The Energy Information Administration's (EIA) announcement last week that it will revise the methodology used to produce its weekly natural gas storage report had brokers and energy industry insiders wondering what exactly they are going to see Thursday morning.
Late last month, 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 Daily GPI, July 29). 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 effective date for the new system is Thursday, when working gas estimates as of July 29 will be released (see related story). At the same time, the EIA also will release revised storage estimates based on the new methodology for all weeks from June 17 to July 22. The revision has industry players wondering whether overall stocks will be revised lower or higher and how large the revisions will be.
"It won't change anything except for the initial reevaluation," said Brad Flores, a broker with ICAP Energy. "They are going to implement the new method and apply it in arrears for a certain length of time. They could come out and announce that they are going to take 'X' Bcf out of storage or add 'X' Bcf into storage, so it comes down to what the market is expecting.
"From what I have been reading, it sounds like people believe [the overall working gas level] is going to come in a little lower than it is currently being valued," he added. "I'm not sure how confident people are in which way it will go. I don't think anyone thinks it is going to be a major change. If it is a major revision, then I think we will obviously see the impact on natural gas futures."
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.
Flores 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 it and months to fill it 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 the uncertainty surrounding the methodology change has everyone taking a wait-and-see approach. "I don't know what we are going to see tomorrow, and my guess is that I am not alone," he said. "I've looked at that methodology and it is conceivable that there could even be no change in overall working gas storage levels.
"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. What is interesting is it looks like the only possible significant change could come from the producing region, where they are now treating types of operators differently."
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 can be accessed at http://tonto.eia.doe.gov/oog/info/ngs/methodology.html.
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