Economics of Underground Gas Storage
Authors: Schwalm Harold E. 
Published: December 2007

The economic advantages of using underground gas storage to balance variations in gas load are illustrated here by comparing it with various other approaches: increasing pipeline flow gas purchases, increasing interruptible sales, and installing LNG or LPG peak-shaving facilities. All other methods run a poor race for a return on the investment dollar.

Introduction

Most natural gas distribution companies have been faced with the problem of obtaining gas supplies to meet increased winter peak loads. There are several possible alternatives that companies may take to aid possible alternatives that companies may take to aid in meeting the peak demands:

Contract for additional pipeline flow gas. Contract for peak-shaving service. Develop storage or peak-shaving facilities. Do nothing and quit growing.

If companies clearly understand their sales load and the availability and economics of the various peak-shaving methods, then the choice of alternatives peak-shaving methods, then the choice of alternatives should be easy.

The current short supply of gas is a factor that exerts great pressure for more efficient use of fuel. At the same time, it may be the factor that limits the development of peak-shaving facilities or of underground storage of gas.

This paper does not attempt to solve the supply problem, but it does review the need for load problem, but it does review the need for load balancing or peak shaving by use of underground storage of natural gas. It compares the economics of underground storage with other methods of peak shaving and with pipeline gas costs. pipeline gas costs. Need for Underground Storage of Natural Gas

The storage of gas is needed to increase the efficiency of the gas distribution business. This need for storage is triggered by the variations in weather (daily, monthly, or seasonal) and the volume of gas required to satisfy space-heating customers, Space heating constitutes a large segment of the distribution company's market; consequently, the variation in weather causes a variation in load or sales. The greater the change in weather, the more difficult the problem of operating the company (system) at high efficiency. This efficiency is commonly referred to as load factor, which is the annual volume of gas purchased by the distribution company divided by the annual volume that the pipeline company has contracted to deliver.

Table I shows the load factors for the different sales loads for Northern Illinois Gas Co. Since the company is located in the northern Illinois area these load factors should be typical of those of a distribution company located in the midwest climate region.

The general load is the segment of the company's sales with the highest load factor and the lowest volume of gas sold. The load factor ranges from 76.8 percent for residential use to 137 percent for percent for residential use to 137 percent for industrial sales. The general sales load factor is high because it is independent of variations in weather.

The space-heating load is the segment of the company's sales with the lowest load factor but the highest volume of gas sold. Note that the space-heating load factor ranges from 34.3 percent for residential heating to 43.7 percent for commercial heating.

JPT

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