Going Underground: A Focus on Natural Gas Storage

Author: Doug Allen, Account Manager, U.S. Energy Services

U.S. Energy Information Administration (EIA) is an agency within the U.S. Department of Energy that collects and analyzes energy-related data and statistics.  The EIA was created in the 1970’s to provide lawmakers, industry and the public with unbiased and independent energy related information for the purpose of promoting sound policy, ensuring efficient markets, and helping the public understand energy and its relationship to the economy and the environment.

Each week the EIA releases data on the levels of natural gas in storage in the United States.  This closely watched indicator can have a significant impact on the natural gas prices, often moving the market sharply within moments of the release.   Since the U.S. must rely on natural gas from storage to meet winter demand, reports that show levels that are lower than anticipated or that might portend insufficient storage levels in the future tend to push prices higher.   If the expectations are that storage levels may become too high, and thus create a natural gas glut, the market may have a more bearish price reaction.

Natural gas is primarily stored underground in depleted oil and gas fields, natural aquifers converted to storage facilities and salt caverns.  There are about 400 underground facilities currently in use with a cumulative working gas capacity of 4.659 tcf (trillion cubic feet).   The total U.S. consumption of natural gas was about 27.47 tcf in 2015.


While 126 operating entities own these facilities, the actual storage capacity is contracted to many customers.  Data from the EIA website shows us that the 20% of all storage operators manage nearly 70% of the storage in the lower 48 states.  Most of these are interstate pipelines and utility companies.  A deeper dive into the index of the pipeline customers shows that they contract out most of their storage to natural gas and electric utility companies.  Ultimately, utilities control the bulk of U.S. natural gas storage.


To collect the data for the Weekly Natural Gas Storage Report, storage companies that are “statistically selected by the EIA from a listing of all underground natural gas storage operators in the United States” must complete and submit a form detailing their natural gas storage levels.  The EIA estimates the total natural gas storage level based on this sample.

The EIA’s Weekly Natural Gas Storage Report is released each Thursday at 10:30 a.m. Eastern and can be found at this website: http://ir.eia.gov/ngs/ngs.html.  The website also includes historical data, reporting methodologies and any changes to the report release schedule for holidays.   The Weekly Natural Gas Storage Report is a key component of the EIA’s Natural Gas Weekly Update.

Sources: http://www.eia.gov/

Atlantic Coast Pipeline

Author: Kelly Zabel, Account Manager, U.S. Energy Services

Despite abundant natural gas supplies in the Marcellus shale play, lack of pipeline capacity and infrastructure to get this natural gas supply to the growing demand of Virginia and North Carolina has contributed to residents and companies not being able to reap the benefits of the bountiful harvest that has been occurring there for a few years now.  To remedy this situation, four companies – Dominion, Duke Energy, Piedmont Natural Gas, and AGL Resources – have teamed up in a joint venture to build and own the Atlantic Coast Pipeline (ACP).  Some of the benefits of this new pipeline include increased electric generation from a cleaner fuel source (vs. coal), improved service reliability, and room for further customer growth and economic development.  The need for this new pipeline is so heavily felt and widespread that 96% of the capacity is already spoken for under various purchase agreements.

The proposed route is approximately 550 miles long, originating in Harrison County, West Virginia, stretching southeast to Greensville County, Virginia, and then continuing to southern North Carolina.  This includes an almost 70 mile long eastern lateral to Hampton Roads.


Currently, the ACP Team is in the middle of surveying along the proposed route and about 90% of landowners have granted permission for their land to be surveyed.  However, this pipeline is facing strong opposition from rural landowners, especially in Virginia.  Governors of Virginia, West Virginia, and North Carolina are behind the project, stating that this will boost their economies, help their communities, and bring more manufacturing business to their areas.  Yet dozens of landowners are refusing to allow the ACP Team to survey on their land, resulting in numerous lawsuits with more to come.  Opposition groups state a decrease in tourism and damage to the environment and economy as some of the reasons for their reluctance to cooperate.

The ACP Team has also been busy with FERC, submitting the necessary filings to keep this major project moving.  Below is the estimated timeline of the Atlantic Coast Pipeline Project.


Underwater Pipelines

Author: Sandy Zoulek, Account Manager, U.S. Energy Services

Did you know there is an oil pipeline crossing under the water at the five-mile stretch between the Upper and Lower Peninsula of Michigan, where Lake Michigan and Lake Huron meet? The area between the two Great Lakes is called the Straits of Mackinac.  The pipeline, called “Line 5” by its owners, Enbridge Energy, is part of an extensive system which transports oil and liquefied natural gas throughout the Midwest and Canada.

Mackinac Bridge, spanning 5 miles, and connecting the Lower and Upper Peninsula

Mackinac Bridge, spanning 5 miles, and connecting the Lower and Upper Peninsula

Built in 1953, Line 5 is a 30” diameter pipeline that runs 645 miles, originating in Wisconsin, running under the Straits of Mackinac, and ending in Sarnia, Canada.  When underwater, the pipeline consists of two side by side 20” diameter pipes which span the distance shore to shore of approximately 5 miles.  The pipes range in depth, up to 270 feet underwater and 20 million gallons of light crude oil and natural gas fluids pass through them each day.


Did you also know that “The Great Lakes and their connecting channels contain more than 90% of the freshwater of the United States and 20% of the world’s supply of fresh surface water?” National Wildlife Federation 2012

With this fact, and since the pipeline is 63 years old (some consider 50 years the ‘life expectancy’), many activist groups (Patagonia commissioned a Documentary:  Great Lakes, Bad Lines) and Michigan Counties are calling for its retirement.  Reasons range from the obvious risk of a spill, to failure to comply with easement rules, poor safety record by the pipeline’s owner, and the example of the spill on the Kalamazoo River (MI) in 2010 from Line 6B of the Enbridge portfolio. (The Kalamazoo River spill is the largest inland oil spill in US history, releasing one million gallons of heavy crude oil.)

Due to the impending risk of a spill, some Michigan legislators have filed suit to have the pipeline be re-categorized as an off shore pipeline.  Under the Oil Pollution Act, the liability for cleanup costs for owners or operators of onshore facilities is capped at $634 million, whereas companies operating pipelines classified as offshore facilities are required to demonstrate they have sufficient resources to pay for all cleanup costs.

In March of 2016, David Schwab, PH.D., of the University of Michigan Water Center, conducted a study of what he determined was the “worst possible place for an oil spill”. (Statistical Analysis of Straits of Mackinac Line 5: Worst Case Spill Scenarios)  The study, complete with animation to determine to potential flow of the spill, shows that 700 miles of shoreline would be affected by a spill in the Straits.  The Straits are subject to wide and varying factors including constantly changing currents, wind, and ice that would contribute to the complexity of a spill.

Enbridge is fighting back stating that the U of M Water Center modeling study was based on unrealistic assumptions.  Additionally, they have  “introduced new measures to help ensure the line continues to safely transport light crude oil and natural gas liquids……” further stating that “It does not and will not, carry heavy oil.” (heavy oil includes bitumen which was a key factor in the spill cleanup issues at Kalamazoo) Enbridge also states that the line is being operated at less than 25% of its maximum pressure capacity for enhanced safety.

Since the Kalamazoo spill, Enbridge has changed the way it operates, implementing numerous enhancements to operating and safety procedures.  They have established a Pipeline Control System and Leak Detection (PCSLD) department to better focus on maintenance needs. The response time for a spill is listed as 3 minutes in their many online brochures about Line 5.

Enbridge carries out hundreds of safety drills each year, but also embarked in a mock oil spill drill in 2015 specifically in the Straits of Mackinac to show their commitment to the safety of the Straits, Lake Michigan, Lake Huron, and the lakeshore.

This pipeline, as are all 2 million+ miles of pipeline, is governed by the Pipeline Hazardous Material Safety Administration (PHMSA) who is carefully monitoring the safety practices of Enbridge and Line 5. PHMSA’s focus is on public and environmental safety, holding Enbridge and all other pipeline owners and operators accountable for proper maintenance and safe operations.

Emails from Enbridge spokesperson, Ryan Duffy, state that “Line 5, while not perfect, is in very good condition and meets or exceeds today’s standards for new pipelines.”

Everyone, including Enbridge, agrees that an oil spill in the pristine waters of the Straits of Mackinac would be catastrophic.


Capacity Cost in the American Midcontinent

Author: Carl Doten, Account Manager, U.S. Energy Services

The 4th Midcontinent Independent System Operator (MISO) capacity auction was held earlier this month and the results of the auction have now been published (MISO Resource Adequacy Auction Results). The recently published prices offer insight into both expected energy costs for the coming delivery year of June 1, 2016 through May 31, 2017, and trends within the capacity supply/demand balance of each respective zone.

miso-territoryA map of MISO’s territory by zone is shown to the right. Electric consumers located in any of these zones, are likely to be impacted by the auction results either through potential cost changes in base rates in fully regulated service territories or cost changes in the capacity line item component in deregulated service territories.

The extent to which a consumer is impacted by the auction depends on a number of factors including:

  1. Which zone a consumer is located in (unit cost)
  2. Assigned capacity requirement (kW units)
  3. Energy contract structure (exposure)

The auction results (shown in $/Megawatt Day) by zone are shown in the table below along with the results of prior years.


A review of the results with an understanding of the wider context prompts a few observations:

  1. All regions will be adequately supplied with capacity for the coming delivery year.
  2. Six of ten zones within the MISO will see higher capacity prices, while Zone 4 will find welcome relief from the prices of the last delivery year.
  3. The results indicate a shrinking in the available pool of capacity offerings. Most notable was the approximate 2,000 MW of capacity at the price taker point (bid in around $0/MW-day), and 3,000 MW of capacity this last year at the $160/MW-day price point. These losses represent approximately 5% of the bid capacity within the region.
  4. Regional capacity varied only slightly from what was expected, with much of the differential attributed to Reciprocating Internal Combustion Engine (RICE) regulations causing early retirements.

Finally, it should be acknowledged that within the MISO territory, the price set by the auction is only one approach to setting the cost to end users for the capacity component of pricing, and therefore should be looked at more as a price trend indicator than a specific unit cost.

From a higher level, the variability of pricing year over year, and from zone to zone provides a reasonable defense for the efforts that are underway to revise the capacity auction framework in MISO zones that rely on competitive markets to satisfy capacity needs (currently limited to Zone 4 as proposed).  The proposed shift to an annual auction covering the coming 3 delivery years (similar to PJM) would allow end users to better forecast costs, and would allow generators to finance and plan their generation resources based on a longer term view.

For Risk Averse Fuel Consumers, Now May Be A Good Time To Forward Purchase Your Diesel And Gasoline Supplies.

Author: Craig Petter, Account Manager, U.S. Energy Services

Diesel fuel retail price falls below $2.00 per gallon for first time since 2005


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Source: U.S. Energy Information Administration

In mid-February the weekly diesel price survey showed an average retail price for on-highway diesel fuel at $1.98 per gallon. This is the first time the price for diesel has fallen below $2.00 per gallon since February 2005. These lower prices are a reflection of lower per-barrel crude prices and significant storage inventories.


Fundamentals Driving Low Prices

Increases in production               


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Source: U.S. Energy Information Administration


Increases in national storage inventories


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  • EIA data showed a 9.4 million barrel increase in domestic stockpiles.
    • Inventory levels have risen by over 50 million barrels since the start of the year and sit at the highest level since 1930.
  • Global crude market remains bearish amid oversupply and tepid demand.
  • Crude market traded at significant bottom in February, but fundamental reasons surrounding the price collapse are still very much in place.
  • With a shrinking wholesale market, consumers are benefiting from lower supplier markup.


Bullish signals

Exploratory rig counts dropping


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Source: U.S. Energy Information Administration


Petroleum exports continue to rise


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Source: U.S. Energy Information Administration

  • Rigs searching for new production sources are at historic lows.
  • The cost to produce supplies is greater than the current market for many suppliers.
  • Suppliers are capping off already drilled wells in anticipation of higher per barrel pricing in the future.
  • Smaller suppliers being pushed out due to bankruptcy or acquisition.


Consumer Options

With the significant decline in diesel and gasoline pricing over the past few years, many end users are taking advantage of these low prices and developing a Price Risk Management Program (aka Hedging). This is a program where the consumer can forward purchase fuel supplies at a known price.  Locking in all or a percentage of your future fuel costs (hedging) is a powerful tool to mitigate the volatility of an unpredictable market.

Some of the benefits of a disciplined Price Risk Management Plan are:

  • Allows you to “fix” your future diesel and gasoline costs today
  • Reduces market price volatility
  • Increases price certainty
  • Allows you to budget diesel and gasoline costs more accurately
  • Current market conditions are approximately $.45/gallon less than last year

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