An Introduction to Production and Underground Gas Storage
European demand for natural gas is growing and this trend is expected to continue in upcoming years. Simultaneously, the indigenous production of gas in Europe is declining¹. In order to fill the resulting supply-demand gap, more baseload imports from outside the Europe will be needed, implying increased utilization of underground gas storage facilities for load-balancing. Most likely Russia will remain the main producer to fulfil this gap.
The demand for natural gas is not constant; it varies over time - across years, seasons, months, weeks and different times of the day. In order to satisfy this flexible demand produced gas needs to be stored, and, since it can not be done at the point of consumption, these demand fluctuations have to be met by the supply side.
Natural gas storage is required for two main reasons: meeting seasonal demand requirements, and as insurance against unforeseen supply disruptions. The large fluctuations in gas demand occur during summer (non-heating season) and winter time (heating season), which is often referred to as seasonal demand fluctuation. In order to balance these seasonal fluctuations, large storage volumes are required. Storage facilities that are used for balancing seasonal gas demand fluctuations are called seasonal storage (the storage is filled during summer months and emptied during winter months). Generally, the most suitable facilities for seasonal storage of natural gas are depleted gas fields and aquifers, since they offer large storage volumes and are more cost-efficient then other storage options, such as salt caverns². Salt caverns, on the other hand, are frequently used to balance daily and hourly demand fluctuations or unforeseen supply disruptions. This sort of storage facility is often called a “peak load facility” or “peakshaver.” They are smaller in volume than seasonal storage facilities, allowing more quick extraction of natural gas should the need arise³.
Each type of underground gas storage facility has its own physical characteristics (porosity, permeability, etc) and economics (site preparation costs, deliverability rates), which determines its suitability for a particular application.
Seasonal storage volume is an important factor for long-term security of supply in Europe during winter periods4. In spot-priced markets, a relative shortage of volumes could potentially result in volatile and high gas prices during winter period, while in traditional market (with gas pricing based on indexation to oil prices) a gas supplier might be forced to cut their gas supply to individual customers. In both cases, a lack of storage volume could result in interruption of gas supply to industrial users and even to residential customers.
In general the rate of developing new underground gas storage facilities in Europe has declined, however, the usage rates of existing storage facilities have increased. The largest seasonal storage facilities are located in Germany, Italy France and the Netherlands5.
Considering the production of natural gas, the largest natural gas field in Europe is the Groningen gas field, a giant gas field registered as the tenth largest in the world. This field started production in 1963 at a rate of 100 billion cubic meters (bcm) a year, however, this rate gradually declined to the current level of 35 bcm per year6. 60% of the total field’s reserves already have been produced, however production is expected to last for about 50 more years. The Groningen gas field, which is mainly used for balancing purposes, accounts for 50% of natural gas production in the Netherlands. The other 50% at a high load factor are supplied by around 300 smaller gas fields located mostly offshore in the North Sea, in this way preserving the Groningen gas field reserves for future generations (Dutch Small Fields Policy) 6.
¹Clingendael International Energy Programme (2006). The European market for seasonal storage.
²Plaat, H. (2009). Underground gas storage: Why and how.
3Information on underground gas storage and salt caverns at http://www.naturalgas.org/naturalgas/storage.asp
4Clingendael International Energy Programme (2011). Seasonal flexibility in the Northwest European gas market. An outlook for 2015 and 2020.
5World gas conference (2009). 2006-2009 Triennium Work Report. Study group 2.1: UGS Database.
6Botter, B. J. (2009). The vital combination of many small fields and a global giant.