U.S. Natural-Gas Data Overstated
U.S. Natural-Gas Data Overstated
By CAROLYN CUI
[EIA] Reuters
The gas-production statistics are known as the 914 report. Above, gas burns at a refinery near Minsk.
The Energy Department is preparing to make sweeping revisions to its U.S. natural-gas production data after finding it has been overstating output, raising new questions about the government's collection of energy information.
The monthly gas-production data, known as the 914 report, is used by the industry and analysts as guide for everything from making capital investments to predicting future natural-gas prices and stock recommendations.
But the Energy Information Administration, the statistical unit of the Energy Department, has uncovered a fundamental problem in the way it collects the data from producers across the country—it surveys only large producers and extrapolates its findings across the industry. That means it doesn't reflect swings in production from hundreds of smaller producers.
The EIA plans to change its methodology this month, resulting in "significant" downward revisions in some areas, according to Gary Long, the acting director of the 914 form, who led the review.
The Wall Street Journal last month reported that the EIA also has key deficiencies in its collection of market-moving oil-inventory data that has caused swings in its survey.
The EIA has been overtaken by advances in technology, oil-shale finds and changes in the industry and has been less able to account for smaller companies that increase or decrease production. Some commodities analysts and gas producers, such as EOG Resources Inc., have long suspected that the EIA has overstated domestic natural-gas output—a factor they argue has helped push prices to seven-year lows in 2009.
[EIA]
"The model we have now overestimates" production, Mr. Long said in an interview. He said the review was prompted by the EIA noticing aberrations in some states. "We saw some numbers we didn't like in Texas; we thought they were a little too high," Mr. Long said.
Mr. Long said the EIA plans to change its methodology, though he didn't give details. The changes could lead to a downward revision of the nation's gas production. While overall there mightn't be a big change, Mr. Long said, some states will see "significant" revisions in production.
The EIA data showed that gas supply rose 4% in 2009, despite a 60% decline in onshore gas rigs. The conflicting numbers have perplexed analysts.
Analysts also point to the discrepancy between supply (how much gas is produced or imported) and demand (the amount that is stored or used). Those two figures should cancel each other. While there always is a margin of error, that margin has widened sharply in recent months.
In December, the agency reported total new gas supply at 87.8 billion cubic feet a day and total demand of 80 billion, leaving 7.8 billion cubic feet unaccounted for—a margin of error of 10%.
"It's getting ridiculously large," said Ben Dell, an analyst with Sanford C. Bernstein. "When you have a 10% gap, that's somewhat making a mockery of the data."
Mr. Dell in January wrote a report raising questions about the mismatch. In that report, he focused on October numbers that showed a 12% margin of error.
"We think that most would agree that a 12% margin of error makes a data set tough to rely on, to say the least," Mr. Dell wrote in that report. Rather than gas supply being flat or slightly down as the data suggests, Mr. Dell wrote, he believes production is actually falling.
When that gradually becomes apparent, gas prices will be pushed "much higher," he says.
When told of the expected changes, Mr. Dell said: "It's good that they are actually paying some attention."
Mark Papa, chief executive of EOG Resources, a Texas-based gas producer, has long criticized the data, and sought a meeting with EIA officials because it is "a serious enough consistent data error we need to bring to their attention."
[EIA_jmp]
The "erroneously high" numbers have depressed prices, Mr. Papa said.
On April 30, the EIA is scheduled to release its natural-gas monthly report for February. In the report, the agency will use the new methods to estimate gas supply and revise its January numbers. The numbers for 2009 won't be updated until late fall.
In the upcoming report, the agency also will use more recent data—six to 18 months old—to estimate production by companies that aren't included in the survey. The current model uses data that are two to seven years old, the EIA says.
—Brian Baskin contributed to this article.
Write to Carolyn Cui at carolyn.cui@wsj.com
By CAROLYN CUI
[EIA] Reuters
The gas-production statistics are known as the 914 report. Above, gas burns at a refinery near Minsk.
The Energy Department is preparing to make sweeping revisions to its U.S. natural-gas production data after finding it has been overstating output, raising new questions about the government's collection of energy information.
The monthly gas-production data, known as the 914 report, is used by the industry and analysts as guide for everything from making capital investments to predicting future natural-gas prices and stock recommendations.
But the Energy Information Administration, the statistical unit of the Energy Department, has uncovered a fundamental problem in the way it collects the data from producers across the country—it surveys only large producers and extrapolates its findings across the industry. That means it doesn't reflect swings in production from hundreds of smaller producers.
The EIA plans to change its methodology this month, resulting in "significant" downward revisions in some areas, according to Gary Long, the acting director of the 914 form, who led the review.
The Wall Street Journal last month reported that the EIA also has key deficiencies in its collection of market-moving oil-inventory data that has caused swings in its survey.
The EIA has been overtaken by advances in technology, oil-shale finds and changes in the industry and has been less able to account for smaller companies that increase or decrease production. Some commodities analysts and gas producers, such as EOG Resources Inc., have long suspected that the EIA has overstated domestic natural-gas output—a factor they argue has helped push prices to seven-year lows in 2009.
[EIA]
"The model we have now overestimates" production, Mr. Long said in an interview. He said the review was prompted by the EIA noticing aberrations in some states. "We saw some numbers we didn't like in Texas; we thought they were a little too high," Mr. Long said.
Mr. Long said the EIA plans to change its methodology, though he didn't give details. The changes could lead to a downward revision of the nation's gas production. While overall there mightn't be a big change, Mr. Long said, some states will see "significant" revisions in production.
The EIA data showed that gas supply rose 4% in 2009, despite a 60% decline in onshore gas rigs. The conflicting numbers have perplexed analysts.
Analysts also point to the discrepancy between supply (how much gas is produced or imported) and demand (the amount that is stored or used). Those two figures should cancel each other. While there always is a margin of error, that margin has widened sharply in recent months.
In December, the agency reported total new gas supply at 87.8 billion cubic feet a day and total demand of 80 billion, leaving 7.8 billion cubic feet unaccounted for—a margin of error of 10%.
"It's getting ridiculously large," said Ben Dell, an analyst with Sanford C. Bernstein. "When you have a 10% gap, that's somewhat making a mockery of the data."
Mr. Dell in January wrote a report raising questions about the mismatch. In that report, he focused on October numbers that showed a 12% margin of error.
"We think that most would agree that a 12% margin of error makes a data set tough to rely on, to say the least," Mr. Dell wrote in that report. Rather than gas supply being flat or slightly down as the data suggests, Mr. Dell wrote, he believes production is actually falling.
When that gradually becomes apparent, gas prices will be pushed "much higher," he says.
When told of the expected changes, Mr. Dell said: "It's good that they are actually paying some attention."
Mark Papa, chief executive of EOG Resources, a Texas-based gas producer, has long criticized the data, and sought a meeting with EIA officials because it is "a serious enough consistent data error we need to bring to their attention."
[EIA_jmp]
The "erroneously high" numbers have depressed prices, Mr. Papa said.
On April 30, the EIA is scheduled to release its natural-gas monthly report for February. In the report, the agency will use the new methods to estimate gas supply and revise its January numbers. The numbers for 2009 won't be updated until late fall.
In the upcoming report, the agency also will use more recent data—six to 18 months old—to estimate production by companies that aren't included in the survey. The current model uses data that are two to seven years old, the EIA says.
—Brian Baskin contributed to this article.
Write to Carolyn Cui at carolyn.cui@wsj.com
Views: 78
Replies to This Discussion
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Permalink Reply by essay on
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good catch, i've been reading stuff about this for months now, nice to know they're looking at it.
i'll go out on a limb though and say i'm not really a department of energy "fanboy".
i hope this has a positive impact on pricing.
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Permalink Reply by j garrett on
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That's unbelievable. The EIA uses production info from 2 to 7 years old? And only data from large producers, and extrapolates its findings across the industry? Now it will improve to only using data 6 to 18 months old? Crap. What kind of mental giant did it take to "uncover a fundamental problem in the way it collects the data from producers across the country"? Do they not take the info from the states? I feel certain Texas and Louisiana know the production numbers from ALL producers. and within a fairly short time frame. So these BS numbers have been depressing US natural gas prices, for years? Unbelievable. I guess the silver lining is that new(er) numbers should make prices increase, but the situation still sucks.
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Permalink Reply by JHH on
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What a surprise! Let me think about this... can't run AMTRAK, the Post Office, Medicade, Medicare, Social Security and now the Energy department... Hello Healthcare! Life is Great isn't it? jhh
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Permalink Reply by ken hatcher on
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I keep remembering the phrase "All the monkeys are not in the Zoo".
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Permalink Reply by Les Bamburg on -
This story does not do justice to all the hard work performed by the EIA in attempting to report US production on a timely basis as it is a very difficult task. By surveying "major" producers the data covers 80-90% of the production in the surveyed states. Historic trend analysis is utilized to gross up production to the 100% level.
The EIA cannot simple rely on the reported production by individual states due to the state reporting delays. For example, Texas does not generally have all the production reported for a given month untll 12-18 months after the production month. This is a similar situation for many other states. Heck, some states do not even report gas production.
In absence of the EIA reporting there would be no information available. I am glad to see the EIA implement the proposed changes in their methodolgy as it should improve the accuracy. My wish would have been for the monthly report from the EIA to give more individual state estimated production amounts.
See the attachment for additional information. - Attachments:
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EIA Comparisons.pdf, 42 KB
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Permalink Reply by Parkdota on
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Les, what do you think might be the ramifications of a tweaked and/or updated April 30th system? Do you see it affecting prices?
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Permalink Reply by Les Bamburg on
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Parkdota, I think it will depend on the magnitude of the adjustment. My thought is a 1.0 to 1.5 Bcfd reduction is not likely to impact natural gas prices as most marketers utilize the weekly gas storage numbers as the main indicator for the US gas supply/demand balance. Because the storage inventory is well above the five-year average, the NYMEX has been depressed. Now if the downward adjustment is greater (say 2-3 Bcfd) maybe that would be enough to boost the NYMEX futures for the remainder of 2010.
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Permalink Reply by ALongview on
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That has led to some "significant" overestimates for domestic natural gas production, says the EIA. For example, although the number of on-shore natural gas rigs dropped 60 percent overall in 2009, the EIA data state that natural gas supply actually rose by 4 percent.
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Permalink Reply by Bacon on
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"The EIA said at the time that some revisions would be "significant," but it didn't indicate whether they would be positive or negative. Yesterday, an official confirmed that the current model overestimates production in Texas and Louisiana. New figures for February and revised numbers for January will be calculated according to the new methodology and released at the end of April."
http://seekingalpha.com/article/197351-doe-revision-of-unreliable-d...
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