AGA Changes Storage Report, Highlights 5-Year Average
In a move that had an immediate bearish impact on the natural
gas market last week, the American Gas Association (AGA) decided to
begin publishing a five-year average of gas storage levels in its
weekly storage report. Since the five-year average is much closer
to current levels than last year's abnormally high working gas
levels, the new information gave the market a much different view
of industry fundamentals. The combination of the new average and
last week's huge 97 Bcf injection knocked nearly a quarter off
August futures prices on Wednesday.
The director of the AGA's storage report said in an interview
with NGI that the report has been giving the market an incomplete
picture by showing only a year-on-year comparison of working gas
levels. AGA is publishing the five-year average "just to give
people a little more information," said AGA's Chris McGill,
director of gas supply and storage. "Last year there was an
abnormally high level of working gas in storage compared to
previous years and our information that we were publishing on our
report essentially invited that comparison and really only that
comparison. We're hundreds of Bcf behind the working gas levels of
last year. However, we are significantly less than that behind, for
example, the prior five-year average."
Gas prices are at record highs and low storage levels,
particularly when compared with last year's levels, have been
partly to blame, according to many market observers. Futures and
cash traders often focus intently on the comparison between this
year's and last year's levels and make their decisions accordingly.
The most recent report by the AGA, which includes the new
five-year average, shows working gas levels as of July 7 were 428
Bcf less than levels at the same time last year. However, they were
only 161 Bcf less than the five-year average on that date.
AGA could have given the market a six-year average because its
data go back that far, but McGill said the five-year average was
more representative of changes in storage usage.
A six-year average also would have shown a larger deficit of
minus 180 Bcf.
"I think there is some question as to whether even a five-year
average is truly representative for a comparison basis, as quickly
as storage is changing and utilization of storage is changing. Five
years is just what I pulled out of the hat, really. Maybe three
years would be even better. I'm not sure. Five is what I settled
on," McGill said.
Contrary to what some observers, including Sen. Charles Schumer
(D-NY), have indicated recently (see related story this issue), the
industry is not headed for an energy crisis this winter, and the
new average shows that quite well, said McGill.
"With respect to natural gas, if all you are looking at is
storage, we are certainly behind last year and even about 10%
behind the five-year average, but I don't see that as a crisis.
Last week (the week ending June 30) we had as much gas going into
storage as we had the year before." And during the week ending July
7, a whopping 97 Bcf was injected, the largest weekly injection
since the second week in June 1998. "We certainly still have a long
time in the storage refill season. We've had net refills in storage
even in December of certain years. On the storage side of things, I
don't see a huge problem. I don't know how much working gas is
going to be in storage at the beginning of the winter heating
season whether it's 2.7 Tcf or 2.9 Tcf. I know that the local
distribution companies and other companies that put gas in storage
for firm customers are going to have it there."
McGill noted that in 1996 working gas levels were lower than
they are currently and gas in storage still reached more than 2.7
Tcf by November. In 1996 and 1997, there was less gas in storage at
this time of year than there is currently and working gas levels
reached highs of 2,725 Bcf and 2,814 Bcf, respectively for 1996 and
1997 by the winter.