Brokers of natural gas futures are on both sides of the debate when it comes to talk of FERC ordering owners and operators of gas storage facilities to electronically post their storage inventory levels from the prior day. Historically the American Gas Association (AGA), and more recently the Energy Information Administration (EIA), has aggregated a sample of storage data for an entire week and reported it on the following Thursday.
The debate stems from a request for comments from the Federal Energy Regulatory Commission, which was issued in early August. The Commission asked the industry to comment on whether it should ask interstate pipelines and other owners and operators of storage to post their previous day’s net aggregate actual injection or withdrawal data, actual available working gas, and actual storage inventory. FERC has scheduled a technical conference for Sept. 28 to explore the issue.
The Commission suggested changes in storage reporting after it approved separate settlements with subsidiaries of Dominion Resources Inc., Nicor Inc. and NiSource Inc., which required them to pay a total of $8.1 million in civil penalties and customer refunds to resolve charges that they provided preferential access to market-sensitive storage information in violation of the agency’s standards of conduct.
There also is the question of whether the EIA’s lone weekly storage announcement provides a focus for speculators to inject more volatility into the market, and whether a steady stream of storage information every day would lessen volatility. The popularity of the weekly announcement has gained to the point where one brokerage house conducts an auction of options the day before the announcement with bidders guessing what the storage number will be.
When EIA took over the survey in 2002, it moved the announcement to its current 10:30 a.m. time slot, from AGA’s 2 p.m. release time, partly in response to a request from Nymex to allow more time for futures trading based on the announcement before the exchange closes at 2:30 p.m.
So far in comments going into the FERC, pipelines and LDCs that would be asked to provide the numbers are almost uniformly opposed to making daily postings (see related story this issue).
But opinions are split among users of the information. “I think that the marketplace would be against a daily storage reporting system,” one broker told NGI. “I think the marketplace wants that weekly storage number.” As an example, the broker noted that when the AGA stopped its storage report, the EIA was pushed into service. “The industry said we really need this. This is a very important market indicator for us,” he said.
“Recalling the adverse reaction from the industry when the AGA called it quits, I would have to think that most industry participants are happy with having a weekly report.”
The futures trader noted that he would be surprised if any of the industry participants would be happy to lose the weekly report. He added that it would be a feat to get every company to report their data accurately on a daily basis. “From a broker’s perspective, I kinda like the reports coming out the way they do because they can help generate business,” he said. “They can also do just the opposite sometimes.”
However, not all brokers agree. Some say a daily storage number would actually help form trends better than the weekly report.
“Obviously, the people that have engineered the idea of daily reporting probably don’t like the volatility that the weekly reports create,” another futures broker told NGI. “As a trader, I don’t mind volatility, but I won’t say that I necessarily like it. It is my business to deal with it.
“The question would be whether a daily storage report would be better than a weekly number,” he added. “I think it might be because I could do a daily moving average on storage. I don’t know the specifics of the proposal, but if I am assessing five daily numbers as opposed to one weekly number, then I think that would tend to smooth things out.”
He noted that the more data points available, the less guess work goes into saying whether it is going to be 80 Bcf or 60 Bcf for the week. “If I see it coming along and the trend developing, it lends itself to better analysis,” he said. “It would certainly be a change, but I don’t know whether it would necessarily be a bad change.”
As to what the change would do to futures market speculators, the broker said he was unsure. “I don’t speculate to the report, but I am sure there are people who plot the weekly storage report versus the price, and track the correlation of those two,” he said. “It’s the basis of event-driven trading. There are plenty of people who run their trading programs off some derivation of that relationship. But, if I can get a better trend to look at as opposed to one weekly report, I think it might even increase trading opportunities. It makes it a little bit less of a “roulette wheel type of effect,” because you would see it developing. I like to have better, more complete data to draw trends from.
“Does it take away an event around which people speculate? Yes, but I’m not doing much of that anyhow,” he said.
Another market expert suggested that if the idea was mainly to reduce volatility, changing the time of the announcement to one that is less convenient for traders might suffice.
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