The latest natural gas production data due out April 30 from the Energy Information Administration (EIA) will use an entirely new methodology based on more recent historical data designed to better capture the current market. EIA’s announcement of February 2010 production estimates will include recalculations for all of 2009 using the new methodology, which the agency published Monday.

There has been some controversy over the agency’s production estimates in the last year with independent analysts saying EIA has consistently overestimated volumes and failed to track the production decline that has accompanied the declining prices (see Daily GPI, April 9).

Upgrading the methodology is expected to bring EIA’s estimates more in line with those of other analysts. “The market suspects there is going to be a drop and it has a good idea of what that drop will be,” said Gary Long, the director of the EIA-914 survey. “It won’t be a giant surprise, rather it will be pretty much a confirmation.”

While EIA’s calculations through much of 2009 showed about a 1 Bcf/d drop in production, those of outside analysts ranged as high as a 4-5 Bcf/d fall in production (see Daily GPI, Jan. 14).

EIA started reviewing its production survey procedures about a year ago and said last month the new methodology would be unveiled with the April 30 announcement of the estimates for February (see Daily GPI, March 30). That announcement is expected to come between 11 a.m. and noon EDT, shortly after the weekly storage announcement.

The EIA-914 survey collects natural gas production volume information on a monthly basis from a sample of companies. The main change to the methodology is in the way EIA picks companies to be in the sample whose production data is extrapolated to produce the agency’s overall Lower 48 estimate.

Up to this point, EIA’s choice of companies to be in the sample was based on their rates of production between two and seven years ago. Also, the sample companies were only reevaluated and changed at the end of a year, which resulted in a number of companies being dropped or added and a large disconnect between December and January estimates.

With the new method, the companies chosen to be in the sample will be based on their production data that is between six and 18 months old. And that data will be updated monthly with corresponding monthly changes to the sample companies. In revising its 2009 calculations EIA found there were only one or two changes in the sample group of companies every month.

The sampling process uses a cutoff criterion of 20 MMcf/d by company for Lower 48 production, except for the state of Oklahoma where the cutoff is 10 MMcf/d because of the predominance of smaller operators. In explaining its new methodology, EIA said distortions of the survey occur mainly around instances of mergers or property sales where either detailed information is not known or is mishandled in reporting or processing. EIA’s survey focuses on individual monthly reports of production in Texas, Louisiana, Oklahoma, Wyoming, New Mexico and Federal Offshore Gulf of Mexico (GOM). All other states, except Alaska, are grouped together and subject to a different methodology that will not change.

EIA uses a simple ratio (SR) method to produce a monthly total, applying a ratio of the total production to the currents sample’s production at some point in history. This ratio is then applied to the current reported sample volume to estimate the current total production volume. The ratio is a six-month average ratio calculated at some lag time that varies by state depending on when their records are reasonably complete. Currently a six-month lag is used for Wyoming, New Mexico and Louisiana, nine months for Texas, 12 months for the federal GOM and 18 months for Oklahoma.

There currently are about 240 companies in the survey, which produce roughly 90% of gas volumes in the Lower 48. “Natural gas producers comprise a highly skewed and volatile industry, with a small number accounting for the majority of the natural gas production in the United States,” EIA said. The EIA-914 cutoff sample is selected from a sample of approximately 1,500 companies containing the top producing gas companies in the United States.

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