A Valuable Hole in the Ground

Long before I joined it, my former employer did a leasing deal with an energy company at the height of the early-80's energy bust. At the end of the long-term lease my employer, as owner, made a few bucks selling the heavily used equipment (aka "residual value"). It also retained ownership of an underground salt dome used for the storage of natural gas. The people who did that deal were mocked incessantly for years as buying a "hole in the ground."

Underground salt domes are valuable commodities in the energy industry for their ability to store large quantities and varieties of substances. The latest application is hydrogen storage. [bold added]

Salt caverns like these are emerging as one possible solution to the question of how to store solar and wind energy for later use.

It’s a three-step process. First, electricity from solar and wind farms is used to produce hydrogen. Then the hydrogen is stored in caverns like those scheduled to be completed next year at the Advanced Clean Energy Storage project in Delta, Utah. Finally, the hydrogen can be used as a green substitute for climate-warming fossil fuels in uses ranging from power generation to steel manufacture and shipping...

The problem is that renewable power generation can fluctuate a lot depending on the time of day or year. Solar-panel output, for instance, stops when the sun sets, and in California can roughly halve in winter versus summer.

Utilities are building big battery installations that can suck up some of that renewable electricity when it’s plentiful during the day, and release it for a few hours in the evening. But the lithium-ion batteries most commonly used today are too small and expensive to absorb the massive amounts of power needed to balance out grids over months or seasons, energy-industry executives say...

Capturing that renewable power by making hydrogen with it and storing the gas underground isn’t cheap. Industry executives say the cost to make a salt cavern could easily exceed $100 million, on top of expenses for the equipment needed to produce the hydrogen. But trying to provide similar storage with batteries is much pricier.

Green Hydrogen International, a company planning a cavern project in South Texas, estimates it would take around 38,500 Tesla Megapacks—a type of battery popular for large-scale utility installations—at an estimated cost of $59 billion to store the amount of energy it is hoping to keep in its caverns, which it estimates will cost $150 million to make...

Salt caverns have been used since at least the 1940s to store fossil fuels. The U.S. keeps a good portion of its natural gas underground, as well as its emergency crude-oil reserves, which reside in four huge salt caverns in Texas and Louisiana.

The caverns are typically hollowed out of deposits of rock salt, formed from the remnants of ancient seas that have hardened into layers or been squeezed into pillars or mushroom-shaped domes of salt underground.

Salt deposits have advantages for storing hydrogen, a notoriously tough gas to trap. They are more leakproof than other types of rocks used for storage sites—a feature especially important for hydrogen, which is the smallest molecule in existence. And the rock salt doesn’t react with hydrogen, which can be corrosive to tanks when it is stored above ground.

To create a cavern, engineers drill deep down into a salt deposit, then flush it with massive amounts of water, which slowly erodes the salt and forms a long, tubelike hole, a process that can take two or three years.

As for my employer's hole in the ground, it was sold for a multiple of the original cost of the entire project (it helped that the dome was required to be filled with increasingly expensive natural gas when it was turned over to us). And the men who did that deal became CEO's and Executive Vice Presidents.