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The High-Stakes Storage Gamble

AGA decision to shut in storage survey rattles energy markets.
Fortnightly Magazine - December 2001

is an abundance of aquifer storage facilities.

Gasfax's storage numbers can claim a high degree of respectability among the players who have access to them. Often, many in the industry who do not subscribe to the service will learn of Gasfax's storage estimate on Tuesday from colleagues in the industry who are Gasfax clients and who, in theory, are breaking a confidentiality agreement when they pass the information to others.

Given Higgins' reticence to raise his company's profile, it appears any other company hungry to tap a possible profit center could launch a new storage survey with a wider distribution than Gasfax. This new entrant's survey eventually may grow into a market mover similar to AGA's. But it's debatable whether it will possess the accuracy and depth of Gasfax.


Whether Energy Reporting Network makes its weekly Gasfax storage estimates more accessible to the industry depends on whether the company's clients decide to give Higgins the go-ahead. Higgins fears Gasfax's reputation for accuracy and its ability to gather data from a wide swath of North America's storage operators would be jeopardized if he begins to make decisions without receiving the green light from his clients who he relies on to provide Gasfax with its weekly data.

In the early 1990s, when Gasfax was only four years old, the industry decided to develop a storage data series that would be widely available and would complement EIA's monthly estimates. AGA convinced the industry it could perform the task and, after months of preparation and consultation with its gas utility members and other gas industry segments, AGA launched its own storage survey in January 1994.

Since then, both physical and forward markets have grown reliant on AGA's weekly storage numbers, which provide indicators on such things as how much stored gas is available to feed base load demand-retail as well as industrial and electric generation-and whether keeping gas in storage was a good arbitrage play.

Critics Bombard AGA

But AGA's survey has been under attack since August when bad data supplied by one or more of the association's survey participants forced it to make a substantial revision to one of its weekly surveys. In response to complaints from traders, the Commodity Futures Trading Commission (CFTC)-the federal agency that regulates commodity futures and options markets-sent its head of surveillance to AGA's offices on Capitol Hill the same week the revision was issued to review the methods used by the association to gather and disseminate its storage data that resulted in the large revision.

"It was unfortunate because it lost people a lot of money," Higgins says, referring to AGA's August revision. "Some careers were probably ruined."

The CFTC has yet to announce whether it found any evidence of market manipulation related to the management of the weekly storage survey, and the agency may set aside the inquiry permanently now that AGA has opted out of the storage data business.

AGA made public its decision to scrap the storage survey a couple days after Wood, speaking at FERC's Oct. 11 public meeting, expressed concern about gas markets