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Building Your Own Underground Gas Storage Project: From Leasing to Open Season Under FERC Order 636

Jerry R. Fish, Robert A. Nelson, Oil and Natural Gas Pipelines: Wellhead to End User (1995)

Following Federal Energy Regulatory Commission (FERC) Order No. 636, the underground storage of natural gas, employed in the United States since early this century, has become more valuable than ever as an alternative to building new interstate pipeline capacity. Further, development of storage projects is no longer the exclusive domain of interstate gas pipeline companies and local gas distribution companies. Underground gas storage can now be developed by producers, marketers, and large industrial gas users as well. This paper attempts to survey the technical and legal issues involved in developing a new underground gas storage project.

§ 19.01 Reasons for Underground Storage

[1] Seasonal Price Swings for Natural Gas

The price of natural gas varies between “peak” and “off-peak” periods because the demand for natural gas is seasonal and temperature sensitive. Because storage injections shift gas purchases from winter (peak) periods to summer (off-peak) periods, gas purchase costs are reduced.1

In markets where natural gas is not extensively used for electric generation, the peak period of high demand is the winter heating season (usually November through March). The off-peak period of low demand is the remaining seven months (April through October).

In markets where natural gas is extensively used for electric generation, the peak p