If you try to reach an officer of a natural gas storage company, don't be surprised when you get a reply similar to this: "Sorry for the delay, we have been tied up with financing and board meetings."

Natural gas storage capacity additions that went into service in 2011 slowed to a crawl as most of the industry's activity was in board rooms where several projects—under development and expected to become operational in 2012—changed ownership or organizational and financial structure.

Specifically, several natural gas storage assets have gone from privately held developers to publicly traded companies, particularly tax-advantaged master limited partnerships (MLPs). It was often the private companies, serving as incubators, which began developing the storage projects years ago when costs were lower, but the future growth rate of domestically-produced natural gas was far less certain.

Clean natural gas is stored and moved through pipes at the Petal Gas Storage facility in Mississippi, which was sold by Enterprise Products Partners LP to Boardwalk HP Storage Co. LLC.

Much of the additional capacity that went into service since 2010, or is scheduled to sometime during 2012, is being developed by companies that underwent merger and acquisition (M&A) activity, or organizational restructuring. That financial restructuring took place in the form of spin-offs, private equity infusion and initial public offerings. Tax-advantaged MLPs were a favored financial vehicle due to their contracted, fee-based services, which were at less risk than those directly affected by commodity prices.

Tight summer and winter spreads and reduced price volatility resulting from the markets' perception that prolific shale plays can meet demand, have driven down storage prices. Still, the mantra of storage developers remains the same: The key is location and connectivity with pipeline infrastructure, particularly where shale developers are yearning for a place to temporarily park production that does not immediately have a market.

"We seek underserved markets," says Jeff Foutch, chief commercial officer for Peregrine Midstream Partners LLC, a Houston-based storage-development company. "Location is the key for our storage, where we can have a first mover advantage and build a facility which allows our customers to create optionality and access maximum liquidity. Even though storage spreads are compressed, we offer value by providing operational as well as trading capabilities to complement the developing renewable and gas-fired generation markets of the future."

“Even though storage spreads are compressed, we offer value by providing operational as well as trading capabilities to complement the developing renewable and gas-fired generation markets of the future.” — Jeff Foutch, chief commercial officer, Peregrine Midstream Partners LLC

Yet, interest in greenfield natural gas storage projects has waned, admits William A. "Andy" Lang, president and chief executive of Houston-based Merchant Energy Holdings LLC, another storage developer. He says the lackluster market is due to, in large part, a weak U.S. and world economy, coupled with the rapid development of significant supply from diverse shale plays.

"The excess supply environment has driven down the price of natural gas, which in turn influences the seasonal spreads and volatility," says Lang. "As the economy recovers and electric-generation demand expands, there will be a greater need for storage to support gas-fired generation."

Mark Fiedorek, vice president of operations and engineering for Spectra Energy, sees the downslide of gas prices as an upside for the industry.

"The additional natural gas supply is a good thing, but the demand for it is never even," he explains. "The additional natural gas production from unconventional sources, most notably shale, has done the industry a great service. It has increased available supply and made many storage operators bullish, in the long-term."

But not every expansion is guaranteed success, he warns. "Like real estate, location is key. Successful projects will need to be connected to the pipeline grid and will need to have premier assets that can ensure safe, reliable supplies of natural gas when and how customers need it. If you're in the right locations, connected to the right pipeline systems and the right markets, both demand-side and supply-side, the market will respond and customers will appreciate you."

Gas capacity grows

From April 2010 through April 2011, working gas design capacity increased by 57 billion cubic feet (Bcf) and demonstrated peak working gas capacity increased by 54 Bcf, according to an annual report from the Energy Information Administration (EIA), released Aug. 31, 2011.

Working gas design capacity was 4,388 Bcf. Demonstrated peak working gas capacity was 4,103 Bcf. Design capacity and demonstrated working gas capacity each increased by about 1% from the previous year. That's a significant slowdown from the previous year when 160 Bcf of net additions of working gas storage capacity went into service.

The EIA reports that for the year ending April 30, 2011, demonstrated peak working gas capacity in the Lower 48 states, as a percent of working gas design capacity, was 94%. Demonstrated peak working gas capacity is the highest recorded storage volume, as reported by the companies, at each facility. That amount is the sum of all operating storage facilities, if each, at the same time, were operating at highest recorded levels, which is an unlikely scenario. The design capacity is the highest authorized, or certificated level, based on the physical characteristics of the storage facility, installed equipment and operating procedures.

The design capacity varies greatly among regions. Facilities in the East region and those in producing regions had demonstrated peak working gas capacity as a percent of working gas design capacity percentages of 96% and 95% respectively, while in the West region that percentage was just 80%.

The EIA reports that the lower percentage in the West is due to two main reasons. First, the West region has several still-active producing fields whose primary role is not seasonal storage. These include fields used for pipeline load balancing and fields that are being drawn down to be taken out of production service.

Second, some fields in the West region have large design capacities, but have infrastructure constraints, such as pipeline and compression capacity, that limit actual utilization and peak capacity.

Interestingly, the year began with mounting concerns that natural gas storage might reach full capacity during the fall injection season. Despite a tepid pace in storage additions that went in service during the year, working gas storage capacity still exceeded demand throughout 2011. The EIA, in its Short-Term Energy Outlook released in September 2011, reports an expectation that working gas inventories will approach last year's high levels by the end of this year's injection season, reaching some 3.74 trillion cubic feet (Tcf) at the end of October 2011. If so, that is still a tight margin compared to the 4,103 Bcf of total demonstrated working gas storage capacity. The record level of working gas storage inventory was 3,847 Bcf, recorded in October 2010.

New storage projects

For yearend April 2011, only three new storage facilities, totaling 22.4 Bcf, went into service. Those new storage facilities were Gill Ranch Storage (9 Bcf) and Golden Triangle Storage (5.9 Bcf), based in California and Texas respectively, and Mississippi Hub (7.5 Bcf). Each of those occurred before the start of 2011. Only one greenfield project, Mississippi-based Leaf River Energy Center, with initial working gas storage capacity of 8 Bcf, had operations starting up during calendar year 2011.

“As the economy recovers and electric—generation demand expands, there will be a greater need for storage to support gas-fired generation.” — Andy Lang, president and chief executive, Merchant Energy Holdings LLC

Gill Ranch Storage LLC, a wholly owned subsidiary of NW Natural Gas Storage, which is a subsidiary of NW Natural, in October 2010 began operations of its depleted reservoir storage operations at the Gill Ranch, near Fresno, California. The facility has certification for 20 Bcf, and began initial operations at 9 Bcf. Gill Ranch's working gas capacity, as of mid-October 2011, was 17.3 Bcf, with expectations of reaching full capacity of 20 Bcf sometime during 2012, according to David Weber, president and chief executive of NW Natural Gas Storage. The facility is the farthest south of all independent storage facilities on the Pacific Gas and Electric Co. system, a subsidiary of PG&E Corp. The systems has access to five interconnects. Gill Ranch Storage owns 75% interest in the facility and is the operator. Pacific owns the remaining 25%.

Sempra Pipelines & Storage, a unit of Sempra Energy, announced in August 2010 that its Mississippi Hub salt-caverns storage facility in Simpson County, Mississippi, had begun operations, with initial working gas storage capacity of 7.5 Bcf. The second of the two caverns, which will add another 7.5 Bcf of working gas storage capacity, is under construction and is scheduled for completion in the second quarter of 2012.

The company says the Mississippi Hub, with multiple interstate pipeline connections, can access the shale basins of East Texas and Louisiana, traditional gas supplies in the Gulf of Mexico and along the U.S. Gulf Coast, as well as liquefied natural gas (LNG) imports. Sempra Pipelines and Storage and its affiliates operate and own 19 Bcf of storage capacity, with plans to develop as much as 75 Bcf by 2015.

Golden Triangle Storage (GTS), a subsidiary of AGL Resources Inc., began commercial operations of its storage facility in the Spindletop Salt Dome in Jefferson County and Beaumont, Texas, in September 2010 with initial operations of 5.9 Bcf of working gas storage, to be expanded to its certificated 8 Bcf, when fully developed.

GTS plans to place a second cavern, also with about 8 Bcf of capacity when fully developed, into commercial service sometime in 2012, according to Adam Valentine, senior commercial analyst for AGL Resources. Also, the company is planning to build two additional storage caverns. It filed an application with the Federal Energy Regulatory Commission (FERC) in August 2011, seeking certification. When fully developed, the third cavern, which is scheduled to begin construction in 2012, would have a working gas capacity of 9.2 Bcf.

A fourth cavern, with anticipated working gas capacity of 7.4 Bcf, is tentatively scheduled to begin construction in 2014, Valentine says. GTS has a permit from the Texas Railroad Commission for a total of five storage caverns on the Spindletop Salt Dome, but the fifth cavern will not be included in the current proposed expansion that is awaiting FERC certification.

Coincidentally, the 22 Bcf of capacity from new storage facilities (combining Gill Ranch, Mississippi Hub, and Golden Triangle's start-up capacity) is nearly the same as the amount FERC has taken off the books after determining that some storage facilities, included in its data, had become inactive.

The net increase resulted from expansions at existing storage facilities, most notably Pine Prairie (added 8 Bcf, bringing working gas capacity to 32 Bcf), Southern Pines Energy Center (added 7 Bcf bringing working gas capacity to 17 Bcf), Arcadia (added 6 Bcf, bringing working gas capacity to 7.8 Bcf). Southern Pines and Pine Prairie are both Plains All American Natural Gas Storage LP assets. Arcadia is a Cardinal Gas Storage Partners LLC facility.

Leaf River Energy Center is a subsidiary of NGS Energy LP, which on April 1 announced start-up operations with 8 Bcf of working gas storage at its facility in Smith and Jasper counties in Mississippi. A second and third cavern, each with a working gas capacity of 8 Bcf, are scheduled to come online in 2012, according to Laura Luce, president of NGS Energy. The facility has certification for up to 32 Bcf of working gas capacity from four caverns and is expected to be in service by 2014. Ultimately, the facility could be developed to 100 plus Bcf.

Gill Ranch Gas Storage in California was one of three greenfield project to go into service from 2010 to 2011.

Storage M&A

Several natural gas storage assets in the past 24 months were acquired from privately held developers to publicly traded companies, particularly MLPs. High yields and limited exposure to commodity prices have made MLPs attractive financial structures. Most MLPs are involved in processing, transporting and storing natural gas and natural gas liquids, activities that limit exposure to commodity prices.

Stable and predictable cash flow is always attractive, but given the economy's uncertainty, and natural gas price volatility, those traits are especially attractive today. MLPs are the dominate builders and owners of midstream infrastructure expansions. Recent deals include:

• Inergy LP, which is planning an initial public offering (IPO) of its northeast midstream operations, acquired the Tres Palacios storage project in Texas and plans to expand it.

• EQT Infrastructure acquired majority ownership of Peregrine Midstream Partners LP, which is developing the Ryckman Creek in Wyoming.

• Quantum Energy Partners LLC combined its two storage developer companies as the projects in Colorado and Louisiana are under construction.

• Enterprise Products Partners LP sold its Mississippi storage assets to Boardwalk HP Storage Co.

• Cardinal Gas Storage Partners acquired Monroe Gas Storage Co.

• Spectra Energy purchased Bobcat Gas Storage project from Haddington Energy Partners and GE Energy Financial Services for $540 million.

• PAA Natural Gas Storage, formerly a subsidiary of Plains All American Pipeline LP, became a publicly traded companies after a $252-million IPO in April 2010. PAA then acquires the Southern Pines Energy Center, a salt cavern in Greene County, Mississippi, which the company says can ultimately store up to 40 Bcf. The $750 purchase, from privately-held SGR Holdings, closed February 2011.

• Kinder Morgan Inc. announced plans to acquire El Paso Corp. Although primarily a pipeline-oriented deal, the transaction would make Kinder Morgan the nation's largest midstream company.

Pipe is lowered into the ground at the project site in Wyoming, where service at the 18-Bcf Ryckman gas storage facility will begin operations in April 2012.

The details of the deals show a continuing interest in the growth of the midstream sector. Peregrine Midstream Partners LLC announced in August 2011 that EQT Infrastructure, a private equity investment company, acquired 70% ownership of the company. Peregrine said the capital would fund the completion of the Ryckman Creek storage project.

Ryckman Creek is the company's initial storage project. The project is an existing depleted oil and gas reservoir in Uinta County, Wyoming, serving five of the gas pipelines at the Opal Hub and creating a liquid trading point to complement the storage. The initial multi-cycle working gas capacity of the facility will be 18 Bcf, all of which is under contract, with a scheduled in-service date of April 2012.

Capacity is to be expanded to 35 Bcf by 2014. Eventually, the company plans to expand the working gas storage capacity of the facility to 50 Bcf. When the company held an open season in November 2010 soliciting for 15 Bcf of contracted service, bids exceeded 52 Bcf, prompting the company to consider significant expansion, far above initial plans.

Ryckman is being touted as the largest independently owned storage project serving the Opal Hub area and a diverse market from the Pacific Northwest to California to the Midcontinent.

Peregrine was cofounded in 2009 by John Hopper, chief executive officer, and Foutch. They were joined on the senior management team by former managers of Falcon Gas Storage Co., which they also co-founded. Falcon completed storage projects in Texas and initiated storage projects in Alabama and New York.

Two natural gas storage development entities, Icon NGS LLC, of Houston, and Merchant Energy Partners LLC, of Denver, were combined in July 2011. Each of the companies is backed by QNGS Holdings, LLC, a portfolio of Quantum Energy Partners LLC and Larry Bickle.

Quantum assembled the two separate teams to pursue storage development across the U.S. Meanwhile, Icon focused on the Gulf Coast and eastern U.S. markets. Merchant Energy focused on the Rockies and the western U.S.

Each of the companies developed projects and advanced them through the FERC certification process. The newly combined company is called Merchant Energy Holdings LLC and is expected to oversee the construction phase of the projects. Lang, formerly the chief executive of Icon, was named the president and chief executive of the new entity.

Merchant Energy received FERC approval in April 2011 for its East Cheyenne Gas Storage project in northeast Colorado. That 18.9 Bcf project is being developed from a depleted reservoir in Logan County. Construction began in May 2011, with initial withdrawals scheduled for first-quarter 2012. That facility is being touted as the first independent storage facility in the Rockies and Front Range, Lang says.

Icon received FERC construction authorization in March 20111 for its Tallulah Gas Storage project, a high deliverability, multi-cycle, salt cavern storage facility in Madison Parish in northeast Louisiana, about 15 miles east of the Delhi Hub, a confluence of new pipeline infrastructure serving the prolific shale plays in Louisiana, Texas and Oklahoma.

Negotiations are underway to conclude binding commitments with shippers for capacity in the Tallulah projects. Plans call for developing the facility in three stages, with each cavern having a working gas storage capacity of 8 Bcf. The first is scheduled to go on-line in September 2014. Each of the following two years, in September, the other storage caverns are scheduled to go into service. When fully completed, in September 2016, the Tallulah facility will have working gas storage capacity of 24 Bcf.

On Oct. 17, 2011, Enterprise Products Partners announced that it will sell its Mississippi natural gas storage facilities—Petal Gas Storage LLC and Hattiesburg Gas Storage Co.—for $550 million to Boardwalk HP Storage Co. LLC. The salt cavern storage facilities have a combined working gas capacity of 18.7 Bcf. Petal's working gas capacity is 16.6 Bcf and Hattiesburg's is 2.1 Bcf.

Spectra Energy will invest up to $450 million to add three more caverns to Bobcat Storage, seen here, and increase its full capacity to 46 Bcf by the end of 2015. Once the Bobcat facility is fully developed, Spectra Energy’s total North American capacity will be 335 Bcf.

"While we believe our Mississippi natural gas storage complex is one of the most attractive on the U.S. Gulf Coast, the complex is a standalone asset that does not integrate with our natural gas pipeline systems," Enterprise president and chief executive, Michael Creel, said in announcing the deal. "Asset integration is one of Enterprise's core principles in creating incremental value for our partners. We believe the Mississippi facilities will be more valuable to Boardwalk HP Storage Co., whose affiliate, Boardwalk Pipeline Partners, has complementary assets that may facilitate additional business opportunities and synergies."

Creel added, "Enterprise currently has about $7 billion of energy infrastructure growth projects under development. We intend to reinvest the proceeds from this sale to partially fund the construction of these growth capital projects that will be integral to our midstream energy system. Including this transaction, we have sold about $1 billion of assets in 2011 that Enterprise acquired through mergers that were either standalone facilities or assets that were not strategic to our system. This redeployment of capital reduces our need to access the capital markets and we believe will lead to incremental growth in Enterprise's distributable cash flow and enhance the value of our partnership units."

Boardwalk, in commenting on the deal, said the newly-acquired storage facilities interconnect with several major pipelines, including Boardwalk's Gulf South Pipeline. The company also said that the storage capacity is currently fully subscribed under long-term fixed-fee contracts with a weighted-average remaining contract life of about seven years.

"The Petal and Hattiesburg companies are a great addition to our asset footprint," said Stan Horton, president and chief executive of Boardwalk. "These facilities are anchored by long-term firm agreements and about 80% of the existing customer base is either electric or natural gas utilities. The location and type of storage assets are very desirable and, when combined with Boardwalk's existing assets, we see exciting opportunities for synergies and growth."

Petal and Hattiesburg also own undeveloped land, which is suitable for up to six additional storage caverns, he added. Boardwalk, through its subsidiaries, operates some 14,200 miles of pipeline and storage fields having an aggregate working gas capacity, prior to this acquisition, of about 167 Bcf.

In August 2011, Kansas City-based Inergy LP said it will spin off its northeast storage and transportation properties into a new publicly-traded partnership, Inergy Midstream LP, through an IPO. Inergy Midstream owns four storage facilities in upstate New York, all in proximity to the Marcellus shale, with a combined working gas capacity of 41 Bcf.

Also owned by Inergy but not included among the assets that will be part of the new midstream MLP is the 38.4 Bcf Tres Palacios gas storage facility in Matagorda County, Texas, which Inergy acquired in September 2010 for $725 million from NGS Energy, a private company.

About 100 miles southwest of Houston, Tres Palacios is currently connected to a total of 10 intrastate and interstate pipelines offering connectivity to multiple demand markets including the Houston and San Antonio metropolitan areas and the broader Texas markets as well as markets in the Northeast, Midwest, Southeast, Florida, and Mid-Atlantic states and Mexico. The Tres Palacios facility is expandable by an additional 9.5 Bcf of working gas capacity, which Inergy expects to place in service by or before 2014 (Cavern 4), according to Barry Cigich, vice president of operations and engineering for Inergy Midstream.

In July 2011, the company acquired the Seneca Lake storage project in Schuyler County, New York. The storage facility and two related pipelines were acquired from New York State Electric & Gas in July of this year for some $65 million. Seneca Lake is a 1.5-Bcf salt-cavern storage facility, which is connected to the Dominion Transmission System via the 20-mile Seneca West Pipeline and indirectly to the city gate of Binghamton, New York, via the 37.5-mile Seneca East Pipeline. That pipeline runs within three miles of Inergy's Stagecoach North Lateral interconnect with the Millennium Pipeline. An expansion of 0.6 Bcf is expected to be completed at Seneca Lake in late 2012.

Elsewhere, Cardinal Gas Storage Partners acquired Montrose Gas Storage Co. Cardinal is a joint venture between Energy Capital Partners and Redbird Gas Storage LLC. Redbird is a joint venture between Martin Resource Management Corp. and Martin Midstream Partners LP. Cardinal has 78 million Bcf of working gas capacity in operation or under construction or development. The Cardinal assets include Monroe Gas Storage Co. in northeast Mississippi, Arcadia Gas Storage in northwest Louisiana, Perryville Gas Storage in northeast Louisiana and Cadeville Gas Storage in north central Louisiana.

Jeff Ballew, president and chief executive of Cardinal Gas Storage, said Monroe Gas has 12 Bcf of working gas capacity with planned growth to 14 Bcf in 2012. Monroe was acquired with an option on a nearby reservoir, which the company is currently evaluating. If exercised, this option would add up to an additional 10 Bcf of working gas capacity.

Arcadia Gas Storage is a salt-cavern facility in Arcadia, Louisiana. Arcadia brought 6 Bcf of incremental working gas capacity into service with the first large cavern in July 2011. Now total working gas capacity is 7.8 Bcf. The development of a second large cavern at Arcadia is under construction with an expected commercial operation date of June 2013. The planned working gas capacity at Arcadia is 17.4 Bcf with expansion potential based on market need.

Perryville Gas Storage is a salt-dome storage facility under construction. The facility is in Franklin Parish, Louisiana, about 10 miles south of Delhi, Louisiana. The development plan includes three phases, which will ultimately result in 30 Bcf of working gas capacity. Phase I of the project includes one storage cavern with 8.5 Bcf of working gas capacity with an expected commercial operation date of June 2013. The first cavern well has been drilled and completed. Leaching commenced in June 2011. Two additional caverns will be sequentially developed with expected commercial operation dates in 2015 and 2017.

Cadeville Gas Storage is a depleted-reservoir storage facility under development in Ouachita Parish, Louisiana, about 10 miles south of Monroe, Louisiana. Cadeville received its FERC 7(c) approval and recently concluded the detailed engineering phase of the project. The plan will result in 17 Bcf of working gas capacity. Construction of the project will commence in 2012 for an operation target date of April 2013.

"Our standard mode of operation is to pursue a storage development project based on market need. In today's challenging environment, only the highest value pipeline interconnects and liquidity points will make that cut," Ballew says.

Meanwhile, Spectra Energy plans to grow storage in the next few years. "Spectra Energy is on an aggressive path to grow its Gulf Coast high-deliverability salt cavern storage business from about 60 Bcf to 100 Bcf by 2015, in support of North American natural gas demand growth, in particular as it relates to natural gas-fired generation," Fiedorek says.

Spectra Energy owns three salt dome storage facilities, including the Moss Bluff facility in Liberty County, Texas, the Egan facility in Evangeline Parish, Louisiana, and the Bobcat facility in St. Landry Parish, Louisiana. These facilities have bi-directional connections to major pipelines on the Gulf Coast, Midwest, and Southeast and Northeast U.S. markets. The combined capacity of these salt caverns is about 60 Bcf.

Spectra Energy plans to develop and operate a fourth salt storage cavern at its existing Moss Bluff storage facility. The fourth cavern will increase the working gas capacity by 6.5 Bcf and raise total working gas capacity at the facility to 21.5 Bcf. The cavern will be in service by November 2011.

In addition, the FERC approved its plans to expand capacity at the company's Egan facility by 8 Bcf. When completed in 2012, the facility will have a total working capacity of 30 Bcf and will be connected to 10 major interstate and intrastate pipelines.

The company's biggest expansion is at its Bobcat storage facility, about 45 miles northeast of Henry Hub in St. Landry Parish, Louisiana. Spectra purchased the 18 Bf facility in September 2010 for $540 million from Haddington Energy Partners LP and GE Energy Financial Services. The facility is near five major interstate pipelines, including Spectra Energy's own Texas Eastern pipeline. The company will invest up to $450 million to add three more caverns and increase its full capacity to 46 Bcf by the end of 2015. Once the Bobcat facility is fully developed, Spectra Energy's total North American capacity will be 335 Bcf.

“In today’s challenging environment, only the highest value pipeline interconnects and liquidity points will make that cut.” — Jeff Ballew, president and chief executive, Cardinal Gas Storage

Deal of the year

The largest M&A deal of the year in the oil and gas industry—Kinder Morgan Inc.'s acquisition of El Paso Corp. for an estimated $38 billion in cash and stock—was not primarily a natural gas storage asset focused deal, but, it will have a major impact on the storage industry as huge storage assets, mostly associated with its pipeline network, are part of El Paso's portfolio.

El Paso Corp. and its affiliates or subsidiaries own or operate 10 natural gas storage fields in Colorado, Kansas, Louisiana, Mississippi, New Mexico, and Pennsylvania, and have partnership interests in three additional storage fields in Pennsylvania and New York. In aggregate, that totals 200 Bcf of operated working gas storage capacity, and 84 Bcf of non-operated working gas capacity.

Unlike most new projects, rates for storage at those assets are not market-based. Rates are set by FERC through specific tariffs as are El Paso's pipelines. No storage capacity additions went into service during 2011, and none are scheduled for 2012

Another project expected to begin service in 2012 is the Leader One Energy LLC, of which Energy Corp. of America is the majority owner. That 11-Bcf working gas storage facility, a depleted natural gas reservoir in Adams County, Colorado, is scheduled to go in service as early as spring 2012.

Other greenfield projects

Among other storage projects scheduled to go in service during 2012 are Tricor Ten Section Hub LLC's plans to start commercial operations for a depleted reservoir natural gas storage facility near Bakersfield, California. Ryan Kunzi, managing director of corporate development, says the facility will have working gas storage capacity of 22.4 Bcf when it starts operations. The project, which is the first FERC-regulated interstate storage facility in California, is to begin operations within 18 months of its Sept. 30, 2011 certification.

When it becomes operational, it will culminate a long, colorful history of development, featuring several owners. In 1936, Shell Oil Co. explored the oil and gas field. It was owned from 1977 to1982 by Pacific Gas & Electric and The Pacific Lighting Co., now the Southern California Gas Co. Pacific planned to covert the field to a storage facility, but those plans were thwarted as the industry wrestled with unbundling regulations for regulated utilities, and their ability to produce natural gas and sell unbundled storage service. In 1984, the property was sold to McFarland Energy, an independent oil and gas producer, which depleted the reservoir. In 1997, it was acquired by Tricor Energy LLC, one of California's top 20 independent producers, which plans to turn the property into a facility offering storage service to third parties.

Tricor is constructing a 21-mile long bi-directional pipeline to connect the storage facility to the Kern River-Mojave interstate pipeline at Wheeler Ridge. Kunzi notes that a Sept. 15 FERC report on electricity outages and curtailments in the southwest said that additional gas storage capacity in the downstream market could have prevented or mitigated those outages.

Also, Central Valley Gas Storage LLC, a subsidiary of Nicor, Inc., is constructing a depleted reservoir facility in Colusa County, California. John Fortman, marketing manager, says that the facility, when fully developed, will have a working storage capacity of 11 Bcf, and will begin service in April 2012 with 9 Bcf to 11 Bcf and will connect to PG&E's transmission system.

Workers inspect and adjust settings at Moss Bluff Gas Storage in Texas.

How much more?

FERC does not report how much additional capacity is expected to go into service in 2012, and industry sources say that amount is a moving target, always difficult to estimate because of uncertainty of adherence to announced construction schedules. Estimates are even more difficult to gauge now because adverse market conditions have caused delays, often unannounced, of planned storage facilities.

While companies usually issue press releases announcing plans for new projects, those same companies rarely issue public announcements about dormant, delayed or canceled projects. Still, industry sources, because of known construction activity, expect a slight increase in the amount of new storage that goes into service in 2012.

Specifically, the pace of storage additions going into service in 2012 is expected to be slightly more than the 1% additions of last year, but far less than the frenetic pace that had occurred since 2000, when working gas storage design capacity was just 3,899 Bcf, or 489 Bcf less than today.

Most new storage facilities built since 2007 have been salt cavern. Salt caverns, which are largely located in the producing region, represent a rapidly growing share of U.S. natural gas storage deliverability. The EIA, in a report released September 2011, reported that although salt caverns account for only 7% of total working natural gas capacity, they can be rapidly cycled and deliver up to 23% of total natural gas from underground storage on a given day. Depleted fields account for most of the storage capacity (about 84%), with aquifers accounting for the remainder, or about 9%.

In its midstream infrastructure report, which includes natural gas storage, a report authored by ICF International, sponsored by the INGAA (International Gas Assn. of America) Foundation, released June 2011, said an estimated 589 Bcf of new natural gas storage capacity will be needed in North America during the next 25 years. That report said storage additions during that timeframe should have an annual average of about 24 Bcf and be regionally widespread. The result calls for an annual capital expenditures of about $4.8 billion (in real 2010 dollars), or an average of $200 million per year, with most of that spent from 2011 through 2020.