Inclination Towards Natural Gas Storage after 2014 Continues to Fuel Market
Natural gas produced in excess is either exported or subject to captive consumption whenever required. The storage systems used for natural gas are privately or government held inventories that ensure commodity liquidity at the market centres. Producers can store excess gas to hedge prices. This phenomenon helps in maintaining pricing volatility of natural gas, and energy security for domestic as well as international markets in need. Natural gas which is not immediately marketable is typically stored, driving the market potential of natural gas storage. Given the consistent price drop post-2014, several natural gas producers have been planning for natural gas storage, creating a strategic reserve across the globe. While the prices are highly likely to pick up in the near future, this particular practice would provide them with the competitive edge in terms of sales at a higher price.
Energy Security Needs and Future Pricing Pressure to Play a Sheet Anchor Role
Rapid population growth, coupled with high demand for electricity and growing investments in energy storage systems, have spurred the demand for natural gas storage facilities. While the ever-rising demand for natural gas remains the key market driver, a majority of natural gas is used for electricity generation, which would be a continuing trend over the foreseeable future in line with rapid population growth and industrialization.
Given the declining natural gas prices that are boosting the demand for storage facilities, several countries such as China are importing and storing natural gas as much as they can, to avoid the projected pricing pressure in future. Thus, these countries are ensuring their energy security by purchasing more gas from natural gas-rich nations such as the US, and Russia. Thus, storage of natural gas in the existing facilities would provide energy security during peak period when the demand and prices both would be high. The investment influx in development of new storage facilities due to the shale gas boom in North America, China, and India has provided further impetus to the natural gas storage market. In a nutshell, currently, production outweighs demand, which is accelerating the growth of natural gas storage market.
The key restraint to the market is the associated capital investment, followed by regulatory approvals from governmental and environmental bodies. Moreover, potential leakage of these storage facilities can pollute the entire underground ecosystems such as underground water and soil. Several environmental agencies are against the usage of storage facilities owing to the year-on-year increase in accidents due to gas leakage.
Underground Natural Gas Storage Facilities Dominate Global Market
Year-on-year increase in consumption of natural gas, coupled with growing concerns over minimisation of the demand-supply gap, has paved the way for the development of natural gas storage systems in both above ground and underground storage facilities. The investment flowing in for setting up of new facilities is fuelled by the declining prices of crude oil and natural gas currently prevailing in the international market. Natural gas storage facilities are gaining more importance due to the volatility in natural gas demand. Several producers and markets of natural gas are inclined towards the stability of natural gas prices, thus are emphasizing storage till the demand and prices stabilize. This has boosted the demand for natural gas storage facilities across the globe.
In 2020, underground storage dominated the market in terms of storage volume and constituted more than 90% of the global natural gas storage. Underground natural gas storage facilities are safer when compared to above ground storage facilities. However, the growth of liquified natural gas (LNG) market has been making headways for moderate development of above ground storage facilities. Several natural gas storage facilities are being developed to balance gas supply and demand, optimise the transmission network size and management, and provide security of supply in case of interruption in gas supplies. As markets developed and liberalized, market hubs emerge, and spot markets evolve along with these trading hubs. Storage acquires an additional commercial role as a supporting tool to trading.
Asia Pacific to Outpace Other Regions by 2025
At a global level, more than 750 underground gas storage facilities were in operation in the world at the beginning of 2020. Europe dominated the market, followed by North America where the growth of shale gas reservoirs has attracted several investors and turned their attention to storage needs. Natural gas exports also support the growth of market in this region.
In Europe, a total of 65.6bn m3 of gas was removed from underground gas storage facilities in the 2020-2021 withdrawal season, representing the largest volume since 2011. Thus, Europe will need to inject approximately 57% more gas into storage this year than that in 2020, given the significant volume that was removed during the withdrawal season. This is expected to boost the demand for natural gas storage facilities in Europe. The region has been the biggest importer of natural gas in the world and has achieved robust expansion of its existing storage facilities in addition to installation of several new storage facilities. The European market would benefit from the growth of LNG market, especially above ground storage facilities for LNG storage requirements. However, the European Union (EU) is now focusing more on clean energy and environmental concerns, which may hamper the demand for natural gas storage facilities in the next few years.
Asia Pacific holds immense potential for the growth of market. High electricity demand in Asia Pacific, coupled with requirement of efficient energy storage systems to overcome the energy scarcity challenges, is expected to drive the market for natural gas storage. Countries in Asia Pacific, especially China is expected to invest in more natural gas storage facilities owing to the increase in domestic energy consumption. Efficient natural gas storage services are also in favour of the market growth across the country.
Global Natural Gas Storage Market: Competitive Landscape
Some of the key players in the natural gas storage market include Engie S.E., Gazprom, TransCanada Corporation, Spectra Energy Corporation, Royal Vopak N.V., NAFTA A.S, McDermott International, Inc., Enbridge, Inc., Chiyoda Corporation, TechnipFMC plc, and Samsung Heavy Industries Co. Ltd.
On April 2021, Siemens Energy has been selected by an engineering, procurement, and construction (EPC) company, Enter Engineering Pte. Ltd., to supply two low-emission compression trains for Phase I of the Gazli underground gas storage (UGS) project in the Bukhara region of Uzbekistan. Under the scope of work, i.e., construction of the two trains, which will help in extraction of up to 20 million m3/d of stored gas in the Gazli field and pressurise it for transportation to domestic users in Uzbekistan through pipeline and then export to China.