The American Gas Association’s weekly gas storage report has been the cause of “substantial and largely unwarranted price volatility in the natural gas marketplace,” the American Public Gas Association (APGA) said last week in comments regarding the planned continuation of the AGA report by the Energy Information Administration (EIA). APGA said it will be EIA’s duty, when it takes up the storage survey next spring, to make sure that “unwarranted” price volatility does not continue.

APGA, which represents 58 municipal gas distributors in 36 states, recommends that EIA provide a predictive model of additional production and consumption data along with the weekly storage statistics to minimize the volatile reaction in the gas markets following the release of fresh fundamental information. It also told EIA the storage data should be released on Friday after the markets are closed, rather than on Wednesday, to allow market participants plenty of time to digest the new information. APGA proposes that EIA publish the storage data within the Natural Gas Weekly Update, which includes other supply and demand information and market analysis.

Currently, the various players in the market each week basically use the storage report as a market mover, whether or not there is any justification for such movement, APGA said. As an example of “such mis(use),” APGA cited the report of a New York investment bank on Oct. 25, 2001. At a time when storage was 93% full (versus 80.2% full during the same week a year prior), the investment bank was touting a 25 Bcf weekly injection as being bullish compared to the 71 Bcf injection the previous year. The headline of the bank’s analysis stated “AGA Reports Very Bullish Injection, Futures Prices Rally, Downside Price Risk Greatly Reduced.”

In its analysis, the bank said, “We think this week’s injection may be the turning point for the market and we are shifting to a more positive near-term stance on natural gas. We remain extremely bullish about the longer-term fundamentals for natural gas and comfortable with our benchmark forecast of $3.50/MMBtu for 2002.”

“That sort of response to the AGA storage report is, unfortunately, not atypical,” APGA said. “That is so because many significant players in the natural gas marketplace thrive on price volatility…Is it any wonder that marketers and brokers…support issuance of a weekly storage report unadorned by any supply/demand facts that would put the data in proper perspective?”

The report drives the market in a “totally skewed fashion,” APGA added, “without any consideration of the overall natural gas supply/demand picture in the United States.”

APGA claims that it is “incumbent upon the EIA,” when it takes over the weekly survey, to take steps to prevent “unwarranted price volatility.” Citing the legal framework governing EIA’s activities, APGA said the agency is “charged, among other things, with a duty to promote stability in energy prices to the consumer, promote free and open competition in all aspects of the energy field, prevent unreasonable profits within the various segments of the energy industry, and promote free enterprise.”

APGA believes EIA should model data it already collects to create a supply/demand simulation that would assist in putting the storage reports and any other unpredictable events, such as hurricanes or pipeline disruptions, immediately in perspective.

In its comments, APGA provided its own framework for such a predictive model, called the “Supply-Demand Simulator.” The results of the simulator would not be actual price forecasts but rather estimates of relative changes in natural gas supply and demand. There would be three qualitative predictions: the direction of the price changes; the severity of the price changes; and the duration of the price changes.

At first glance, one EIA representative said, the idea was totally unrealistic and would be too difficult for EIA to do on a weekly basis. “It would be a foolish exercise to get involved in,” he said. “The market drives these prices. There’s already significant price transparency. For someone to tell them what they think the price should be, that’s foolishness.” He said EIA is not likely to release any new predictive model with the storage report. However, he noted EIA will be providing analysis of the supply and demand situation each week following the release of the storage survey.

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