facebook-pixel

This hollowed-out Utah cavern will hold millions of barrels of gasoline. Some question if it is safe.

One geologist has raised questions about the risk of earthquakes.

(Courtesy photo by Sawtooth Caverns LLC) These tanks are among the aboveground equipment at Sawtooth Caverns, a facility outside Delta, Utah, where propane is stored in chambers that were hollowed out in a massive salt dome. Despite concerns about the dome’s seismic integrity, Utah regulators recently OK'd Sawtooth’s request to store millions of barrels of refined petroleum fuels, such as gasoline and diesel. These fuels would be delivered by rail and pipeline from Salt Lake City and West Coast refineries for storage during periods of low demand.

Some 3,000 feet under Millard County lies a massive dome of salt, two miles across and a mile thick, that is becoming a major pivot point in Utah’s energy future.

Owned by the state, the dome is seen as an ideal geological formation for holding liquid fuels, both fossil and renewable. Early next year, a propane-storage facility known as Sawtooth Caverns will begin accepting refined petroleum-based products, such as diesel, gasoline and jet fuel, in a move to help balance supply with fluctuating demand.

Its five existing caverns, capable of holding up to 6 million barrels, were hollowed out in 2014 and have been storing propane and other natural gas liquids, or NGLs, such as butane.

But the operator plans to expand the types of fuels it takes and its caverns into an all-purpose storage facility where producers park their output during times of low demand when people aren’t driving as much or heating their homes.

“There’s seasonality to demand, but production is continuous. NGLs are produced all the time. The highest demand is in the winter,” Sawtooth COO Dave Robinson told Utah regulators last year during a hearing. “Similarly with refined products, the gasoline driving season is summer, so refiners in this area have excess capacity in the winter to produce.”

One of the caverns is now available to take refined fuels and Sawtooth has permits in place to begin storing diesel and gasoline from refineries in Salt Lake City and California early next year, according to Robinson.

“The flip side is it benefits consumers to ensure availability and smooth out the pricing,” Robinson said in a recent interview. “When supply is short, prices tend to spike.”

Sawtooth Caverns is located eight miles north of Delta, near the Intermountain Power Plant on land owned by the Utah School and Institutional Trust Lands Administration, or SITLA. The agency acquired the land from the Bureau of Land Management in a massive land swap 20 years ago with the intent of developing its underground salt dome, a rare feature in the West. This geological structure is the site of the major hydrogen energy project proposed by Magnum Development.

The Utah Board of Oil, Gas and Mining recently authorized Sawtooth Caverns to store refined fuels and hollow out five additional caverns. Its order was issued over concerns raised by a retired mining geologist who believes seismic faults could pose a risk should they breach the caverns. That could allow fuel to escape into the ground and contaminate water sources, according to Jack Bloom, whose career in engineering geology spanned 30 years, most recently at Kennecott Utah Copper.

The salt dome sits about 40 miles west of the Wasatch Fault’s Levan segment, which last unleashed a major quake 1,000 years ago. Since 1901, five quakes exceeding magnitude 5.1 have occurred within 75 miles of the dome, Bloom wrote in a 2019 letter to the oil and gas board.

“According to the Utah Geological Survey, these fault zones are active and capable of large earthquakes,” he testified before the board. “A dynamic stability analysis needs to be conducted using a three-dimensional method to assess what the risk would be to the salt dome and the caverns if there were to be a major earthquake.”

Bloom is also concerned about a 20-foot-thick “anomalous zone” cutting through the dome at a 35-degree angle. This zone could represent a point of weakness and should be probed by drilling into it.

Sawtooth lined up numerous experts who convinced the board that Bloom’s concerns were unfounded, but Bloom continues to argue that additional studies are in order before additional caverns are mined.

The caverns have been engineered to the energy industry’s highest standards and have been operating for the past five years without any safety issues, Robinson said. The company has put up a $1 million bond.

About 70% of the propane and butane Sawtooth currently takes arrives by rail, the rest by truck.

However, the refined fuels are expected to be delivered through the underutilized UNEV pipeline connecting Las Vegas with Salt Lake City’s refineries, Robinson said, while fuels from California refineries will come by rail. Different fuels will be stored in different caverns and they are not to contain additives, which could dissolve salt.

The 425-mile UNEV pipeline, which is operated by HollyFrontier, runs just 3.5 miles from Sawtooth’s injection wells. Robinson expects to eventually tie into that pipeline to receive fuel from the Salt Lake refineries in the winter, then send the fuels by truck to Utah’s urban areas in summer.

“These caverns are what we call fungible caverns, so we may have multiple customers putting product into a single cavern that meets the single spec. We tell them, ‘We’re not going to guarantee you’re going to get your molecule back, but you’ll get specification product back,’” Robinson said. “They [fuel producers] like that because large-scale fungible gives them the economics they want.”

Sawtooth is an LLC formed in a joint venture between NGL Energy Partners and Magnum Development, with Houston-based Haddington Ventures, a private-equity firm focusing on energy storage,

The caverns are not natural, but were hollowed out through a process called solution mining. Magnum created the five existing caverns by drilling into the dome, then injecting freshwater into the holes to dissolve the salt. The liquid is sucked back to the surface in the form of brine. Each cavern holds between 1 million and 2 million barrels, with a total current capacity of 6 million. In 2015 Magnum sold the caverns to NGL Energy for $280 million, but has retained an interest in the facility through the joint venture that operates Sawtooth.

Today the caverns are the West’s largest underground energy storage facility and its capacity could double in the coming years. SITLA receives an annual rent of $54,000 along with a minimum royalty of $188,000. This revenue feeds Utah’s schools trust fund. The royalty is set at 1.25% of Sawtooth’s gross revenues and the rate is to ratchet upward to 6.25% over the next 35 years.

Sawtooth maintains two 160-acre ponds to hold brines that are pumped in and out of the caverns.

“When you bring product in and you displace the brine that was left in the cavern. When you’re going back out with product, you pump the brine back in the cavern to push out product,” Robinson said. “It’s an elegant, simple and efficient way to operate. Those sorts of structures are awesome for storing all sorts of things.”

Salt caverns also have advantages over above-ground storage by extending the products’ shelf life far beyond the nine months typical for many fuels. Robinson noted that fuels have been safely stored underground in France for up to 25 years.

“They did a 10-year study on product quality and it shows the product was as good 10 years later as it was when you put it down there. The reason is because there’s not air down there, there’s not metal down there, which would catalyze degradation,” Robinson said. “With regard to refined products, the state of Utah and Sawtooth as a company have a unique opportunity to build on this idea of a Western energy hub that we started with natural gas liquids.”

Comments:  (0)