Monday, April 5, 2010

EIA to Revise Production Data Collection Methods

The Wall Street Journal reported today that the Energy Information Agency (EIA) will revise the way it collects production data for natural gas beginning April 30, when it releases the February 2010 monthly natural gas report.  (Here is a link to the changes in methodology.)

In the past couple of years, the discrepancy between supply (gas produced and imported) and demand (gas consumed, exported and stored) has grown wider.  When you know the inputs and the outputs, the data should net out to zero.  Data collection from E&P companies is a tricky endeavor, so there always will be some error, but lately the supply figure has grown to be as much as 10-12% higher than demand in a given month.  This higher range of error seems to have corresponded with the ramp-up in shale gas production in 2009, especially from the Haynesville Shale.

The problem seems to be the EIA's method of collection, which surveys larger companies and extrapolates results to smaller companies.  While this might have worked in a more stable conventional drilling world, it no longer seems to be applicable. 

Many believe that the revised data collection methods will boost the price of natural gas.  I hope so, but I'm not holding my breath.  The biggest issues in my mind are fundamental demand improvements, such as the recovery of the economy and establishing new uses for natural gas, especially in electric power generation. 

While the EIA will catch lots of grief for the discrepancy and having to make the change, I applaud the fact that they are doing it rather than burying their heads in the sand and defending their flawed methodology.  The advances that have come with shale gas have changed everything in the gas industry.  It's a new world for all of us and the EIA is doing its best to adapt and overcome.

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