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A New World Order Part 1:

The Updated EIA Natural Gas Storage Regions are Here to Stay

November 18, 2015 | By Callie Kolbe

Market estimates contained in EIA's Weekly Natural Gas Storage Report issued on Nov. 19, 2015, are drawing greater interest than usual, as the date marks EIA's first reporting of inventory in its five new regions. This edition of Get the Point will detail EIA’s new geography, focusing on the new East and Midwest regions. 

The realignment of regions making up the Lower 48 has been long awaited.

EIA proposed the changes in a Federal Register notice in 2014, then took industry feedback and has rolled it out carefully. The agency explained its reasons as this: "The three storage regions [formerly published in the report] were developed more than 20 years ago when the dynamics of the natural gas market, including producing and consuming regions, were different than they are today. The new storage regions better reflect groupings of storage locations and the production and demand areas they serve."

With the new regions, EIA also can provide more detailed data, especially by splitting the East Region into a new East Region and Midwest Region.

To aid in the industry's transition to the new data, EIA has produced historical data files for each of the new regions going back to 2010. With the historical data in hand, PointLogic Energy has realigned its storage models to estimate the weekly EIA storage number in the new region lineup. 

The redistribution of regional data has had significant impacts on the assumptions feeding PointLogic’s models and degree of predictability. 

As illustrated in the above map and graph, EIA’s regional realignment takes the old East region and separates it into two new sub-regions, the new East Region and the Midwest Region. In addition to pulling apart the East from the Midwest, EIA also makes a swap within the Midwest by adding fields in Minnesota but removing fields in Nebraska and housing them in the new Mountain Region. 

To understand the impact, we will begin by looking at historic information, using the data provided by EIA. 

The graph above represents the "Old" East, "New" East, and Midwest inventory data reported on a weekly basis through EIA-912. As of Nov. 6 EIA reports that the Old East inventory stands at 2,057 Bcf, while the New East stands at 929 Bcf and the Midwest at 1,117 Bcf. PointLogic Energy estimates that storage activity for the week ended Nov. 13 will add another 29 Bcf to the Lower 48, with 9 Bcf to the New East and 7 Bcf to the Midwest, putting the most current inventory levels at 938 Bcf and 1,124 Bcf, respectively.

As is evident, the Old East has trended between 10-15 Bcf higher each week than the New East and Midwest combined. Can the swap between Minnesota and Nebraska account for the change?

The challenge in accounting for the full difference is the number of gas storage operators in the Midwest which are not required to publish public storage data. An additional difficulty, as is recognized by EIA, comes from the rounding of numbers as a result of the EIA’s re-estimation and re-allocation of surveyed responses to fit the five-region model. EIA has said that these differences can total up to 8 Bcf per week for the Lower 48 from the prior three-region data.

That said, each month, EIA reports storage data on all operators, which includes facility level capacity figures. From this data set, PointLogic has calculated that in swapping in Minnesota for Nebraska, a net 13 Bcf in working gas capacity was removed from the Midwest. In PointLogic’s proprietary storage models, the change comes in the form of accounting for NNG’s storage activity at Centerpoint’s Waterville facility in Waseca County, Minn., and removing TallGrass Interstate Gas Transmission’s (TIGT) storage activity at the Huntsman facility in Cheyenne County, Neb. Based on reported maximum daily activity at each facility, the regional reallocation could result in a net change of 1.1 Bcf less injection/withdrawal activity in the Midwest and New East combined each week as compared to the Old East.

Additionally, the new regional breakdown has altered PointLogic’s ratio of direct sample activity compared to reported capacity. In some regions, PointLogic’s visibility has improved, and in some regions estimation of storage activity remains more of a challenge. The new East Region has become more transparent, while the Midwest contains a large number of fields which only are required to report data to EIA -- thus keeping visible sample data limited for private models.

PointLogic has been tracking how regional realignment has changed the sample size in each of the five regions as compared to the three region based models. In the old East Region, PointLogic could directly track roughly 60 percent of all storage activity each week. Under the new region structure, PointLogic's access to sample data has improved markedly: now nearly 80 percent of sample data are visible, as illustrated in the above graph representing Electronic Bulletin Board (EBB) postings. As a result, PointLogic’s weekly estimation for the region has become more predictive of weekly activity reported to EIA.

Using the same process for the new Midwest Region, sample visibility turns out to average just shy of 50 percent. As previously mentioned, the low visibility expected is due to the number of intrastate storage operators in the region which are not obligated to provided weekly storage allocations to the public. While estimation challenges remain in the new Midwest, the division of the Midwest out of the old East super-region has improved the market’s ability to track the dynamic occurring between the two productive regions. 

In the Midwest, a pattern (as described in PointLogic's first discourse on new EIA storage regions) has re-emerged this year in which storage was filled to maximum working gas volume each injection season. As detailed in the above graph, since 2013 storage fields in the Midwest fell below previously normal levels as the region relied more upon growing production and displaced gas supply out of the Northeast. However, in 2015 total inventory in the region ended nearly 91 percent full at 1,097 Bcf on Oct. 31. Not only did inventories come in back in line with prior historical norms, but also the region is on track to set a new five-year maximum level by late November.

The graph below shows that the new East Region has also returned to prior historical norms, but not as drastically as the Midwest. The region ended the traditional injection season at 85 percent full with 916 Bcf of gas in working gas inventory. The region did not set a new record high, but did come in just 44 Bcf shy of the prior five-year maximum. 

Given the new ability to distinguish between the New East and the Midwest storage regions, what situations are likely to be realized throughout this winter? 

By utilizing PointLogic’s modelled estimates for the next two storage weeks along with EIA’s newly released five-year average withdrawal rates by month by region, it is possible to provide an idea of where inventories may stand next April.

PointLogic estimates that by the end of the winter 2015-'16, both the Midwest and the New East end with inventories above their prior five-year averages but below historical maximum levels at 464 Bcf and 372 Bcf, respectively. The two graphs above illustrate the impact.   

PointLogic will be keeping tabs on storage inventory as the winter forecasts are realized and as the EIA fully transitions into the five-region world order. In future issues of Get the Point, PointLogic will continue to highlight the new storage dynamics occurring in the Pacific, Mountain and South Central regions as a result of EIA’s realignment. 

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