Natural gas industries around the world will need to spend an estimated €100 billion on new underground gas storage facilities between now and 2030. So says Cedigaz, the Paris-based international natural gas information association, in a comprehensive study into the gas storage industry published last month. Around 60% of the new capacity will need to be built in new storage markets in Asia and the Middle East, which currently have little or no storage infrastructure.
The underground gas report published last month by Cedigaz highlights the growing importance of large-scale gas storage facilities, not just for traditional functions – such as balancing supply and demand, optimising the economics and operation of transmission networks, and enhancing security of supply – but also facilitating trading as markets become more sophisticated, and backing up renewable energy sources as governments increasingly pursue low-carbon agendas.
Cedigaz adds that storage has a particular role to play in North America and Australia, because “the limited flexibility of unconventional gas – shale gas and coal-bed methane [or coal-seam gas as the Australians call it] – drives the development of storage that allows a better management of production profile”.
The study, Underground Gas Storage in the World – 2013, reports that global underground gas storage working capacity at the start of 2013 was 377 Bcm, in 688 facilities. More than two-thirds of these are in North America, 414 in the US and 59 Canada. Europe has 144 facilities, the Commonwealth of Independent States (CIS) 51, and Asia-Oceania just 18. Elsewhere, there is a single facility in Argentina and another in Iran.
What’s in store? Looking ahead, Cedigaz expects capacity to grow by between 180 Bcm and 254 Bcm by 2030, given that the industry shows a willingness to continue investing in storage to support the projected expansion of global gas markets and the trend towards more intermittent energy sources such as wind and solar power.
World-wide, says Cedigaz, there are 95 projects under construction that will add 68 Bcm of working capacity when completed, most of them by 2020-25. Another 141 proposed projects, at different stages of planning, would add 85 Bcm if all were to be realised.
In countries where gas markets are still in the relatively early stages of development – such as China, India and the Middle East – storage projects will focus on the addition of large volumes of capacity, to meet seasonal and peak balancing needs, to optimise transmission network size and management, and to provide security of supply in case of gas supply interruptions. Along with volume growth there is likely to be an emphasis on peak deliverability to cope with rising imports and growing demand from power generation and city gas supply.
Birth of a giant market – China: Not surprisingly, Cedigaz expects very substantial storage investment in China, as gas consumption increases to a projected 500 Bcm/year by 2030.
“China still lags behind developed gas markets in terms of storage infrastructure,” says the report. “For example, the ratio of working gas volume to gas consumption is 19% in the three main storage markets, whereas it is less than 5% in China. Current storage capacity is very low: the working gas capacity totalled 4.7 Bcm at the beginning of 2012 and an estimated 7.3 Bcm at the beginning of 2013.
“Cedigaz expects a growth in working gas capacity to 60-75 Bcm by 2030 to meet seasonal and peak gas demand, to secure gas supply, and allow efficient management of long-distance gas pipelines. Storage would represent 12-15% of gas consumption in 2030, or 44-55 days of gas consumption. China becomes one of the largest storage markets in the world, representing 11-12% of world capacity by 2030.”
For this to happen, however, the government will need to continue addressing geological, technological and economic/pricing issues. Between 2011 and 2015 it is investing US$13 billion to develop 24 new storage sites. Cedigaz notes that “ongoing gas pricing reform will enable storage companies to recover their costs and will encourage investment in the sector”.
New roles in mature markets: In countries where gas markets are mature – such as North America, most of Europe and the CIS – growth in working volume will be limited, says Cedigaz, as greater emphasis is put on increasing peak deliverability. In these markets storage expands its roles from the traditional functions to include facilitating the development of trading activity and to the use of natural gas as back-up to intermittent renewable energy sources in electricity generation.
According to Cedigaz, these two trends favour flexible storage of the type provided by salt caverns, rather than depleted fields, which currently represent 74% of the total number of existing underground storage facilities.
Europe’s changing storage landscape: In Europe, market liberalisation and increased trading at market hubs are changing the ways that storage is used, with tailored services being offered to meet specific customer needs and the development of a secondary market for bundled and unbundled services. Storage capacity in Europe has increased by 16% since 2010, the last time that Cedigaz published a storage study.
“While salt cavern facilities account for only 14% of total European working gas capacity,” says the report, “they can be rapidly cycled and deliver up to 31% of total European deliverability.”
However, these trends are occurring at a time of shrinking demand for gas in Europe, increasing competition from other sources of flexibility, such as LNG and spot gas, and falling winter/summer gas spreads. These unfavourable market conditions are making life difficult for storage system developers and operators. Cedigaz cautions that the security of supply aspect should not be overlooked.
“Storage has proven to be the most powerful tool in covering interruptions or reductions in gas supply,” says the report. “For instance, during the 14-day cold spell of February 2012, storage provided 30% of European gas supplies. While the expected storage price remains below that needed to invest in new gas storage, Europe will require more storage capacity in the future. This is due to a strong structural shift in European supply and demand that drives additional requirements for both short-term gas flexibility across Europe and seasonal flexibility in some European countries.”
Cedigaz recommends that Europe puts in place a framework that recognises the full value of storage, including its strategic role in enhancing security of supply, given that ongoing capital constraints and a lack of clear market signals are hampering investment in new seasonal storage.
Gazprom has emerged as a key player in the European market to support the export routes to its main export markets. By 2015, the capacity Gazprom will hold in Europe, either directly or indirectly, could increase to 10 Bcm, says Cedigaz, taking into account new facilities built in Germany and the Netherlands and Gazprom’s acquisition of a 100% stake in Wingas and its subsidiary companies.
Unconventional wisdom: Between 2000 and 2007, the number of storage facilities in the US remained fairly stable. Since then the shale gas revolution, increasing gas trading and the growth in gas demand from the electricity sector have led to a boom in development of salt cavern storage.
“Most of the increase in working gas capacity observed since 2007 comes from salt cavern storage,” says the report. “Although salt caverns account for only 9% of total US working natural gas capacity, they deliver up to 25% of total US daily withdrawal rate.
“Salt caverns offer several competitive advantages compared to depleted oil and gas reservoirs or aquifers: gas stored can be delivered quickly; they offer high rates of injection and withdrawal; and the working gas can be cycled several times per year.”
The growing importance of salt cavern storage in North America and Europe highlights how market liberalisation in mature markets has led to important changes in the role of gas storage. Increasingly it is being used as a financial tool for short-term optimisation of gas portfolios.
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