Based on self-evaluations conducted each year, the Department of Energy’s Energy Information Administration (EIA) has found that it has done “fairly well” when projecting production and consumption of natural gas, but that it has done “fairly poorly” when forecasting gas prices, an EIA analyst told a House subcommittee Thursday.

Prices are “very difficult to predict because certain variables…are hard to get a handle on,” Mary Hutzler, director of the EIA’s Office of Integrated Analysis and Forecasting, said during a hearing of the House Science Committee’s energy subcommittee examining why energy forecasters come to such different conclusions on natural gas prices, supply and demand.

“Weather forecasters can’t get [today’s weather] right so how are you going to factor weather into your forecast 20 years out?” she asked rhetorically. “It’s very hard to figure out what the weather is going to do in the future,” and “if there’s going to be a conflict in the Middle East,” both of which significantly affect the price of natural gas.

This was not the first time that the EIA has admitted its poor record with respect to gas price forecasting. Last November, the agency said that since 1982 it has seen a 61% average error (compared to actual prices) in its forecasts of wellhead gas prices (see NGI, Nov. 24, 2003).

The biggest problem for the EIA and other price modelers is the “declining quality of data” on both natural gas and electricity, said E. Harry Vidas, managing director at Energy and Environmental Analysis (EEA) in Virginia. There needs to be a “high priority” placed on improving the quality of data that is used to project natural gas prices, he said.

Hutzler agreed. She noted that currently the EIA gets its supply information from the states, and it usually lags behind by several months. Hutzler said she would prefer to obtain the information directly from gas producers. The data on liquefied natural gas (LNG) imports and other gas imports also is irregular, she said, adding that information on the industrial sector is sorely lacking.

In addition to modeling weather into gas price forecasts, the panelists indicated that security issues also are a difficult factor to model, especially when it comes to LNG. “The friendly countries in which we can import LNG like Trinidad and Tobago and Norway…can do a certain amount. But really the large volumes are going to be the Soviet Union and the Middle East,” which will present unique security concerns for the U.S.

Hutzler and Vidas, along with a third forecaster, told House lawmakers they expect natural gas prices to remain high into next year, but to come down over the long term, according to a report in the Congressional Green Sheets. Vidas said his firm, the EEA, sees gas prices hitting the $7/Mcf mark in 2005.

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