Underground Natural Gas Storage

The DNR’s authorization to enter into contracts for storage of natural gas and other mineral products beneath state-owned lands comes from section 324.502(3) of the Natural Resources and Environmental Protection Act, 1994 PA 451, as amended (NREPA).

Any qualified party may apply to lease state-owned underground storage rights.  Pursuant to administrative rules R299.4051-R299.4055, Leasing State-Owned Underground Gas Storage Rights, state-owned underground storage rights are only leased via direct (non-competitive) leasing and are not offered at an auction.  A state of Michigan underground gas storage lease is not a transfer of ownership and will expire after its seven-year primary term if natural gas is not being stored and facilities are not maintained.

The state is not selling the underground gas storage rights.

Yes. Leasing of state-owned underground storage rights for exploration and development generates revenue in three ways:

• Lessees pay an application fee and per-acre fee.
• Lessees pay a “bonus” fee to acquire the lease rights.
• Lessees pay annual rent based on acreage leased.

Money received from a contract for the storage of gas in or upon state lands is used for the purpose of defraying the expenses incurred in the administration of the program and other purposes provided by law.

Yes. In Michigan, all underground natural gas storage exploration and development activity on state and private land is regulated by state and federal agencies including the Michigan Public Service Commission (MPSC) and the Michigan Department of Environment, Great Lakes, and Energy (EGLE).

In the DNR’s leasing process, there are several means of identifying and addressing potential environmental concerns associated with underground natural gas storage development.  For example:

Parcels nominated for leasing go through a classification review by resource specialists to determine the appropriate level of surface use that could be allowed (see related questions regarding lease classifications and stipulations for further information).

• Additional site-specific review by resource specialists is completed when exploration and/or development plans are proposed.
• The lease is subject to all applicable existing or subsequent federal, state, and local laws and rules.
• The lease within itself is not an authorization to conduct storage operations.  Separate application(s) and approval(s) by federal, state, and local agencies are required prior to commencing certain storage activities.

The following are examples of standard provisions in a state of Michigan Underground Natural Gas Storage Lease:

• A 1,320-foot setback from lakes and streams.
• Prohibits operations in wetlands, critical or endangered species habitat, and areas of historical or archaeological significance.
• Requires that a Lessee submit a detailed development plan to the DNR prior to lease development.
• Requires that pipeline routes follow existing roads or utility corridors and be buried below plow depth (typically 3 feet) unless specific written permission is granted from the DNR.
• Does not allow for a reclassification approval from the leasable nondevelopment (LND) classification if there will be impairment of wetlands; endangered species habitat; historic, archaeological, or cultural sites; or areas of special biological, ecological, or recreational significance.

Not necessarily.  State ownership of underground storage rights signifies that the state owns any storage space that may exist within/beneath the property, along with the right to utilize that space for storage of natural gas and other appropriate substances as provided by law. 

There are four categories of lease classification:

1.     Leasable development (LD - allows surface use that conforms to lease terms).
2.     Leasable development with restrictions (LDR - allows surface use that conforms to lease terms and additional added stipulations).
3.     Leasable nondevelopment (LND - does not allow surface use without separate, written permission from the DNR).
4.     Nonleasable (NL - rights will not be leased).

Nominated parcels are classified for leasing after a review by resource specialists to determine the appropriate level of surface use for each parcel based on known existing resource values.  If a lease is issued, additional site-specific review by resource specialists is completed if exploration and/or development plans are proposed.

Stipulations are additional restrictions or requirements that are added to a lease.  They are determined by the DNR based on a pre-lease classification review of nominated parcels.

Administrative rules are adopted by the various state agencies to guide them and the public in the conduct of their agency responsibilities.  The DNR has developed and implemented rules to guide the process of underground natural gas storage leasing on state lands, Rules for Underground Gas Storage Leases on State Lands.

The DNR uses a variety of methods to notify the public regarding the leasing of state-owned underground storage rights:

• The DNR website contains a variety of information regarding the leasing of state-owned underground gas storage rights – including lease insurance requirements, rules for leasing, leasing procedures, and forms.
• A public notice regarding proposed leasing is posted on our website and in newspapers serving areas of proposed lease activity.  Public notices are distributed to local newspapers in time to give the public 30 days to review and comment on parcels nominated for leasing before any decision is made regarding the application to lease the underground gas storage rights.
• The DNR sends information regarding proposed underground gas storage leasing to the county commissioners and township supervisors where nominated parcels are located.
• The DNR distributes press releases regarding proposed underground gas storage leasing.
• The DNR sends information regarding all underground gas storage leasing activities to interested parties who have signed up for notifications via e-mail or text.

Yes.  Public comment is an important component of every underground natural gas storage lease application. Written comments may be sent to:

Michigan DNR
Minerals Management Section
P.O. Box 30452
Lansing, MI 48909

OR DNR-LeaseManagement@michigan.gov.