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Natural gas experts debate role of storage in future market

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Essential Energy Insights - February 2021

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Six trends shaping the industries and sectors we cover in 2021

Six trends shaping the industries and sectors we cover in 2021


Natural gas experts debate role of storage in future market

Undergroundnatural gas storage will be a valuable tool to manage volatility and spikes in demandthat materialize as more of the nation's power system relies on gas generation,an executive from Spectra Energy Corpsaid.

SpectraEnergy's director of Strategic Planning, Justin Rencurel, who previously held aposition in gas storage marketing, expressed his optimism for the storage landscapeduring the Future of Global Energy summit hosted by Bloomberg New Energy Financein New York.

"Ido believe that, looking forward…, we're seeing a lot of demand. We're seeing peakdays in the summer and greater peak days in the winter, which means our pipelinesare being utilized more both by heating markets and power markets," Rencurelsaid during a panel discussion April 5.

Rencurelsaid storage would step in to bridge the gap between supply and seasonal demand.He also emphasized Spectra's focus on "alleviating physical constraints thatimpact gas prices and that allow the markets to interact more freely with pure demandand supply fundamentals." Spectra is building a suite of projects across the country to help reshape thenation's pipeline grid to accommodate dramatic supply growth in Appalachia, swellingpower demand in the Southeast and exports of gas from the Gulf.

But henoted that gas supply is playing a new role in balancing the market. "A lotof [gas producers] have looked at the ability to bring wells online at will as aform of in-ground storage, per se," Rencurel said at the panel.

Het Shah,head of natural gas research at Bloomberg New Energy Finance, said he too believedseasonal production will play a role in balancing demand. "The marginal impactof storage in my opinion has been diminishing over time as … producers become morereactionary to gas prices," he said at the panel.

Shahpointed out that producers can bring more gas online during winters to catch strongerprices that result from an increased seasonal demand. He also noted a shrinkingof storage spreads. "The value of storage [10 years ago] is a lot more thanit is today," he said in an interview.

U.S. gas storage levels highlight the glut of gas in the market,which has depressed prices. Storage levels tracked by the U.S. Energy InformationAdministration show stocks of gas well above the five-year average. EIA said workinggas in storage on March 25 was 1,002 Bcf higher than last year at the same timeand 843 Bcf above the five-year average.

The glut of gas despite low prices comes as a result of the upstreamgas sector increasing productivityand efficiency while deploying less capital, according to Vincent Piazza, a senioroil and gas analyst at Bloomberg Intelligence. Piazza noted that the top producinggas wells are focused in the Marcellus and Utica shale plays, and the abundanceof gas in the region should keep prices between $2/Mcf and $3/Mcf through 2018-2019.