Date: 06-Apr-10
Country: US
Author: Eileen Moustakis
 

The U.S. Energy Information Administration is revamping the way it calculates domestic natural gas production after it overestimated output from key producer states Texas and Louisiana, an agency official said on Monday.

Rapid changes to U.S. natural gas output involving a wave of new small producers of shale gas made it difficult to get an accurate picture of the market, said Gary Long, acting director of the reserves and production division of the agency's oil and gas office.

U.S. natural gas data is being watched perhaps closer than ever as a drilling technique known as hydraulic fracturing, or "fracking," has led to excitement about the potential of vast new supplies of the relatively clean burning fuel from New York to Louisiana. Fracking, which gets to natural gas deposits associated with shale, has helped boost U.S. reserves of the fuel by a third since 2006, according to the EIA.

The EIA, the statistics arm of the Department of Energy, found that some of its output numbers were inflated in the monthly release, known as the 914 report, Long said.

"Things changed but we weren't seeing that change in our methodology," Long told Reuters in an interview.

To remedy this, the EIA is moving to use more up-to-date data to help estimate U.S. natural gas output, starting with the next report due out on April 29, he said.

The report has relied on frequent surveys of the largest natural gas producers, but has only estimated output from about 13,000 smaller producers, which are harder to track.

In an effort to make the data more accurate, the EIA will estimate output from small producers using data that is six to 18 months old, rather than the previous practice that used data that was two to seven years old, the agency said.

The changes in its monthly natural gas production report will likely lead to smaller natural gas output figures from Texas and Louisiana.

"I think we'll see probably see a lower volume in Louisiana," said Long. Louisiana was the fifth largest U.S. natural gas producer in 2007, according to the EIA website and is home to a significant deposit of natural gas in the Haynesville Shale formation.

About a year ago, the EIA began to notice some irregularities in its monthly report regarding production figures in Texas, where output from the Barnett Shale play was booming. "We had a feeling that our estimates were probably a little too high," Long said.

In 2007, Texas was the top U.S. natural gas producer and Louisiana was No. 5, according to the latest EIA data.

The upgrade of the report is "significant" and will likely lead to tighter fundamentals in a market that has already tightened considerably in the past six months, said Chris Jarvis, senior analyst with Caprock Risk Management in New Hampshire.

"With the changes, and given the short positions in the market, some traders will be on edge and uncomfortable not knowing the extent of the revisions for some time," he said.

"Longer term, the new collection process should yield tighter data points and increase the level of confidence in the numbers that has been lacking for some time now," Jarvis said.

The revisions could provide some support for natural gas prices, said Tim Evans, an energy analyst at Citi Futures Perspective in New York.

Front-month May natural gas futures on the New York Mercantile Exchange were trading up about 16 cents, or 4 percent, at $4.245 per million British thermal units early Monday. Last week, they hit a six-month low of $3.832 per mmBtu on concerns about a sluggish economy and rising supplies.

But the report is not as critical to natural gas traders as the weekly storage figures, which are more timely, Evans said.

The changes come as the EIA's market-moving reports come under heightened criticism for using outdated technology and methods that may result in skewed data.

Last month, the EIA came under criticism for errors in its flagship weekly oil inventory report.

(Editing by Marguerita Choy)