After much speculation as to the impact to natural gas storage from the Energy Information Administration's (EIA) revised reporting methodology, the small weekly storage injection of 37 Bcf for the week ended July 29 completely overshadowed it Thursday morning. The net effect of the revisions was a 2 Bcf increase in working gas storage levels as of July 22.
The revised storage estimates based on the new methodology covered the six weeks from June 17 to July 22. The most significant changes made to previous numbers came during the week ended July 1, when overall working gas in storage was revised 13 Bcf higher than originally reported. However, revisions in the following weeks brought the net change to the most recent data up a mere 2 Bcf. Working gas levels for the week ending July 22 were revised to 2,383 Bcf from 2,381 Bcf. For the six week period, revisions in the East and West regions added gas to storage, while revisions to the Producing region pulled stocks lower.
|EIA Working Gas Storage Revisions Under New Methodology (Bcf)*
|* The numbers shown represent net changes from the data previously reported by EIA. For the actual revised numbers go to http://tonto.eia.doe.gov/oog/info/ngs/history.html
In what could be considered "much ado about nothing," IFR Energy Services' Tim Evans said the revisions were "token" in nature. "A 2 Bcf revision is almost not worth revising the prior week's number for," Evans said. "You could make a case for lumping it into the weekly change and no one would be the wiser.
"The year-on-year number and the year-on-five year number were not distorted. The changes here are really subtle ones."
Late last month, the EIA reported that it was revising the estimation system used to produce the storage estimates that are published in the Weekly Natural Gas Storage Report (see NGI, Aug. 1). The new system expands the sample of companies used for estimation from 56 to 63 and revises the approach used to estimate the volume of working gas in storage from the weekly sample data. The new estimation system also separates the reporting by salt cavern storage operators and non-salt cavern storage operators in the Producing region due to the operating differences.
"The new methodology changes the sample to reflect the fact that the pattern of storage injections and withdrawals of salt dome storage differs from conventional storage," said Ron Denhardt, vice president of Natural Gas Services for Strategic Energy & Economic Research Inc. "The revised methodology should improve the sample properties of the weekly storage data." As a comparison, Denhardt noted that for July 2004, the weekly storage data indicated working gas storage was 2387 Bcf and the monthly storage data was 2394 Bcf.
The storage companies that make up the revised EIA survey are organized into four groups: the East region, the West region, Producing-Salt and Producing-Nonsalt. EIA noted that there are three types of underground storage facilities: (1) depleted reservoirs in oil and/or gas fields, (2) aquifers, and (3) salt cavern formations. The agency also found that weekly changes in working gas stocks differ for salt and non-salt companies.
ICAP Energy's Brad Forer said he "absolutely" believes the new method is better than the old, because it is more comprehensive. "Right now, there is a difference in the way salt cavern storage operators and non-salt storage operators operate," he said. "They are now realizing, as they should, that they don't actually react the same way, so this will be a more accurate gauge because it will take into account the differences in different types of storage facilities. The vast amount of storage out there takes months to unload and months to fill due to the nature of it. I believe the salt cavern storage locations can be turned over quite quickly in comparison."
Commercial Brokerage Corp.'s Tom Saal said, "My understanding is that the new method is more rigorous than the prior method. Looks like higher injections got a little higher and lower injections got a little lower. Overall not much of a change in the big picture, so far.
"Currently, they are sampling 80% of all of the storage operators," Saal noted. "With the new methodology, they will now be getting 90%. Changing the sample size from 80% to 90% isn't really going to matter. If they were changing it from 20% to 90%, or 50% to 90%, I would say we would definitely see a big change. What they are doing is attempting to minimize the difference between the weekly storage numbers and the monthly storage numbers."
The EIA announced that the new system changes the sample of companies and the approach used for estimating the total volume of working gas in storage nationwide. The method of estimation uses both recent data from the EIA-191, "Monthly and Annual Underground Storage Report," and the latest data collected on the weekly EIA-912 survey. The agency said the new method is based on analysis of data trends on an individual company basis. Company specific estimates are summed to produce regional and national totals.
"This is a distinct departure in approach from the current method, which estimates the total volume for non-sample companies as a group based on the aggregate volume of a set of sample companies," the EIA said. The new methodology is available on the EIA web site.
The EIA's Thursday report of a 37 Bcf injection for the week ended July 29 fell slightly below industry expectations and significantly under historical comparisons. As a result, September natural gas futures were off to the races in Thursday morning trade. Despite soaring as high as $8.685 o nthe day, the prompt month slowly sold off in the afternoon, reaching as low as $8.44 before settling at $8.471, up 12 cents from Wednesday.
The 37 Bcf report for the week ended July 29 was bullish when compared to industry expectations. A Reuters survey of 21 industry players expected natural gas stocks to rise by an average of 48 Bcf for the week, while the ICAP-Nymex storage options auction on Wednesday revealed a consensus forecast of a 43 Bcf injection. Last year's injection for the week was 81 Bcf and the five-year average build was 66 Bcf.
As for this week's report, Evans said the reported 37 Bcf injection was certainly supportive to the natural gas futures complex. "The problem I have with classifying anything as clearly bullish here is the fact that we are in a market that is more than $2.50 off of its May low, so the 37 Bcf report is bullish compared to say a 50 Bcf injection, but does it mean we have another easy 50 cents to a dollar here on the upside, that's a tougher call."
Following all of the revisions and the most recent report, working gas in storage now stands at 2,420 Bcf, according to EIA estimates. Stocks are now 52 Bcf higher than last year at this time and 170 Bcf above the five-year average of 2,250 Bcf. The East Region injected 38 Bcf for the week, while the West region chipped in 2 Bcf. The Producing region recorded a 3 Bcf withdrawal.
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