Salt Cavern Gas Storage Facility Planned For Central Utah

November 2009 Vol. 236 No. 11

Jeff Share, Editor

Based on positive responses to a recent non-binding open season, Magnum Gas Storage, LLC, is working with respondents to firm up support for a project in central Utah to construct what the company says would be the first large-scale, high-deliverability, multi-cycle salt cavern natural gas storage facility in the western United States.

The company says it received responses from 26 bidders requesting more than four times the capacity offered in the non-binding open season that closed July 31, 2009. Plans are well under way to develop two caverns, each with working gas capacity of about 5.6 Bcf in Millard County, central Utah.

Robert Webster, managing principal, said, “We believe that the success of this open season demonstrates the industry’s growing recognition of the need for high-deliverability natural gas storage in the west. This facility will provide natural gas-fired electric power generators, gas distribution companies, producers and marketers throughout the region with cost effective, efficient and reliable access to natural gas supplies.”

He said the project offers direct and indirect interconnections with multiple pipelines originating out of the Rockies. Sponsors intend it to connect directly with a new lateral to the Kern River and Questar interstate pipelines at Goshen, UT, creating a header that will indirectly serve the Opal, WY area market hub pipeline interconnections through backhaul and displacement.

Webster has more than 25 years of experience in the Fortune 200, private and government sectors. Prior to co-founding Magnum, he has served on the Western Renewable Energy Zone Development Team through the Western Governor’s Association; as co-founder and director of a deregulated energy marketing/trading company; and as the fuel supply director for a large electric utility.

Webster recently spoke to P&GJ at length about the unique storage project.

P&GJ: Why is there a need for additional storage in the western United States?
The need for natural gas storage in the region is well-documented. According to the Energy Information Administration, gas storage capacity in the West is about 660 Bcf compared to 2,225 Bcf for the eastern states. Meanwhile, markets in the West are growing, both in the use of traditional energy supplies and in the development of renewable resources. High-deliverability storage will support the real-time operation of natural gas-fired generation in response to variable power demand and will provide new options for both electric and gas producers to lower risk and optimize existing resources.

P&GJ: What are some of the unique characteristics of this project as compared to other salt cavern storage projects?
Clearly, the key distinction is our hub concept. This project is the first integrated energy storage facility that will serve western energy markets and is strategically located to become a crossroads of existing and developing electric, natural gas and other energy infrastructure in the West. It is also designed to support expansion and utilization of renewable energy technologies.

P&GJ: Based on construction activity, who could be potential customers or beneficiaries of this facility?
The project will have multiple benefits. It will bring economic growth to that area. It will also benefit gas-fired electric power generators, natural gas distribution companies, gas producers and gas marketers throughout the Rocky Mountain region by helping them balance the fluctuations in supply and demand. And I think the general public will benefit both through the availability of reliable energy supplies and through the role the facility will play in developing renewable resources.

P&GJ: How do you plan to incorporate “greening” technologies into a storage project? How do you store renewable energy supplies?
The project will provide a platform for the development of renewables and reduce carbon footprint in line with state and federal initiatives. Everything we do will be state-of-the-art and designed to address the most critical issue in renewable energy’s market penetration – its intermittent nature. As markets develop, we believe the availability of natural gas storage service at this site will be attractive to companies interested in the co-location of Compressed Air Energy Storage (CAES), natural gas-fired electrical generation, storage of refined petroleum products or other non-hazardous substances, carbon sequestration and solar gradient pond (recovered solar heat) generation.

P&GJ: Why did you pick this particular site in Utah?
First and foremost, we have a large natural salt formation directly below our site. Other salt structures with the potential that this one has for large cavern development have never previously been discovered in the Rockies. We will store natural gas, compressed air and perhaps other gaseous or liquid commodities in large caverns located 2,500 feet or more below the surface. This site is strategically located central to the western natural gas transmission and electric power grids and to other energy infrastructure in the West.

P&GJ: What are the steps required for this project to become the Western Energy Hub?
Webster: Our first goal is to develop the natural gas storage project and then move into other products as markets develop. Initially, we plan to develop two caverns with working capacity of 5.6 Bcf each. Market demand will dictate whether the next caverns will be developed for gas storage, CAES or another one of the potential applications. As an integrated hub, the facility will provide seamless gas/electric storage, firming, shaping, peaking and other ancillary services to the western energy grids.

P&GJ: Where is the project in the permitting process, and when do you anticipate starting construction?

Webster: We expect to have the necessary state and federal permits in place by next spring. We will begin construction as soon as permitting is completed, probably around mid 2010. The first cavern is expected to be available for natural gas storage service beginning in early 2012.

P&GJ: What has been the market’s reaction? What effect, if any, is today’s low-price environment having?
Webster: Reaction has been extremely positive. Perhaps the greatest validation for the project came from our very successful open season, which concluded on July 31. We received responses from 26 bidders requesting more than four times the 11.2 Bcf of storage capacity offered. As far as the low-price environment, it is currently a benefit to us in terms of engineering and labor costs.

P&GJ: What is your outlook for natural gas storage in the near future, as some experts predict a shortage later this year?
Webster: I would agree that there is certainly the potential for a natural gas storage shortage. Storage was already nearly full in the Rockies in early August. We believe the success of our open season is a clear indicator of the industry’s recognition of the need for more high-deliverability natural gas storage in the West.

P&GJ: What are your plans for expansion?
Webster: We have a 2,150-acre site with a very large salt structure that will allow us to develop up to eight caverns for natural gas, CAES and other products. We will begin with the initial two caverns for natural gas and continue development as the market expands.

P&GJ: What is Magnum’s background and what expertise does it bring to this kind of project?
Webster: We have a very senior team of energy professionals with broad experience in natural gas/electric integration and storage both in the western U.S. and around the world. In addition, we are a Haddington Ventures portfolio company. Haddington has more than 100 years of combined operating experience in the midstream energy industry as well as a long, successful track record in developing projects like this one.

For more information, call 801-990-2970.

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