EIA makes smooth takeover of reporting duties

By OGJ editors

HOUSTON, May 10 -- The US Department of Energy's Energy Information Administration took over weekly gas storage reporting duties from the American Gas Association in an apparently smooth transition this week, despite earlier fears among industry participants that the move might obscure summer market fundamentals.

"Initially, there may be some confusion based upon the fact that the total DOE storage numbers should be about 125 bcf higher than the last AGA numbers," said J. Marshall Adkins, managing director of energy research and senior oil field service equity analyst for Raymond James & Associates Inc. (RJA), St. Petersburg, Fla.

Nonetheless, in a report issued at the start of the week, Adkins said, "Once we get past this week, we believe the transition to new gas storage reports will be nearly seamless and should not materially contribute to gas price volatility this summer."

Thursday, EIA officials reported US gas storage increased to 1.59 tcf for the week ended May 3, up from 1.55 tcf the previous week. "That seems to match our prediction of an additional 125 bcf, although we can get a better reading after a few weeks [with additional reports]," another RJA official told OGJ.

The sampling methodology and reporting format EIA uses in its weekly gas storage reports apparently is similar to that of the AGA. EIA plans to survey 45 companies, vs. AGA's average sample of 42-43. Respondents are encouraged to submit revisions to the prior week's data with changes greater than 1 bcf, with explanations of any unusual activity that may have contributed to that revision.

Different totals
Both DOE and AGA typically have been very close in the volumes of working gas in storage that they report at the start of the official US heating season Nov. 1. "However, at the beginning of the refill season (Apr. 1), the DOE's reported volumes of working gas in storage were approximately 135 bcf above those reported by the AGA," Adkins said. "Additionally, the DOE's total reported injections and withdrawals average approximately 65 bcf (or 2 bcf/week) less per season than the AGA's total reported injections and withdrawals."

Consequently, about half the difference of the apparent 125 bcf jump in storage figures "will likely be made up over the summer, since the DOE historically measures about 2 bcf/week smaller injections than the AGA," said Adkins. "Therefore, our summer-ending forecast of 2,900-3,000 bcf of gas in storage remains intact, and any short-term negative reaction to the discreet jump in inventories should be short-lived."

Storage outlook
Meanwhile, Adkins said, "We believe a combination of rapidly declining US production, as well as a modest recovery in demand, will lead to summer injections that are 40% below 2001 levels on average."

Gas producers representing about half of total US gas supply have reported their first quarter production this year was down 2.5% from the fourth quarter of 2001 and by 4.5% on a year-over-year basis (OGJ, May 6, 2002, p. 7).

"While US gas production is not likely to fall another 2.5% in the second quarter of 2002," Adkins said, "we do believe that it is likely to continue falling sequentially by at least another 1.5% next quarter.

"That means that the year-over-year gas supply gap should continue to widen to over 6% (3 bcfd) as we move through the summer."

He said, "Because a supply problem is much harder to correct than a demand problem, we believe falling US supply will be the driver behind natural gas prices over the next 6-12 months."

Moreover, Adkins said, "With strong oil prices raising the switch point for residual fuel to nearly $4/MMbtu, as well as anecdotal evidence that the manufacturing sector is recovering, we can conservatively model a modest increase (2 bcfd) in demand for natural gas this summer."

The result, he said, is that gas storage injections should average 40% lower this year compared with last year.

"Consequently, we believe that volumes of working gas in storage will not reach 3,000 bcf by Nov. 1 and that the underlying supply problem facing the market could create another natural gas shock next winter," said Adkins.