The Energy Information Administration is finally reacting to accusations that it has been substantially over-stating monthly U.S. natural gas supply due to a faulty calculation methodology.
The error stems from the organisations polling of just large producers. It then estimates total supply from this sample.
Perhaps there was a day when this worked, but recently it has led to suspected gaps between the supply reported and that which actually exists according to industry players such as EOG resources.
Gary Long, the acting director of the EIA’s monthly natural gas report, called the ‘914 form’, has now announced that indeed there are major problems with the current system and that it will be corrected.
Expect past supply numbers to be slashed:
“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.
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.”
The first report using the new report is slated for release on April 30th. With natural gas at just $4.05 right now, it can use all the help it can get.
The author owns shares of Chesapeake Energy (CHK), a natural gas play.
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