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: 83
Replies to This Discussion
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Permalink Reply by Les Bamburg on -
Sesport, imports & exports are included along with production in evaluating the gas supply/demand balance. Imports are easily accounted for since there are very few sources and these are all measured and reported.
US production, on the other hand, is very difficult to estimate so is considered to be the likely source of any errors on the supply side. I should say that natural gas demand is equally difficult to estimate and could also be a source of errors related to the natural gas balance.
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Permalink Reply by Parkdota on
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Maybe the difficulty and/or inability to accurately measure supply/demand, etc. is one reason Congress and others are hesitant to go full steam ahead with natgas.
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Permalink Reply by Les Bamburg on
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Parkdota, that situation exists for all fossil fuels - especially coal since it can be stockpiled.
Congress & others hesitancy is primarily related to the influence of two groups:
1) The coal lobby - coal producing states, states that have primarily coal powered generation & labor unions (ie "jobs")
2) The extreme left of the environmental groups - ie those that are against all fossil fuels and believe only in renewables.
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Permalink Reply by Skip Peel - Mineral Consultant on
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Add to the Coal Lobby group list railroads and inland waterway transportation as coal accounts for significant revenue sources for railroads and barge carriers. When Warren Buffet acquired Burlington Northern, articles on the railroad indicated somewhere between 15 and 20% of its gross revenues were from transport of coal. And Warren said that Burlington was uniquely positioned to bring coal from western states to eastern electric generation markets.
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Permalink Reply by sesport on
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Add to that the "nuke-cue-ler" group. I know, I know, it's expensive and a lengthy process in terms of building, but there IS a group that favors building more and there are quite a few already permitted.
Seems ng just falls into the abyss of "weee can't see youuuuuuu."
80P
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Permalink Reply by sesport on
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Thanks, Les. I was thinking the production report is a distinct report, where as supply would be a compilation/aggregate of all gas to include the imports.
So, we've got a "hiccup" in the calculations. Happens all the time, even in private business. Assess & adjust, IMO.
80)
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Permalink Reply by H1 on
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Les: Consider Texas for example. Why can't they use the PDQ report sheet to determine actual production?
(1)It came out of the ground, (2)royalty owner got paid, (3)transmission line owner got paid to transmit. Seems like there should be a three way accuracy check in that system.
Seems like that would be the most accurate (excluding the gulf, don't know how that works).
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Permalink Reply by Les Bamburg on
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Herman, because the PDQ report is incomplete until about 18 months after the production month. If you look at say January 2010 production it will be at least 25% understated.
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Permalink Reply by H1 on
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Does that mean for individual wells?
I go to the PDQ for the well in our unit and look at the production numbers for each month. Are they accurate for the months reported?
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Permalink Reply by Les Bamburg on
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Herman, for individual wells there may not be an issue but some wells are not reported on a timely basis which throws off the total for a county or the state as a whole.
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Permalink Reply by essay on
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sec'y chu just gave a speech, says advances in drilling tech has "probably doubled" NG reserves.
http://www.businessweek.com/news/2010-04-06/u-s-natural-gas-reserve...
seems significant coming from a guy who's stated we didn't have the supply for any increased demand.
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