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Gas Storage: What Moves the Market & What Doesn't
inventory relative to expected demand decreases, withdrawals would decrease. If inventories are high relative to expected demand, then withdrawals would tend to be larger.
In 1993, the American Gas Association began publishing estimates of weekly working gas inventories held in storage facilities in three regions: Producing, Consuming East, and Consuming West (see Figure 1). Since A.G.A. storage data are the only weekly series widely available, they are relied upon heavily for short-term business decisions and greatly influence market behavior.
Data from the National Weather Service coupled with the withdrawal and inventory data from the A.G.A., covering three full heating seasons and part of a fourth, makes it feasible for us to conduct some basic statistical analysis of the relationship between temperature and withdrawals of gas from storage.
We analyzed this data to understand the relationship between storage, withdrawals and price, temperature, and inventory levels relative to expected demand and to develop a way to estimate future storage withdrawals and real-time inventory levels. Our goal was to define a relationship that can be interpreted meaningfully using linear regression techniques.
Our next task, therefore, was to refine further and to quantify the variables that we used to represent variations in temperature, prices, and inventory levels relative to expected demand.
The seasonality of withdrawals should not surprise anyone: More gas is used in the winter, including more from storage, to satisfy seasonal demand (see Figure 2). Weekly average temperatures from four major gas-consuming cities within the Consuming East region illustrated this seasonality (see Figure 3).fn1 By comparing Figures 2 and 3, we saw that they were almost mirror images of one another; withdrawals increased as temperatures decreased.
However, when we looked closely at these two figures, there were some interesting and surprising elements. For example, for many heating season weeks, storage withdrawals remained close to the same value from year to year. On the other hand, toward the middle of the heating season, around weeks 9 through 11, we found great variability in both temperatures and withdrawals. Withdrawals values toward the end of the heating season tended to fall somewhat lower than at the beginning of the heating season.
The "shapes" of the distributions of both withdrawals and temperatures appeared fairly symmetrical. However, upon closer examination, the distribution of withdrawals seemed somewhat flat starting out the heating season. Then, as the heating season progressed to its midpoint, withdrawals appeared to spike; but from mid-season to its end, withdrawals showed a more shallow downslope. Yet the upward and downward slopes of the temperature distribution appeared to have about the same degree of "steepness."
These observations suggested that storage was used in a similar manner year-to-year at the start of the heating season in a way that is somewhat independent of temperature. The steep ramp-up of storage withdrawals in those months reflected the fact that, early in the heating season storage facilities are relatively full and carry higher operating pressures, and thus greater deliverability. Perhaps the flat shape early in the season reflected a tendency to hold on to stored gas early in the season,