Lodi Gas Storage

Investment Status: realized

Sector: Natural Gas Storage

Investment Fund: Fund I, Fund II

Geography: California

Initial Investment: Nov. 1, 1998

Date of Disposition:Dec. 1, 2005

In the late 1990s, Haddington perceived a need for development of high deliverability natural gas storage projects in the western United States. California was beginning to deregulate several segments of the energy industry. At the time of WHP’s inception, Haddington believed California had insufficient natural gas storage capacity to stabilize the energy market. California demand was growing dramatically in excess of national rates, while little investment was being made in natural gas infrastructure. California was encouraging new entrants into the natural gas market and the supply profile was expected to change through the development of new market options for the Midwest by Canadian producers via the then proposed Alliance Pipeline and the previously announced expansions on TransCanada and Northern Border. In Haddington’s view, deregulation encourages the development of new services and assets and ultimately leads to commodity price volatility due to fluctuating supply and demand. High deliverability storage can stabilize fluctuating supply and demand.

In 1998, Haddington formed Western Hub Properties (WHP) as a provider of cost efficient energy storage services to traditional gas users and independent power producers. Haddington presented WHP with an opportunity to develop a project located near Lodi, California. Haddington used its proprietary methodology of calculating storage value to predict that the Lodi project would generate acceptable rates of return. Haddington formed Lodi Gas Storage, a wholly owned subsidiary of WHP, to operate the Lodi project, recruited the Lodi Gas Storage management team, and assisted in arranging the original project financing.

In October of 2002, ArcLight acquired a 50% equity interest in Lodi Gas Storage. In December 2005, ArcLight acquired the remaining 50% equity interest in Lodi Gas Storage, effectively completing the sale of WHP’s only natural gas storage asset.