The case for increasing natural gas storage capacity in the Western U.S. has only grown since Spire Inc. proposed its Wyoming storage facility expansion two years ago, according to Scott Smith, president of subsidiaries Spire Storage West LLC and Spire STL Pipeline LLC.

The severe winter storm in February 2021 and new demands placed on the U.S. gas system amid a European energy crisis provided fresh signs of storage needs, Smith said in an interview. Meanwhile, evidence has continued to mount since St. Louis-based gas utility Spire first outlined its plans in October 2020 that meeting the region's energy demand will prove challenging, Smith said.

Spire Storage recently announced it has begun a 16-Bcf storage expansion project at its Clear Creek storage field in Uinta County, Wyo. Together with its nearby Belle Butte facility, the company's total underground working storage capacity available to Rockies and Western U.S. customers will increase to 39 Bcf.

The facilities serve the traditional role of balancing seasonal demand but must also fill a new and growing role: backing up intermittent renewable power generation. As the Western U.S. rolls out new solar and wind resources in a bid to reduce carbon-emitting generation, reliance on gas-fired facilities has nevertheless increased to meet demand during periods of low renewable power availability.

Complicating efforts to keep the lights on, drought conditions, rising temperatures and devastating wildfires have created vast grid reliability issues. Meanwhile, California state policy has shuttered gas-fired power plants during a period marked by disruptive outages among the state's remaining facilities, reduced storage capacity and infrastructure reliability concerns.

"What we're seeing is ... that there is just growing need for flexibility services over a short period of time to manage the variability and gas demand over a day" in California and the desert southwest region, Smith said. "So you have that factor still there, and it's growing."

Opportunities and challenges

There is also growing interest in leveraging storage to maintain reliability, following a run on gas supplies during the 2021 cold snap and rising demand for U.S. liquefied natural gas in Europe, Smith said.

The pull on U.S. LNG and broader market disruptions tied to Russia's invasion of Ukraine have also contributed to substantial commodity price volatility, Smith noted. NYMEX gas futures recently hit a 14-year high above $10/MMBtu in volatile trading.

"Utilities and gas consumers are using storage to help manage that," Smith said.

Yet if geopolitical forces and U.S. and European energy dynamics bolster the case for more storage, other domestic and macroeconomic developments have presented challenges for the project.

The Clear Creek expansion was one of the first projects slated to go through the U.S. Federal Energy Regulatory Commission's new policy for gas project reviews, which more closely scrutinized climate impacts. Facing criticism, FERC reversed that policy, but the commission's brief pivot impacted Spire's project timeline, pushing its authorization and construction date further into an inflationary environment dogged by supply chain disruptions.

The U.S. producer price index, a gauge of wholesale product inflation, was up 9.8% in July from a year ago, easing from an 11.7% year-over-year gain in March.

Managing inflation, supply chain disruptions

Smith is "very comfortable" that estimated costs developed over the summer are "definitely achievable." Spire Storage is starting some construction contracting but reserving a bigger contract for 2023, Smith said. On the materials side, the company has also started procuring big-ticket items such as drill steel needed to complete 11 new injection and withdrawal wells.

Creating another challenge, lead times for major pieces of equipment have "extended substantially," Smith said. Compressors, once delivered within nine months, are now taking nearly a full year to arrive, according to Smith. That three-month delay matters in light of Wyoming's harsh winters, which create tight construction windows from about May through October.

Spire expects part of the new storage capacity to become available in April 2024, with more coming online in 2025. Once Spire is certain that construction is occurring on schedule, it will contract the majority of the expanded capacity through multiple binding open seasons in late 2023, Smith said.

Spire executives have expressed confidence in Smith's work optimizing existing storage operations business in Wyoming, particularly the Belle Butte portion.

Smith said his team endeavored to understand the facilities' limits and geology in a bid to improve Spire Storage's ability to meet its commitment to clients and operate the assets more reliably since acquiring them in 2017 and 2018.

"That in turn ... generates consistent operating income for Spire with the asset," Smith said. "All those factors led to our comfort level and making the decision to expand it."

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