Coming a week after the Energy Information Administration (EIA) said it is overhauling its 914 report methodology, which will likely lead to a downward revision of U.S. production figures (see Daily GPI, March 30), some energy consultants are warning that the government agency’s estimates of natural gas supply are likely off by more than 1 Tcf over the last two years. This under-accounting could leave the United States in a precarious situation once the economy recovers.

According to the Jergens Center for Energy Forecasting (JCEF), when the EIA publishes its natural gas and supply data it uses a factor called “balancing item” to account for any difference between its supply total minus its demand total after also adjusting for storage activity. According to public data on www.eia.doe.gov, JCEF said that in 2008 and 2009 this balancing item grew to an “unprecedented” cumulative total of 1 Tcf before recent revisions by the EIA reduced the 2008 supply total by 277 Bcf.

JCEF notes that the “euphoria over shale gas field production” has prompted several analysts and media outlets to claim that the United States is in the midst of a new natural gas supply bubble; a belief at least partially fueled by EIA reports reflecting U.S. supply growth even when drilling slows and well decline rates are rising. JCEF founder Mark Jergens thinks this misconception could put the country into an upside down supply-demand equation down the road.

“The EIA has systematically overestimated the amount of U.S. production and that in actuality the U.S. is ‘treading water’ since the 2008 production peak and is in danger of falling far short of its supply requirements if the slowly progressing economic recovery translates to higher demand levels,” Jergens said recently in a presentation at the Ohio Energy Management Conference.

Jergens noted that state production data, which is available “more quickly” than EIA data, tends to offer much greater detail. “A little common sense can also be applied in this case; the EIA data reflecting 1 Tcf of errors is some combination of an overestimate of supply, an underestimate of demand, or an overstatement of storage,” Jergens said. “Furthermore, because the method employed by the EIA to calculate supply is subject to the most extrapolation and because the rig count drop in late 2008 and 2009 was on the magnitude of 55%, it makes more sense that a majority of the balancing error is in the supply totals.”

Regarding the 914 report methodology update, Gary Long, acting director of the 914 report at EIA, told NGI earlier this week that January Lower 48 production figures will likely see a slight revision downward. He added that he expected a fair drop in Louisiana, which “might be 300-400 MMcf/d…something in that ballpark.”

The energy industry’s response to EIA’s admission has been mixed (see Daily GPI, April 8; April 7a; April 6). Speaking at an energy conference jointly sponsored by EIA and Johns Hopkins University School of Advanced International Studies in Washington, DC, Energy Secretary Stephen Chu downplayed the reports that the EIA has been overstating its 914 production data (see Daily GPI, April 7b). “I think there’s some questions about the data,” he said. “[But] I don’t think there’s an overstatement of the data. This is something where EIA is continually trying to upgrade its method of data collection.”

Jergens added that errors on demand data do occur, with most resulting from the fact that many utilities submit meter read cycle consumption in place of true calendar consumption. He claims this mismatch in reporting dates can cause inaccurate consumption totals from one month to the next but should inherently catch up and correct itself over time. “Gas storage data should be easier to collect since the number of operators is much smaller than the number of consumers or producers but JCEF is concerned that in the past decade the ratio of base gas to total capacity reported by the EIA has actually declined 2% while the amount of working gas has increased 18%.”

Jergens said more accountability is needed by all those involved in the collection, dissemination, and distribution of the data. “The logical first step would be to require the EIA to balance the supply-demand and storage equation within a known small tolerance (say 50 Bcf per month) and diligently work to seek the best estimates possible,” he said. “The EIA should not be allowed to project a balancing error in forward forecasts such as the 300-360 Bcf per year error they have built into their 2010 and 2011 forecasts. This is tantamount to planning to fail.”

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