AGA Plans Review Storage Data Procedures
The American Gas Association (AGA) said it is undertaking a review of the procedures for performing revisions to its storage data, following an inquiry by the Commodity Futures Trading Commission (CFTC) about the second largest revision ever to its storage data on Aug. 22. The +47 Bcf net revision prompted a sharp drop in futures prices and an angry response from natural gas traders and marketers, who use the information to help determine available supply and to project price changes.
"What's occurring is that CFTC sort of routinely follows up on any unusual press clips or any inquiries from traders or from anyone," said AGA spokeswoman Daphne Magnuson. "That's what they are doing. They are doing a follow up on the revision of the storage figures and have come in, met with us informally and that's pretty much the size of it.
"The CFTC wanted to get some information about our methodology, how it works, and we have that pretty well documented," said Magnuson. "We are not doing anything unusual. We are continuing with the storage report as we always do. Probably in the next few weeks we plan to once again have an outside auditing firm check through our procedures and policies, which we have done in the past. That would be mostly, I think, for reassurance that our policies an procedures are sound."
She said AGA has not heard from the Securities and Exchange Commission or any other federal regulatory agencies. "We have been doing the storage report for seven and a half years and, I think in that period of time we have had about 20 revisions. It's not unusual or unique," she said. "We do try to emphasize that it's a survey and there is a margin of error and no guarantee. This is a snap shot taken to the best of our ability." Magnuson said it's not in AGA's plans to stop the storage report. "But I think certainly sometimes you need to stop and reassess what you are doing."
Several observers mentioned that one possible defect in AGA's methodology is that it gives one company, the company reporting revised data, more time than the rest of the market to take advantage of market reaction to the storage data. Even if the revised data is sent to AGA minutes after the report is released on Wednesday, AGA still holds onto the revised data until the next weekly storage report. AGA officials acknowledged this could be a problem.
"When anybody reports a revision to us...they know something that everyone else doesn't," said AGA's Chris McGill, managing director of policy and planning. "This is no different this week than any other time in the past eight years. As this event has developed over the past two weeks, of course we are looking at our internal procedures. That's an issue we are trying to ask around right now to find some advice on -- whether we should continue to do that or whether we should put a message out that says we plan to revise on Wednesday. If we are going to do that much, shouldn't we just put the number out?" He said this latest revision was not based on information that came out shortly after the report was released; it became available closer to the following week's report.
Nevertheless, the revision and large net injection prompted a 30-cent drop in futures prices when it was reported on Aug. 22. It was a market reversal from what had occurred on Wednesday a week prior when AGA had reported a tiny 3 Bcf net injection (which was revised to 50 Bcf).
"If it was just that AGA made an error, it wouldn't merit an investigation," said one marketer. "But if there's any evidence of manipulation by non-AGA entities, the CFTC should go ahead with one. In fact, since it probably couldn't get such evidence without a probe, one is warranted. There has been enough concern over what happened that it should be done."
Another marketer said, "Something seemed fishy" because there were "huge reactions" in Nymex futures both Wednesdays with cash prices doing the same on the succeeding Thursdays.
"The tolerance of the market has changed when our numbers deviate from what the expectation is; it has narrowed considerably over the past eight years," said McGill. "That's probably a function of more futures trading, more of everything."
McGill noted everything done by AGA must have the support of its members. "If there was a perception that this was not valuable or was too controversial or it wasn't supporting the market transparency and the other supply planning issues that it was originally intended for, then...we probably wouldn't do it any more," he said. "But that has not been the consensus among our members. The consensus has been that we feel we are doing a valuable service and that it does add to the market transparency and supports a number of things the companies would like to see."
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