The reason the Thursday morning announcement of storage totals by the Energy Information Administration (EIA) has become the number for the industry and traders alike to hang their gas hats on is because it is the only up-to-date supply-demand information available, several witnesses told the Federal Energy Regulatory Commission Tuesday.
Current production information and better and more up-to-date consumption data, pipeline information and even more frequent publication of traders reports all would help with market transparency, according to Arthur Gelber of Gelber Associates, who advises industrial and LDC clients. ” Gelber conceded, however, that because natural gas is a “warehouse” market the storage data is the most important.
Gelber argued for daily publication of storage data, but assumed that FERC would collect it. Consistency of the storage information is particularly important, he said, and questioned whether that consistency would hold if each storage company posted data on its own web site. Collecting all that data, particularly for smaller users, would be “cumbersome,” he said, cautioning against “taking a relatively straightforward thing and making it extremely complicated.”
Rebecca Followill, vice president of Howard Weil, also responding to questions from FERC staff, said there was a 60-to 90-day lag in the government production and consumption surveys and export-import data also was “particularly bad.” Overall “production data is a big hole,” Followill said.
And meanwhile, there’s a simple solution to getting rid of the gas market volatility occurring around the Thursday EIA storage announcement, and that is to have each of the companies that report to EIA on Monday make the information they submitted publicly available at the same time, said Jay Lukens, president of Lukens Energy Group. This would serve as a “predictor” of the Thursday total, he noted. It’s the “surprise” factor in the EIA announcement that creates volatility.
Lukens, whose Houston-based company provides management software used on virtually every major storage system, maintained that the supply-demand information reflected in the week-later storage numbers has already been evaluated by the market and is the basis for the prices being paid. Analysts and traders, plugging publicly available information such as the weather and degree days into models, generally come pretty close to predicting the storage number well in advance of its announcement. Many of these predictions are readily available so that EIA’s announcement mainly serves “traders trying to make money on speculation,” Lukens said. This is where much of the volatility comes in.
Making daily data public also would eliminate the surprise factor and confound the speculators, but it might not be cost-effective. It would be less costly simply to individually make public early in the week the data that EIA relies on for its survey, Lukens said.
Without elaborating, Bill Hederman, head of FERC’s Office of Market Oversight & Investigations, who chaired the Tuesday conference, ended it by saying, “We’ve heard suggestions today that might take us in different directions.”
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