The market for natural gas in the northeast has a dire need for high capacity, flexible storage caverns to balance sharp fluctuations in demand with the growing supply of natural gas from the Marcellus shale, industry officials said recently.

Bill Moler, president and chief operating officer of Inergy Midstream LP said that the overall annual market for natural gas in the Northeast is approaching excess capacity, but daily demand fluctuates abruptly.

“We are rapidly approaching on an annual basis a cycle where supply far outgrows demand. However, the gas market does not operate on an annual cycle. The balance between supply and demand changes seasonally, daily, and in many instances, hourly,” he said during Hart Energy’s recent Midstream Marcellus conference held in Pittsburgh, Pennsylvania.

Inergy is the largest natural gas and natural gas liquids storage operator in the Northeast.

Inergy operates the Stagecoach Gas Storage facility, about 150 miles northwest of New York City. The stagecoach is the closest facility to the New York City market and has connection to Millennium Pipeline and Tennessee Gas Pipeline. The stagecoach has a total of six reservoirs with a total working gas capacity of 26.5 billion cubic feet (bcf). It has 18 horizontal storage wells, which provide flexible injection and withdrawal capabilities. The stagecoach can withdraw 500 million cubic feet per day and inject 250 million cubic feet per day of natural gas and charges market-based rates, Moler said.

The Thomas Corners Gas Storage facility, in Steuben County, New York has an initial capacity of 5.7 billion cubic feet, all of which is under contract. It offers a two-cycle non seasonal withdrawal and injection service, with connections to Tennessee Gas Pipeline and Millenium Pipeline and Tennessee Gas Pipeline, Moler said.

Inergy also holds the Steuben Gas Storage facility, which has 6.2 billion cubic feet of working gas capacity with connections to Dominion, Tennessee Gas Pipeline and Millenium pipeline.

Seneca Lake is Inergy’s most recent acquisition, with about 1.5 bcf salt storage.

Collectively, Inergy’s storage facilities can provide up to 850 million cubic feet per day of withdrawal volume to help balance a sudden surge in demand with a potential shortfall in supply.

“When it gets cold, you need to know that you have reliable supply,” Moler said.

Tony Cox, midstream business development manager at UGI Energy Services, a division of UGI Corp., agreed the region needs a reliable network of storage facilities to help bridge supply with demand.

“We believe the fundamentals of storage values remain strong,” he said.

The summer-winter spread in natural gas prices on Dominion South Point are about 66 cents per million British thermal units (mmBtu), and Cox said the spread could widen an additional 20 to 30 cents per million Btu.

“Storage is going to play a critical role,” he said.

Following a relatively warm winter, UGI’s inventories stayed at record highs through the winter. “I expect that coming out of this month and starting the injection season, we are about 80% full,” he said.

UGI’s largest storage asset is the 11 bcf facility in Tioga County, Pennsylvania. In addition, UGI owns the Meeker storage facility, which is also in Tioga County Pennsylvania. It has a total capacity of 3 bcf, Cox said.

Inergy and UGI have formed a joint venture to build the Commonwealth Pipeline, which would would start at the southern terminus of Inergy’s Mark I line, and run south across all major natural gas pipelines and UGI’s local distribution system.

The 200-mile line will use pipes between 24 and 30 inches in diameter and will have an initial capacity of 800,000 decatherms per day. The line will connect with station 195 of Transco’s line.

The Commonwealth Pipeline will have direct market access to local distributions customers, who generally consume up to 600,000 decatherms per day and power generation, which can consume up to 300,000 decatherms per day, Cox said.

The Commonwealth will have its first open season starting in the second week of April, which will last three or four weeks. UGI and Inergy will then prefile with the U.S. Federal Energy Regulatory Commission for a permit build the pipeline in first quarter 2013. It hopes to start construction in second quarter 2014 and to enter service in second quarter 2015, Cox said.