January 8th, 2010 12:42 PM

Natural gas storage facility plans revive

By Jeff Amy

January 08, 2010, 7:00AM

MOBILE, Ala. -- A $400 million undersea natural gas storage facility planned for south of Bayou La Batre has come back to life.

Falcon Gas Storage Co. said Thursday that it plans to start construction in March on the MoBay Storage Hub, which will use depleted natural gas wells under the Mississippi Sound to store gas. Falcon announced Tuesday that it was seeking customers through Feb. 2 for 8 billion cubic feet of what could be a 50-billion-cubic-foot project.

MoBay had been in limbo for more than a year, after the financial crisis in fall 2008 made it hard for Houston-based Falcon Gas to borrow money. The founding executives left the company in December 2008, selling their shares to Bahrain-based Arcapita Bank, which now owns almost all of Falcon.

"The financial markets have rebounded, and that has a lot to do with why we're moving forward," said John Holcomb, Falcon's vice president of marketing.

Holcomb said Falcon has a "substantial customer" committed to take space, and that if the current "open season" meets its goals, the facility will be 80 percent leased.

He said that, in turn, should allow the company to borrow the money it needs to build MoBay.

Demand for gas storage has been very high in recent months. The recession left more gas on the market, and many traders chose to store gas in hopes of selling at higher prices later. In November, supplies rose to within 1.4 percent of what the U.S. Energy Information Administration estimates is the total U.S. storage capacity of 3.889 trillion cubic feet.

Against that background of high storage demand is rapid expansion of U.S. storage capacity, especially in an area between Mobile and eastern Texas. The Federal Energy Regulatory Commission has approved 76 new storage projects or expansions in the United States in the last 10 years, which would add 864 billion cubic feet of storage if they were all completed. Of that total, 40 percent has been approved in the plast three years. In many cases, what FERC has approved is only the first phase of a much larger plan.

For example, Sempra Energy is expanding Bay Gas Storage in McIntosh from 11.4 billion cubic feet to 16.4 bcf, and is building 15 billion cubic feet at the new Mississippi Hub near Mendenhall, Miss.

Holcomb said Falcon believes MoBay gains an advantage because it's close to both pipelines serving Florida, and is well positioned to receive gas from new fields in Oklahoma, Texas and Louisiana.

"We like our location a lot," he said.

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