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The High-Stakes Storage Gamble

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

"relying on one data point." Instead of relying solely on AGA's storage numbers, "the solution is to broaden the number of data points available to the market," Wood said.

The episode that created the uproar began on Aug. 15, when AGA's weekly survey revealed that only 3 billion cf of gas had been injected into working gas in storage inventories for the week ending Aug. 10. That miniscule injection figure sent gas futures prices on the New York Mercantile Exchange soaring. But on the following Wednesday, AGA announced that the storage figure for the week ending Aug. 10 should have been 50 billion cf, not 3 billion cf. AGA's revision sent the September futures price at Henry Hub down almost as much as it had gained the previous week when the erroneous data had been released.

"One little hiccup and everyone went crazy," Wood said, referring to AGA's August revision.

While a few industry insiders speculated AGA would call it quits because of the criticism, most thought the association would weather the storm by working behind the scenes to solidify its data gathering and verification techniques. But in his letter, AGA's Cooper wrote that the association was discontinuing the storage survey "primarily because it was taking increasingly more staff time and effort to calculate and post the survey estimates; this drained resources committed to other programs more beneficial to its members."

Some traders and analysts had argued the AGA storage survey had gained too much influence and unnecessarily brought trading to a halt each Wednesday prior to the release of the storage estimates at 2 p.m. Eastern time. UBS Warburg's Ron Barone, a prominent natural gas analyst, said in August that the market's obsession with the report has now reached "unhealthy cult levels."

January is the Coldest Month

But others now worry that an industry already deficient of timely fundamental supply data will be hurting even more without AGA's authoritative weekly reports once January rolls around. "Storage is a snapshot of the total supply and demand picture," a trader with a large Houston-based marketer said. "It's the best leading indicator we have."

The Houston marketer says the scientist in him says, "More information is better."But the competitive marketer instincts in him say that his larger company will be able to use its own internal storage models and gain a leg up on the competition once the AGA storage data disappears.

The industry's obsession with the AGA storage survey can be directly attributed to the lack of other timely surveys of gas supply fundamentals. "Any surveys of supply and demand are generally going to be good for the market," says Ben Ledene, manager of market development for AEC Storage and Hub Services in Calgary. "We expect they are going to make an occasional error. What we cannot accept is a big storage player intentionally giving a false number."

Industry players generally agree that a market with a fungible commodity will tend toward greater efficiency and success when it has access to large amounts of information on fundamentals and greater price transparency. Traders worry