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The High-Stakes Storage Gamble

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

that with AGA dropping its storage survey, the gas market will become less liquid and more volatile.

Certain types of gas traders may be less inclined to enter the market because of the lack of information, leading to a smaller group of players dominating trading. Without AGA's weekly storage survey, large integrated companies with major ownership stakes in storage assets will have knowledge of the level of storage supplies at their own facilities and will be able to use this proprietary information to make trades that could lead to higher returns than those deals conducted by traders without access to storage inventory data.

Furthermore, the limited number of players in the industry who own storage and thereby can subscribe to Energy Reporting Network's Gasfax service also may have an advantage over the rest of the industry that does not have access to these numbers, industry officials say.

Prior to AGA unveiling its storage survey in 1994, never had the gas industry had such timely and authoritative inventory data, similar to the petroleum inventory data American Petroleum Institute (API) had been providing the oil industry on a weekly basis for several decades.

API releases weekly inventory reports that cover several segments of the petroleum industry, which are followed the next morning by the release of weekly EIA estimates of domestic oil production, imports, and crude product inventories, thereby giving traders of crude and petroleum products a gauge against which to measure the API data.

Did it Have to End This Way?

Prior to 1994, EIA had been the only game in town with widely disseminated gas storage inventory data. But EIA's storage reports had two key drawbacks. The estimates would arrive in industry mailboxes and on fax machines only once a month, and, given the deadlines for storage operators to submit their data plus the time needed by the government to process the information, EIA's data was typically at least 45 days old by the time industry officials got their hands on it.

Enter AGA, which successfully convinced the industry it was up to the task of conducting a weekly survey. In the early days, the industry generally applauded AGA's efforts. The association, however, received an occasional brickbat, primarily from producers who charged AGA's gas utility members, many of whom owned storage and contributed their data to the survey, could manipulate the weekly storage numbers.

AGA answered its critics with assurances that all the necessary procedures were in place to compute accurate aggregate storage levels and that the integrity of the survey could not be compromised. Curiously, this past summer's round of criticism coincided with a downturn in gas commodity prices, which produced many unhappy traders.

The association maintained in August that it would continue to produce the survey as long as its utility members found it valuable.

At the time, some industry players cautioned against calls for regulation of the survey because they worried AGA would decide to do exactly what it did: cease providing storage data.

Some traders speculate AGA decided to discontinue the survey based on fears that it would