Quantifying the Effects of Underground Natural Gas Storage on Nearby Residents

In recent years, discussions of issues related to natural gas extraction have increased dramatically in academic and public domains and often have been focused on potential risks associated with hydraulic fracturing. Recent economic research includes studies by Muehlenbachs, Spiller, and Timmins (2012) and Gopalakrishnan and Klaiber (2014). Films such as Gasland and The Promised Land have pushed issues related to hydraulic fracturing and the natural gas industry into the public eye, as have articles in publications such as the New York Times and Forbes. Other sectors of the natural gas industry, such as underground storage of harvested natural gas, have received little attention to date in academic or public arenas. Yet, underground natural gas storage presents many of the same potential risks as natural gas extraction, including impacts on health, the environment, and public amenities. Understanding these potential impacts is essential in developing a complete understanding of the economic impacts of the natural gas industry.After natural gas is extracted from an underground formation, it is transported via pipeline to processing plants where it is prepared for consumption. However, much of the gas is not consumed immediately and typically is stored in underground geological formations such as depleted aquifers (Energy Information Administration (EIA) 2013a). Traditionally, such storage provided an inventory of harvested natural gas that could be used to meet peak demand or needs associated with seasonal differences. Recently, however, natural gas production has increased following advances in extraction techniques, and demand for underground storage has been increasing, in part because the quantity of natural gas produced at times exceeds available storage capacity, particularly when demand for gas, which is seasonal, is low. Extraction rates do not necessarily follow consumer demand. In addition, especially harsh winters such as the one experienced in 2013/14 can significantly increase demand for natural gas and exceed supplies held in storage, resulting in a need for greater storage capacity. For instance, a recent Chicago Sun-Times article (Fahey 2014) reported that levels of natural gas in storage were the lowest they had been since 2008 because of high demand during the winter.Media attention directed at natural gas extraction activities has heightened public awareness of the potential associated risks, often emphasizing ground and surface water contamination. Like extraction of natural gas, underground storage of the gas poses health and environmental risks that include migration of the gas out of storage, which can result in contamination of ground water sources (Miyazaki 2009); failure of well casings and cement that protect formations above and below the gas well from contamination (this risk can increase as a well ages) (Miyazaki 2009); slow leakage from the wellhead (known as off-gassing), which can result in methane emissions (Environmental Protection Agency (EPA) 2013); and penetration of the storage formation by another well, including one for water. In addition to environmental risks, there are potential disamenities associated with the infrastructure of storage that include noisy compressor stations required to keep the lines pressurized (Federal Energy Regulatory Commission (FERC) 2013) and visible wellheads. These disamenities can be reflected in the value of nearby properties. We hypothesize (i) that properties located over a storage field have lower values than properties not located over a field and (ii) that properties located near underground storage fields or surface facilities have lower values than properties located at a distance from such sites.We use a hedonic analysis to determine whether the potential disamenities of underground natural gas storage are significant enough to influence the value of nearby properties. Hedonic models are commonly applied to issues relating to energy, environmental quality, and amenities. …