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EIA's Proposed LNG Survey Draws Mostly Negative Comments

May 30, 2005
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Gas utilities and municipal gas companies believe the Energy Information Administration's (EIA) proposed monthly and annual liquefied natural gas (LNG) storage survey would lead to market confusion rather than provide important additional information about gas supply. The associations gave EIA's planned Form 913 poor reviews and KeySpan also came out against the proposal.

In March, EIA started taking comments on a plan to begin surveying LNG storage companies, including marine import terminals, on an annual and a monthly basis during the heating season (September-March) starting in 2007 in order to develop national and regional LNG level estimates. It was the second time in two years that the agency suggested conducting the survey.

"LNG has an increasingly important role as a source of natural gas supply, especially during periods of peak demand," the agency said in its notice. It said the reporting burden would be limited because monthly respondents would be required to report only one data item, the amount of LNG in storage as of the report date, and EIA planned to conduct the survey over the phone.

However, commenters disputed both of those points: the importance of LNG storage data and the minimal reporting burden. They also expressed numerous other concerns about the survey, including the possibility of creating confusion in the marketplace, price volatility, security issues, and competitive/market power issues.

AGA's Chris McGill and KeySpan's Kenneth T. Maloney and Christopher M. Heywood all said the survey would have very little market value because LNG represents such a small percentage of domestic gas supply. "As a general matter, the amount of LNG storage, even considering its expected growth, is just a fraction of the total underground storage, and data concerning such storage is subject to manipulation and misinterpretation," the KeySpan representatives said.

All three commenters, AGA, APGA and KeySpan, said the survey would likely cause more market confusion than market transparency. For example, McGill noted that all sources of LNG serve less than 4% of annual gas demand and on a peak day LNG might account for only 5% of the total gas supplied to customers.

"As such, a monthly inventory of LNG facilities would describe a net change in LNG volumes but would offer no information about utilization, and in fact, would be highly susceptible to misinterpretation by the market. Its impact as a peak-period supply source would be lost in the monthly accounting and annual inventory data," McGill said.

KeySpan added that the LNG data would not show how often LNG facilities have been cycled, only how much LNG was stored at the beginning of the month. As a result, any use of the data "to predict the ability to meet actual or projected demand or market activity would be speculative. In fact, the analyses themselves could be manipulated as companies could simply fill LNG facilities to reflect the storage levels they wish to report. As a result, LNG storage reports could create needless price volatility and adverse market impacts."

Comparing LNG data from the same period a year earlier would not provide any useful information about market conditions, said McGill. "Elements such as liquefaction capability rates that impact the ability for some facilities to refill the LNG inventory and the economic choices made to use an existing inventory during a peak period would not be reflected in aggregated inventory volumes.

"AGA believes that a volatile market with limited capability to interpret data from what is only a small fraction of a total gas supply portfolio may only contribute to needless additional price volatility for natural gas consumers."

APGA CEO Bert Kalisch added that the survey would produce an "incomplete snapshot of gas supplies" (which would have already been tallied in import and production surveys) as those supplies flow "unpredictably among LDCs along the interstate and intrastate pipeline systems."

Kalisch said a more serious flaw that "renders a simple inventory report meaningless" is that LNG importers store LNG for different reasons than do LNG peak shaving storage operators. Importers store their LNG only until they can regasify it and move it to market, whereas peak shaving operators store LNG until it is dispatched to serve peak demand.

"Thus to aggregate LDC LNG storage numbers with imported LNG numbers will mix 'apples and oranges' and produce a confusing and meaningless result," said Kalisch. "This confusion will be enhanced by the fact that the imported LNG numbers will likely dwarf the LDC LNG numbers, which means that while LDC LNG may be up in a given month, the EIA-913 data could show a sharp decrease due to the movement of gas continuously through the imported LNG facilities."

In light of that, Kalisch said the market would have great difficulty interpreting the data. He said the market likely would try to make connections between the EIA's weekly gas storage data and the LNG data.

"EIA is certainly aware of the volatility associated with its underground storage report; imagine the volatility that would be caused by a report which treats LNG storage as a fungible item, when in point of fact it is not, and thus produces numbers which may mean the opposite of what is really happening at the LDC storage level," he said.

He also suggested that the survey also might create a security risk. "Admittedly the tank locations are already known or knowable to the public and 'evildoers' but the additional knowledge of the presence of LNG in those tanks may make a site a more attractive target."

McGill added that providing the public with sensitive LNG inventory and capacity information certainly would put the operator and its customers at a competitive disadvantage with suppliers and with other LNG facilities searching for supplies. As a result, AGA said any site specific LNG data should remain confidential.

AGA also expressed concerns about the administrative burden of reporting the LNG information. Total LNG storage in the United States is about 100 Bcfe. AGA represents utility companies that own 53 peak shaving LNG plants with about 60% (15 million bbl) of the LNG storage in the country. "Although the cost of completing a single survey is rarely high, in the aggregate the reporting requirements imposed on local distribution companies create significant administrative costs. We recommend against adding to that cost, particularly since the report in question will provide little added value."

For more comments on the proposed survey go to EIA's website, http://www.eia.doe.gov/, and click on What's New. EIA said it will review all comments before making a final proposal to Office of Managment and Budget later this summer. Contact: Steve Nalley at (202) 586-0959 or snalley@eia.doe.gov if you have any questions.

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