higher rates are increasingly required to spur brownfield expansions and greenfield developments. According to Hallam, storage rates of around 30 cents per dekatherm/month are in many cases required to justify new storage projects, which are long-term investments. Although the higher cost has been a detractor for some, Hallam said he has seen steady market interest from fundamental shippers – like utilities, power generators and LNG exporters – who benefit most from the balancing capability that storage provides.

Supply outlook

Although rising demand for flexible salt dome storage has been the primary driver for increasing storage rates and contract lengths, scarce supply is another factor.

According to Knolle, many developers are now facing a geologic constraint considering that most newbuild and brownfield expansions within reach of existing pipelines have already been built or reached FID during the most recent flurry of activity.

In November, Caliche was among the most recent to announce an FID on its Golden Triangle Storage expansion project in Beaumont, Texas adding 14 Bcf to its existing natural gas storage facility with the construction of two new caverns. The project, which was already 90% contracted in mid-November 2024, has expected in-service dates in the second quarter of 2026 and the second quarter of 2027.

Looking into the new year, though, Knolle expects that perhaps just a handful of new projects, or fewer, could reach FID in 2025. Among them is the Black Bayou Energy Hub – an underground salt dome storage project located Southwest Louisiana, just 18 miles north of the Gulf of Mexico coastline.

Increasingly intermittent LNG feedgas demand could also become a countervailing factor, though.

In a recent GLIO podcast series, Williams CEO Alan Armstrong said that he expects utilization rates at US liquefaction terminals will drop from nearly 100% currently to 90%, or possibly lower, as more export capacity comes online. In 2025, Venture Global's Plaquemines LNG export facility is expected to add over 2 Bcf/d to US feedgas demand. By 2026, more demand from Corpus Christi Stage 3 and Golden Pass LNG are projected to lift total US LNG demand from about 14 Bcf/d currently to around 19 Bcf/d – potentially enough to trigger the kind of lower utilization rates projected by Armstrong.

For now at least – with the storage rates offered by many developers close to, or even above 30 cents, and contract term lengths steadily lengthening – it's possible that Knolle's prediction is right. While fundamental shippers like utilities may be willing to pay up, the lack of interest from other players may keep the price below where they'll need to go to justify another major wave of storage development.

"I've talked to some marketers that feel like they're priced out of the storage market," he said.