This post by Jeff Bolyard, Principal, Energy Supply Advisory, is featured in our upcoming September 2023 Monthly Monitor, which includes articles and analysis for the natural gas, electric, crude oil, and sustainability markets. To sign up for the Monthly Monitor distribution list, click here.
On August 31, the California Public Utility Commission (CPUC) voted 5-0 to allow the Aliso Canyon storage facility to increase capacity from the prior limit of 41.16 Bcf up to 68.6 Bcf, effective immediately.
If you recall, in October 2015 this same underground natural gas storage facility sprung a major leak at one of 114 storage wells, which lasted for months before being permanently plugged. The remaining 113 wells have been operating at a much-reduced capacity since then. Plans to permanently close the entire facility by 2027 have been complicated by persistent price spikes, rolling blackouts back in 2020, extreme weather, and the electrification of just about everything – increasing overall power demand and requiring dispatchable fuels to be relied upon more than ever before.
This evolution is not just a California problem – it is a growing trend that is making its way across the entire country.
The chart below shows how much each of the three major fuel sources were used to generate power in the U.S. over the past 12 years and includes natural gas (green line), coal (gray line), and renewables (purple line). (Note: nuclear represents ~20% of all generation annually but is not shown).
The glaring trends on the chart show declining coal usage, with natural gas taking over as the primary fuel back in 2015 (circle A), then renewables exceeding coal as the second largest power generation fuel in 2021-2022 (circle B).
Less obvious are the peaks of usage for natural gas, which are becoming larger, indicating incremental demand for natural gas for power generation purposes during the summer, when residential heating demand isn’t requiring natural gas (circle C orange trend line). Then there are the valleys of lower natural gas usage in the shoulder months, which are being offset by renewables in the highest production months of April/May each year (purple arrows in April of each year, beginning in 2019), when less and less natural gas is needed and is being displaced by renewables.
Each of these highlights the significant progress made in advancing towards a renewable energy market.
However, a relatively new realization is that while the overall percentage of green energy continues to increase, the difference between the annual peak need for natural gas in the winter and the minimal need for natural gas – which is being seen in the seasonal shoulder months of April and May when renewables are at their peak – calls for a flexible, dispatchable, and reliable fuel source that can be called upon whenever the peak requires more, or the valley requires less.
As of today, natural gas storage is generally filling a large and increasing gap in power generation demand growth. In my opinion, gas storage is a flexible tool that can be utilized in conjunction with – and not opposed to – the growth of renewables across the country.
The CPUC decision to allow Aliso Canyon to inject more gas into one of the largest underground storage facilities in the U.S. should not be taken lightly and does not come without risks. But in the minds of the five Commissioners who allowed this to occur, the reliability of power and the mitigation of energy price spikes in California outweighed the risks of allowing the storage facility to increase from the previously mandated limit of 50% of capacity, up to ~80%.
Will this storage facility be able to be shut down in 2027 as planned? Only time will tell for that chapter to be written in the complex energy world in which we work and live.
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