In a move that had an immediate bearish impact on the naturalgas market last week, the American Gas Association (AGA) decided tobegin publishing a five-year average of gas storage levels in itsweekly storage report. Since the five-year average is much closerto current levels than last year’s abnormally high working gaslevels, the new information gave the market a much different viewof industry fundamentals. The combination of the new average andlast week’s huge 97 Bcf injection knocked nearly a quarter offAugust futures prices on Wednesday.

The director of the AGA’s storage report said in an interviewwith NGI that the report has been giving the market an incompletepicture by showing only a year-on-year comparison of working gaslevels. AGA is publishing the five-year average “just to givepeople a little more information,” said AGA’s Chris McGill,director of gas supply and storage. “Last year there was anabnormally high level of working gas in storage compared toprevious years and our information that we were publishing on ourreport essentially invited that comparison and really only thatcomparison. We’re hundreds of Bcf behind the working gas levels oflast year. However, we are significantly less than that behind, forexample, the prior five-year average.”

Gas prices are at record highs and low storage levels,particularly when compared with last year’s levels, have beenpartly to blame, according to many market observers. Futures andcash traders often focus intently on the comparison between thisyear’s and last year’s levels and make their decisions accordingly.

The most recent report by the AGA, which includes the newfive-year average, shows working gas levels as of July 7 were 428Bcf less than levels at the same time last year. However, they wereonly 161 Bcf less than the five-year average on that date.

AGA could have given the market a six-year average because itsdata go back that far, but McGill said the five-year average wasmore representative of changes in storage usage.

A six-year average also would have shown a larger deficit ofminus 180 Bcf.

“I think there is some question as to whether even a five-yearaverage is truly representative for a comparison basis, as quicklyas storage is changing and utilization of storage is changing. Fiveyears is just what I pulled out of the hat, really. Maybe threeyears would be even better. I’m not sure. Five is what I settledon,” McGill said.

Contrary to what some observers, including Sen. Charles Schumer(D-NY), have indicated recently (see related story this issue), theindustry is not headed for an energy crisis this winter, and thenew average shows that quite well, said McGill.

“With respect to natural gas, if all you are looking at isstorage, 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 intostorage as we had the year before.” And during the week ending July7, a whopping 97 Bcf was injected, the largest weekly injectionsince the second week in June 1998. “We certainly still have a longtime in the storage refill season. We’ve had net refills in storageeven in December of certain years. On the storage side of things, Idon’t see a huge problem. I don’t know how much working gas isgoing to be in storage at the beginning of the winter heatingseason whether it’s 2.7 Tcf or 2.9 Tcf. I know that the localdistribution companies and other companies that put gas in storagefor firm customers are going to have it there.”

McGill noted that in 1996 working gas levels were lower thanthey are currently and gas in storage still reached more than 2.7Tcf by November. In 1996 and 1997, there was less gas in storage atthis time of year than there is currently and working gas levelsreached highs of 2,725 Bcf and 2,814 Bcf, respectively for 1996 and1997 by the winter.

Rocco Canonica

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