8. NATURAL GAS

Storage

The Energy Policy Act of 2005 added a new section to the NGA, stating that FERC may authorise natural gas companies to provide storage and storage-related services at market-based rates. FERC ensures reasonable terms and conditions are in place to protect consumers, and the commission periodically reviews the market-based rates.

The geological formation is critical to build underground storages and not all regions are suited for that. For instance, there are no underground storage facilities in the states of New Jersey or Florida. Natural gas storage plays a critical role in meeting demand fluctuations, both seasonal and on peak-demand days. Underground natural gas storage provides all actors in the gas market with an inventory management tool and seasonal and daily supply backup to avoid imbalances between receipts and deliveries on a pipeline network. In the United States, generally more natural gas is used in the winter for home heating. Natural gas is injected into storage fields from April to October and withdrawn from November to March.

By the end of 2017, there were 388 active storage fields reported with a design storage capacity of 4 791 bcf (135.0 bcm). In 2017, the growth rate was about 0.7%, due to the expansion of existing facilities in the east. Only a few new underground natural gas storage facilities were built in the Lower 48 states in the past five years, and there were no new additions in 2017, except for an expansion of a facility in the east; in 2018, there was only one project under construction in Oregon, with a working capacity of 4 bcf (0.113 bcm).

Gas flaring

Flaring has become an issue in the United States with the rapid development of unconventional resources over the past 15 years. There has been a significant increase in flaring of gas associated with oil production (mainly LTO) in plays where there is not enough gas gathering and transportation infrastructure. Based on economics, the most attractive solution is, in some cases, to produce valuable oil and burn the associated gas (for regulatory responses to flaring, see also Chapter 3, “Energy and Climate Change”).

In 2012, North Dakota had the highest volumes of flared natural gas, produced as associated gas with LTO. In response, the North Dakota Industrial Commission (NDIC) established Order No 24665 as a system of gas capture to reduce the volume of natural gas flared in the state. Adopted on 3 March 2014 and effective on 25 June 2014, the order established a drilling permit review policy that requires producers to submit a gas capture plan with every drilling permit application. The order established new targets to gradually limit flaring to a maximum of 10% of produced gas flared by 2020. Based on data from the NDIC, the volume of flared natural gas declined by 40% between 2014 and 2017.

Permian gas output (including associated gas) in Texas and New Mexico increased by over a third in 2018 and led to an increase in flaring. The oversupply situation has been resulting in negative pricing at the Waha hub in west Texas for the real-time or next-day market since the end of March 2019 (Reuters, 2019). Negative pricing means that drillers are paying pipeline operators with spare takeaway capacity to take the unwanted gas.

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ENERGY SECURITY

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