By Adam Smeltz

Published: Monday, July 2, 2012, 12:01 a.m.
Updated: Sunday, July 8, 2012

After a mild winter and a fourfold bump in production, Pennsylvania's underground natural gas storage fields could briefly reach capacity this year — a mixed milestone for the state's booming gas industry.

Energy analysts confirmed the possibility last week, saying they could not recall a recent time when Pennsylvania has used all of its underground storage space for the fuel. The last time it happened was about a decade ago, when the state had about 8 percent less underground storage space, federal data show.

With natural gas being drawn at record levels from the Marcellus shale and other deposits, the once-distant prospect of using up the vast spaces — listed at nearly 777 billion cubic feet statewide — has become a serious question among industry watchers. They said the development, however temporary, could force prices paid to gas producers to drop even further; also, gas production could ease up for a month or two.

In a worst-case scenario for smaller gas producers, “bigger companies could come in and buy some of them,” said Gavin Roberts, an energy analyst for Colorado-based Bentek Energy. “Some of the smaller producers may be forced into that situation,” depending on how prices and production shake out.

Still, the odds that storage facilities will reach capacity remain uncertain, influenced heavily by the weather, Roberts said. He said a hotter summer will force electricity producers to rely more on natural gas as a power-generation fuel, an emerging trend for power producers.

That could help lessen the demand for gas storage space underground, where energy companies use natural geologic formations to hold the extracted fuel, Roberts said in a webinar for the Platts information group.

Another energy analyst, Bentek's Katie Jolly, called it a “strong likelihood” that Pennsylvania's storage fields will hit their maximums this year. She cited information from Dominion Transmission, a dominant gas storage and transmission company in Pennsylvania.

The Richmond, Va.-based company is about a month ahead of schedule in the industry's “injection season,” the April-to-November period when companies move gas into storage before winter, spokesman Dan Donovan said.

“We could finish a month early,” he said. “Theoretically, we could be full in October if things keep going” at their current pace.

The federal Energy Information Administration has not released June storage totals in Pennsylvania, but national data for May show the upward trend stretches across the country. At month's end, working natural gas inventories nationwide hit about 2.9 trillion cubic feet, 31 percent higher than May 2011 levels, according to the agency.

That number is likely to swell to 4.2 trillion cubic feet by autumn, up from 3.9 trillion cubic feet last year, according to Bentek's projections. Roberts estimated the national storage capacity at 4.5 trillion cubic feet.

Storage levels have been high since spring, helped along by moderate winter temperatures that kept a lid on heating fuel demands. Meanwhile, EIA data show natural gas production in Pennsylvania has more than quadrupled since 2009.

And “there's still a lot of capacity that's been drilled and developed but is not online,” said Thomas Murphy, co-director of the Penn State Marcellus Center for Outreach and Research. He pointed to state numbers, which show about half of the Marcellus shale wells drilled in Pennsylvania are not yet feeding pipelines.

For now, though, many industry analysts are focused on this summer.

Natural gas prices have fallen by about half in the past four years and now hover close to $3 per million metric British thermal units. Bentek expects the number to dip below $2 in the fall, though the drop-off could be even more dramatic in Pennsylvania if storage capacities are reached, Jolly said.

She said if producers “can just ride out the next few months through the summer, they should be OK going into the winter,” when prices might rebound somewhat.

Should producers exhaust in-state storage, “they'll usually find a way to get in a pipeline” to ship it elsewhere, Jolly said.

“We have no concerns about meeting the needs of our customers,” wrote Texas-based Spectra Energy, which moves and stores gas in Pennsylvania. In a prepared statement, the company said its capacity is fully sold for the year.

“We anticipate being able to fill all our customers' (gas producers') needs without issue,” the statement reads.

Columbia Gas Transmission, a branch of Texas-based NiSource Gas Transmission and Storage, released a similar statement. Its current inventories are in the range of 55 percent to 60 percent of total seasonal capacity, well within norms, according to the company.

Roberts agreed Pennsylvania probably has enough storage to get it through the year. If not, he said, gas processors could tell producers to throttle back on pumping gas for a number of weeks.

That's a scenario that could eat into cash flow, especially at small gas producers, Roberts said.

Analysts were more upbeat about the longer-term view. Expected growth in gas-burning power plants, the intrastate pipeline infrastructure and gas exports should gradually ease pressure on the limited storage capacity, they said. In fact, natural gas soon may surpass coal as the “fuel of choice” for power plants in the region, Murphy said.

Roberts said gas storage companies also might upgrade existing storage space to increase fuel pressure and bolster capacity.

“It's just that it takes a long time to build the infrastructure,” he said.

Adam Smeltz is a staff writer for Trib Total Media. He can be reached at 412-380-5676 or asmeltz@tribweb.com.

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