Underground Gas Storage

An underground natural gas storage facility is a depleted or substantially depleted natural gas system. Because the majority of the natural gas has been extracted, utility companies acquire surface easements, through eminent domain if necessary, to access the depleted reservoir in order to inject new natural gas from other fields for storage and extraction at later date when the gas can be resold at a higher price.

We have worked on several unique eminent domain cases in Oklahoma and Alaska that pertain to the valuation of easement rights over underground natural gas storage facilities. Although this type of eminent domain scenario currently does not affect many property owners around the country, I think we’ll begin to see more and more of this as our energy requirements in this country become more demanding.

The problem we’re seeing with these acquisitions relates to the valuation process used by the utility companies. The utility companies are only offering low land values for easement rights across the surface of the land, which really have no relationship to the value of the underground storage facility.  Property owners should rightfully look at this as not easements across the surface of their land, but as owning a portion of this underground gas storage facility to which they should be entitled to their proportionate share of its value.  This means that the value of an underground storage facility should be considered no differently than the value of natural gas, oil, or any kind of mineral that is beneath the surface that would be utilized by a third party utility company or energy processor to achieve profits in the market place.

The valuation scenarios are drastically different between these two concepts.  The value of a surface easement will be far less than the value of a property owner’s proportionate share of the natural gas storage facility.  Because very few courts have addressed this, we’ll see the evolution of determining damages in this situation occur in the coming years as more of these cases are addressed in court.

I call this situation to our reader’s attention because we believe in the future there will be more owners confronted with this situation and we think it’s important that property owners understand there are different methods of calculating just compensation for underground gas storage facilities then the method being put forth by the utility companies at this point in time.