Environmental Engineering Reference
In-Depth Information
charges rather than invest in storage. A storage position replaces wellhead
gas supplies on the list of credentials that nonequity gas suppliers need to
compete for value-added LDC business. The use of storage to support arbi-
trage and hedging of natural gas contracts is potentially the most profitable
practice but also presents the greatest degree of risk. As a result, while the
opportunity is available to LDCs, most do not pursue it because of restric-
tions of regulators.
Intrastate Pipelines
Intrastate pipelines have emerged as the most aggressive targets in the pipe-
line asset resale market. The value of storage for intrastate pipelines, whether
procured as an equity investment or as a service lease, is essentially identical
to the values set by large suppliers and aggregators. Value is defined by the
contribution that the storage service brings to the gas sales function. This
includes the value available to suppliers from swing supply sales, emergency
back-up sales, balancing, no-notice service sales, and incidental income from
arbitrage and peaking sales.
Interstate Pipelines
Storage has been a significant organizational function of interstate pipeline com-
panies for many years. Open access and the elimination of merchant gas sales
and services caused pipeline storage areas to effectively become “warehouse”
operations. Order 636 allowed the pipelines to retain only such storage as
required for operational integrity. Several major pipeline systems in the United
States operate without the benefit of storage services for shippers or gas controls.
These pipelines sell line packing mostly as a “no-notice” service, and they all
attempt to cope with daily operating requirements through a variety of opera-
tional flow orders (OFOs) that give them sufficient latitude to require that ship-
pers alter whatever behavior caused a problem such as insufficient gas entering
the line to support deliveries or insufficient demand to match receipts.
Producers
In the past, producers acted as limited participants or nonparticipants in gas
storage and marketing, primarily because of the corporate culture that per-
vades most major players that categorize their primary business as explora-
tion and production (E&P). The E&P cultural issue is compounded by the
fact that storage operators rarely earn more than a 15% return on after-tax
equity employed, and E&P firms believe that their projects should have
much higher hurdle rates to accept the high failure rate encountered in the
drilling business. A
few producers are examining storage as an adjunct to
developing affiliate marketing organizations. Producers are now beginning
to see some value in balancing, emergency back-up for warranty gas sales,
