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The Aliso Canyon ripple effect


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The Aliso Canyon ripple effect

A weekly recap of SNL Energy's coverage of major themes in the natural gas industry.

California regulators may have completed their review of well safety at the Aliso Canyon underground gas storage facility, but widespread storage and local reliability issues still plague the nation's operators.

The completed review is a needed step leading to the agencies' decision on whether to allow the facility to reopen. Field operator Southern California Gas Co. has not been allowed to inject any gas into Aliso Canyon since partway through the multimonth leak at the facility. The breached well at the field was plugged in February 2016, and the company has since been conducting extensive state-mandated testing on the remaining 114 wells.

California's Division of Oil, Gas and Geothermal Resources and Public Utilities Commission have proposed a number of safeguards for Aliso Canyon if it comes back online. Under the agencies' suggestions, gas storage wellheads would have to be inspected at least daily, the field's storage would be limited to 29 Bcf of the 83-Bcf capacity and the maximum pressure in the reservoir would be set lower than SoCalGas has recommended. The agencies also proposed limiting injections and withdrawals to only the inner steel pipe that runs up the well and prohibiting injections and withdrawals through the casing.

However, the CPUC believes that the region's gas supplies may not recover in time to prevent shortages even if Aliso Canyon reopens soon. The facility needs to have a 29.7-Bcf gas inventory to maintain reliability, the commission said in a report released Jan. 17. Given that the field has just under 15 Bcf and only 34 of its 114 wells have passed the requisite tests as of Jan. 17, the CPUC said that inventory level will not be possible for much — if any — of the winter.

If SoCalGas was injecting through 31 wells, it would take eight weeks to raise the inventory from 14.9 Bcf to 29.7 Bcf, the CPUC estimated. "[T]he current number of wells available, even assuming optimistic production rates, is not sufficient to assure reliability in the short term," the report said.

Should Aliso Canyon come back online, it will be with somewhat reduced injection and withdrawal abilities. New standards require that storage operators move gas only from the inner tubing of each well, not also through the casing as was done before, which will limit the amount of gas that can be pulled or injected at a time. The CPUC said it was unclear how much of an impact that would have.

"[T]here is significant uncertainty concerning both injection and withdrawal capacity and the amount of inventory achievable over the short term at Aliso," the report said. "[W]ells not yet brought into service may not perform at the same level estimated for wells included in current plans."

The supply situation is much different elsewhere in the country. In Appalachian shale areas, an essentially "unlimited" supply of gas has made additional storage a necessity in the region, according to Crestwood Midstream Partners LP executive Edmund Knoelle.

"You hear people saying there's no need for storage anymore. That's not the case with Stagecoach, where we're moving outside of historic bands," Knolle said of the storage facility in Tioga County, N.Y., that Crestwood owns in a joint venture with Consolidated Edison Inc.

Speaking at the S&P Global Platts Gas Storage Outlook Conference in Houston, Crestwood's vice president of business development for the East said the Stagecoach facility is "sitting on top" of the active northeast portion of the Marcellus and gathers gas for all of the region's major producers. "With potential new projects and reserves producers have but haven't developed, you can say gas is unlimited compared to demand," he said. "We currently have 1.5 Bcf per day delivered. We eventually expect to double that in the coming years."

Knolle added that if the price of gas goes up, the situation could become critical. "It's crazy how much gas is out there. Before the commodity bust of 2014, we had producers coming to us asking how we could get rid of another Bcf per day that they were going to bring online. That gas is still there," he said.

But some effects of Aliso Canyon are expected to extend to gas storage operators across the nation. According to Theo Bean, manager of the Louisiana-based D'lo Gas Storage, modernizing the nation's storage wells could significantly reduce deliverability.

Bean said that to prevent a repeat of Aliso Canyon, all storage wells need a tubing and packer setup with a subsurface safety valve. Of the approximately 17,000 storage wells in service in the U.S., however, between 12,000 and 14,000 lack this setup.

The cost to modify existing storage wells could be prohibitive. Bean said the average cost per well could be between $181,000 and $250,000, putting a total price tag in the billions of dollars.

Another major problem is that adding the tubing and packer setup as a second barrier will significantly hurt deliverability. Bean said some estimates show the flow coming back out of modified wells being as low as 15% of what it was before. Even if the amount is 50% of the total, he said, flows will be significantly reduced.

"We're going to go from 75.2 Bcf [storage in depleted fields] to a deliverability as low as 47 Bcf," he said. "So we've got a problem. We've got a serious problem."

The Aliso Canyon situation, Bean said, leaves storage companies using older well casings in a difficult situation. "There's nowhere to hide," he said.

S&P Global Platts and S&P Global Market Intelligence are owned by S&P Global Inc.