Energy Risk Engineering Insights

Let’s talk about the risks associated with operating a one trillion cubic foot natural gas storage resource. 20% of the capacity is residual. 50% of the working capacity is owned and the other 50% is leased to other gas owners. Describe the risks involved and discuss Maximum Foreseeable Loss scenarios.

Operating a one trillion cubic foot natural gas storage resource entails various risks that should be carefully considered. Here are some of the key risks associated with such an operation, along with discussions on Maximum Foreseeable Loss (MFL) scenarios:

1. Safety Risks: Natural gas storage involves handling and storing a flammable substance, which presents inherent safety risks. Potential risks include leaks, explosions, fires, and accidents during storage operations. To mitigate these risks, rigorous safety protocols, regular inspections, and appropriate safety measures must be implemented.
2. Infrastructure Risks: The physical infrastructure required for natural gas storage, such as pipelines, wells, and storage facilities, can be subject to risks. Equipment failures, corrosion, natural disasters (e.g., earthquakes, floods), and external threats (e.g., sabotage, terrorism) can lead to disruptions, operational downtime, and potential loss of stored gas. Regular maintenance, asset integrity management, and security measures are crucial to minimize these risks.
3. Regulatory and Compliance Risks: Operating a natural gas storage resource involves complying with numerous regulations and industry standards. Failure to meet these requirements can result in penalties, fines, legal liabilities, and reputational damage. Maintaining compliance with safety regulations, environmental standards, and reporting obligations is essential to mitigate regulatory risks.
4. Market Risks: The natural gas market is subject to price volatility, demand fluctuations, and geopolitical factors. Changes in supply and demand dynamics, regulatory policies, weather patterns, and economic conditions can impact gas prices and the profitability of storage operations. Proper risk management strategies, including hedging and market analysis, can help mitigate these risks.

Maximum Foreseeable Loss (MFL) scenarios represent extreme events that, although unlikely, could have significant consequences if they were to occur. While the specific MFL scenarios depend on site-specific factors, here are a few examples:

1. Catastrophic Leak or Explosion: A catastrophic failure, such as a massive gas leak or explosion, could result in the loss of a substantial portion of the stored gas, infrastructure damage, and potential harm to personnel or the surrounding environment. Implementing strict safety protocols, regular integrity testing, and emergency response plans can minimize the likelihood of such events and mitigate their impact.
2. Natural Disaster: A severe natural disaster, like an earthquake or flood, can damage storage facilities, pipelines, or wellheads, leading to gas loss, supply disruptions, and extensive infrastructure repairs. Conducting comprehensive risk assessments, implementing robust design standards, and ensuring adequate disaster preparedness are crucial for mitigating such risks.
3. Market Disruptions: Significant disruptions in the natural gas market, such as a sudden decrease in demand or a major regulatory change, can adversely impact the financial viability of gas storage operations. Diversification of customer base, long-term contracts, and effective risk management strategies can help mitigate the potential loss in such scenarios.

It’s important to note that the risks and MFL scenarios outlined above are not exhaustive, and a comprehensive risk assessment tailored to the specific natural gas storage resource would provide a more accurate evaluation of the potential risks involved.