Gas storage – the reasons and the means 

Although gas storage facilities have been an integral part of the gas supply system for over a hundred years, gas market liberalisation and the emergence of volatile spot market prices for gas in Europe, as well as increasing import dependency, are encouraging significant investment in new gas storage facilities across Europe, and particularly in the UK. This article explores the why and how gas can be stored. Next month we will look gas storage markets and a number of key gas storage projects in Europe. 

Why store gas? 

Gas storage has traditionally been used for a variety of reasons in European gas markets. At its most basic level gas storage provides the ability to vary gas supply to meet demand variations, caused by weather or other factors. Storage has been developed to provide diurnal or within-day swing (typically low-pressure gas holders or linepack, which is varying pressure in pipeline system), peak swing for a few really cold days in winter, and seasonal swing for the whole winter period. Figure 1 shows a traditional load duration curve, illustrating how different types of gas storage facility are used to provide seasonal and peak supply to the market. 

Figure 1: Traditional load duration curve showing seasonal and peak storage supply 

In addition since the oil price shocks and beginning of large-scale Russian gas exports to Western Europe in the 1970s, a number of European countries have invested in storage capacity for strategic reasons – in order to provide local swing if imports are disrupted. Figure 2 shows gas storage capacity in Europe by total working volume and relative to average daily consumption. As can be seen from the graph countries such as France, Germany, and Austria have sufficient storage capacity (although not necessarily gas in store or deliverability) to cope with many days of supply interruption. 

Figure 2: Gas storage in Europe

Storage has also been used traditionally for system optimisation reasons. Locating storage (supply swing) close to demand centres can, not only provide extra supply security, but also reduce the costs of gas transportation, by reducing the amount of pipeline capacity required and increasing the load factor of transportation. This is particularly important when gas is transported by pipeline over very long distances, which may be one of the reasons why Russian gas giant, Gazprom, is currently looking at investing in gas storage facilities in the UK, Belgium and Austria. Although LNG in itself is inherently more flexible than pipeline supplies, local storage can also boost the value of LNG deliveries by allowing buyers/suppliers to take advantage of seasonal demand variation, while delivering LNG on a flat basis. 

So far the picture of storage has been as a vital engineering tool, crucial for maintaining safe, secure and reliable gas supply. However, market liberalisation has seen a new side of storage emerge – not an engineering tool, but a trading tool, prized by entrepreneurial companies as the means of exploiting volatile spot gas prices. In a gas spot market, the value of flexibility emerges, as seasonal and daily price differentials begin to reflect the costs of short-term swing. For example, at the UK NBP market at on 7^th March, Q2 and Q3’07 were quoted trading at around 20p/therm, while Q1’08 was trading at 46p/therm. As long as the market is sufficiently liquid, a storage capacity owner could buy summer and sell Q1 gas forward and lock in an arbitrage opportunity of 26p/therm. The combination of the seasonal price differential and the physical capability of the storage facility can be referred to as the intrinsic value of storage capacity. Additional, extrinsic value can be derived from the ability to operate more flexibility, taking advantage of daily volatility and arbitrage opportunities, for example, on Christmas Day 2005, the within-day gas price crashed to lows of 10p/therm, while four days later it hit 179p/therm. Amid the Christmas festivities, a significant volume of gas was injected into storage in the UK, as storage capacity owners changed the direction of their nominations from withdrawal to injection.  

How is gas stored 

There are four mainstream techniques for large-scale storage of natural gas: storing in existing geological structures, either depleted oil and gas fields or in aquifers, storage in man-made cavities leached in rock salt formations, and storage as a liquid (LNG) in insulated tanks. In addition there are some alternative techniques in use or under development, for example storage in mines or in (steel-) lined rock caverns excavated in hard rock. 

Depleted fields and aquifers 

Depleted field and aquifer storage facilities use the same basic concept: gas is stored in porous rock, contained by geological structures and water pressure from beneath. These facilities have the potential to be very large, for example the Rough storage facility in the UK can store about 3.5bcm of gas, and the Rehden facility in Germany 4.2 bcm. However, the relative speed of withdrawal and injection tends to be fairly slow, for example Rough is designed to fill in about 180 days and empty in about 70 days at maximum rates. For this reason depleted field and aquifer storage facilities tend to be used for seasonal swing or strategic reasons. In addition the cost of cushion gas (gas required to be maintain minimum pressures in the reservoir which may not be recoverable) is major issue with new reservoir storage facilities. 

Figure 3: Depleted field storage

Figure 4: Aquifer storage

Salt cavity storage  

Salt cavity storage facilities are typically located 1000m to 1500m underground in salt strata, with caverns leached out by drilling wells and pumping water into the salt layer. The size (and shape) of each cavern will depend on the thickness of the salt strata, but most salt cavity facilities include a number of cavities. Volumes typically vary from 50,000 to 500,000 cubic metres of gas. The storage capacity for a given cavity volume is proportional to the maximum operating pressure, which increases with the depth of the cavity. The main salt cavity storage facility in the UK is at Hornsea and is owned by Scottish and Southern Energy. Although salt cavities tend to have lower total working volume than depleted fields and aquifers, the relative rate of withdrawal and injection can be much greater, as gas is being pumped directly into a large cavity in the salt layer, rather than into porous rock as in a depleted field or aquifer. For example, the Hole House Farm facility in Cheshire in the UK is designed to empty in 10 days and fill in only 5 days, making it an ideal tool for exploiting short-term trading opportunities. However, such facilities can only be built where suitable salt strata exist, such as beneath the Yorkshire coast, or in Northern Germany near Epe.  

Figure 5: Salt cavity storage 

 LNG peak-shaving 

Traditionally peak-shaving LNG has been seen to be an insurance policy, storing large volumes of gas in a relatively confined space, and with the ability to deliver those volumes of gas at high rates over relatively short durations. Injection rates, on the other hand, are very low, and the facilities are designed to be slowly filled over most of the summer as the economics of small-scale liquefaction of pipeline gas work best at very low rates. There are currently four LNG storage facilities in the UK – Avonmouth, Glenmavis, Dynevor Arms, and Partington[1], as well as Maasvlakte in the Netherlands and Dudzele in Belgium[2].   

Typically the high cost of liquefaction means that LNG peak-shaving facilities are rarely used, and are mostly there to provide security of supply on very extremely cold days, or in the case of a system failure. 

Figure 6: LNG peak-shaving storage

Mines and lined rock caverns 

Coal (or indeed other) mines may provide an alternative means of storing large volumes of natural gas. Until recently there were three operational storage facilities in coal mines around the world, two in Belgium and one in Colorado, USA. Although all three have now been decommissioned, various projects have been suggested looking at using abandoned mines for gas storage. Key issues include the nature of the rock strata and the hydrostatic pressure, which will determine the maximum operating pressure and the degree to which the mine is gas-tight, as well the geology, design, location and history of the mine. 

An alternative approach is the concept of the lined rock cavern (LRC), where a cavern is excavated in hard rock and then lined with steel and typically concrete to make it gas tight. A major demonstration project at Skallen in Sweden became operational in 2004, and further projects are planned. One of the advantages of LRC is that it can adopt highly flexible operation, similar to a salt cavity, but can be located in regions where there are no suitable salt strata. 

Having considered the basic concepts of the gas storage, next month we will look at the gas storage market and various gas storage projects under development in Europe. 

Written by Nick F White. MJMEnergy Ltd

Nick lectures on our gas storage course; the next one is 9^th May 2007. To find out more or book your place click here.