Economic value of underground natural gas storage for the Brazilian power sector

This paper aims at assessing the main obstacles to the development of underground natural gas storage (UGS) in Brazil and at identifying the conditions required for the feasibility of UGS projects in the country. The paper estimates the economic value of UGS facilities for the power sector in Brazil, considering the specificities of the Brazilian power and gas sectors. It is shown that the Brazilian gas demand does not have a seasonal characteristic; instead, the demand is volatile of a random nature associated with the demand from thermal power plants, which are complementary to hydropower generation. This paper has proved that there is an important economic value associated with the storage of gas in periods of low power prices and its consumption in period of high power prices. Finally, this paper argues that it is essential to seek mechanisms to include the economic value of UGS for the power sector into the UGS regulation and market design, as well as to explore the possibility of making gas storage a resource for the power sector operation.