AGA Storage Revision Angers Market Participants
Drawing the ire of many marketers and traders, the American Gas Association (AGA) stunned the market for a second week in a row last week by announcing a revision to the extremely low 3 Bcf storage injection it reported for storage activity during the week ending Aug. 10. AGA said the number should have been 50 Bcf.
Revisions to storage inventories normally don't anger market participants, but last week's was an exception because of the magnitude of the change and because AGA had repeatedly stated that it was standing by its numbers. AGA also refused to explain the revision.
Some marketers were calling for an investigation by the Commodity Futures Trading Commission (CFTC) of potential market manipulation by the association because of the significant price movement that occurred in the futures and cash markets following the initial report two weeks ago and the revision last week. Bridge News reported that AGA said it had received a call from the CFTC last week regarding an investigation of the storage report. AGA officials did not return calls on the matter by NGI by presstime on Friday.
"What they did caused a lot of financial hardship to many people, both physical and financial traders," said one marketer. "You can see what kind of impact it had on futures today, moving drastically in the opposite direction from last week."
The association said the change occurred in the Consuming Region East where 35 Bcf was injected into storage rather than 12 Bcf being withdrawn as it had reported Aug. 15. In a footnote last week, AGA said, "Since the Aug. 15 report for the week ending Aug. 10, AGA has received information that some of the data were reported to AGA incorrectly. That report gave an estimate of 1,234 Bcf of working gas in storage for the Consuming Region East. This has been revised to 1,281 Bcf. This further indicates that the total U.S. volume be revised from 2,286 Bcf to 2,333 Bcf. This revision is in accordance with American Gas Storage Survey Procedures and Methodology."
When it was first reported on Wednesday Aug. 15, the 3 Bcf injection stunned the market, triggering a 37-cent increase in the near month futures contract on the New York Mercantile Exchange. The injection came in about 50 Bcf less than market expectations. Most marketers, consultants and analysts called it an aberration that probably should have been ignored (see NGI, Aug. 20). Many expected a revision, and that's what they got.
AGA reported an 86 Bcf injection last week for the week ending Aug. 17. It said there was 2,419 Bcf of working gas in storage, or 327 Bcf more than at the same time last year. Futures prices subsequently crashed more than 30 cents in a reversal of the previous week's reaction.
When questioned about the revision, AGA's Chris McGill, managing director of policy analysis, didn't provide much detail. "We don't talk about companies or anything like that," he said in an interview with NGI. "It's simply a fact that we do make revisions to our data for numerous reasons. That may be because of something we've done at AGA with respect to how we evaluate our universe of storage. It can be that a company doesn't report and then does report to us after our distribution time. It could be that a company would revise its numbers or send us something subsequent to the report," he said. "We're not going to talk to it specifically. We followed our procedures and made a revision because of information that we had subsequent to having reported it.
"We've said in the past that one company did something to cause a revision, but we're just not doing that anymore," said McGill. "It creates too much of a problem with our issues of confidentiality."
McGill said this revision is simply one among many. "When there are questions regarding [the data], we revise the data. That's happened 25 times in the period of time we've been doing this," he said. "We don't make numbers up. We don't revise something just because there's a market expectation of something else. We have to go with what we get until we get something different. It was a subsequent report of information that made us change it and that's all I can say."
One trader estimated losses were in the billions of dollars because of these data mistakes. Another wondered why so much rides on these weekly numbers published by an association with such a clear market interest.
"It's kind of strange to me that the market reacts to these kind of anomalous reports," said Ron Denhardt, a consultant with WEFA Inc. "You look at that 3 Bcf number, and we rationalized it, but the bottom line was there was no reason to believe that the fundamentals in the market had changed because of one weekly storage report. There's no way the underlying supply and demand balance could change that much in one week.
"But the storage data is the only decent mark that we have about what's going on out there," he noted. "And they certainly don't want to inhibit the release of it just because it doesn't look completely right once in a while. It's really very valuable data."
Denhardt noted that AGA could respond to potential litigation or a regulatory investigation by ceasing to provide weekly storage data. "Without this information most of the industry would have to wait months to understand what is happening to the supply-demand balance. It would become much more difficult for buyers and sellers to make appropriate decisions. Further large players in the storage market and those who have access to private storage surveys, not available to the public, would have an advantage over other buyers and sellers," he said.
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