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TABLE OF CONTENTS
The Value of Information in Changing Markets
EIA is the independent statistical agency within the Department of Energy.
Subtheme of this conference - the need for information and the role of information technology.
Information is the life blood of today's gas industry - weather, prices, supplies, consumption, and inventory levels. The flow of information from producers to traders to pipelines to LDC's and consumers is, in many respects, as important as the actual flow of gas. With millions of dollars traded based on this information, lack of reliable, comprehensive information can be very costly.
Information is a prerequisite for competitive markets. It is needed in order to make informed decisions
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Diverse Users ...
The gas industry consists of a diverse set of participants - including information aggregators and market players. The previous model and linkages from producer to pipeline to LDC to consumer no longer applies.
We have the "new" market players-- the marketers or brokers. In addition, the role of pipelines and others has changed. For example, a pipeline company today is NOT the same company is was 10 or 15 years ago.
The industry has become more complex. There are many more transactions and decisions associated with the plethora of new services that consumers are being offered.
With Diverse Information Needs
Within the gas industry there are diverse information needs. This includes for example:
- those involved in the physical and financial transfer of natural gas who need information in the daily conduct of their business on flows, nominations, receipts, deliveries and weather as well as information for strategic or longer term planning,
- the consumers of natural gas, who need information to make informed choices in selecting appliances and in making other investments regarding their energy future
- the financial community, who are key in providing the investment capital, and need current data, historical analysis and projections of the future in assessing the outlook for the gas or other industries which interface with the gas industry
- the media,
- and of course, those involved in legislative, regulatory and policy oriented activities.
Governmental bodies at the national and state level are charged with protecting the consumers in terms of safety, and their ability to obtain service at a fair price. In addition, information is needed to assess the impact of policies -- to answer questions about the impact of new initiatives.
- Why is this information so important? Disclosure of information provides for a level of comfort for many groups. We see this, for example, in the investment community. They are much more likely to be interested in investing in a area where there is some public information available regarding that industry. In this instance a lack of information inhibits evaluation of investment opportunities. And we see this with the public and the Congress - when reliable information is available to provide a perspective on market events, they are much more comfortable with the workings of the market.
With Restructuring, Information Needs Have Grown Exponentially
- From a purely numerical basis, the number of transactions involved with selling and moving natural gas has grown exponentially.
- Information is needed to support activities such as : nominations, futures market, capacity trading, load balancing, storage, risk management, parking, loaning, hub activities and rebundling.
- What is central to the efficient functioning of these markets of course is comprehensive, reliable, and timely information.
Information Infrastructure and Industry Changes
This slide shows average wellhead prices (in nominal dollars) and industry developments over the period 1980 - 1997. There has been an increase in the need for market information and a number of new information sources have developed over this period.
Over this period, wellhead prices have become more volatile --
In October 1996 the price was $1.93, as compared to $2.70 in November 1996 and $3.53 in December 1996. This represents a $1.60 increase between October and December.
Annual wellhead prices in 1995 averaged $1.55 and increased to $2.25 in 1996, a 45 percent increase. What was largely a seasonal market has changed to a monthly and daily market with a corresponding increase in information needs to support it.
The information revolution has played a key role in the restructuring of the natural gas industry. Just look at the tremendous investments gas companies have made in EBB's, meters and sensors, and computer systems in recent years. This process involves extensive sensors, monitors, satellite relays, high speed computers network systems and lots of telephone lines.
When we compare the gas trading and delivery system that modern communications technology has made possible with the old system, it is apparent that restructuring was impossible until the telecommunications infrastructure was available to support an unbundled gas delivery system.
The industry has made significant strides in the development and use of information systems. Some noteworthy developments include:
- In the early 1980's came a source of transparent wholesale natural gas prices with the development of the spot market.
- In April, 1990, the natural gas futures contract starting trading, providing probably the most timely natural gas price information.
- Another important information development is the weekly storage estimates. The AGA has responded to the need for information in this area by surveying its members weekly and quickly disseminating this information electronically.
- In 1993, EBB's ( electronic bulletin boards) were developed in response to Order 636 and provided electronic access to trading of capacity. In 1997 new procedures were instituted providing more timely and comprehensive pipeline information.
- Finally, in 1996, the first electronic gas trading systems came online. Now, actual bid and ask prices are available in real time. Information is available on completed trades.
In summary, the development of new information sources and the technology to allow quick access to that information has moved the industry from one in which gas was traded principally under long-term contracts to one where gas can be traded electronically on a daily basis.
What information will be needed in the future? Perhaps the following:
- Transparent natural gas and electricity prices. As retail markets in natural gas and electricity develop, reliable price information will become crucial for 'energy shoppers'.
- Wide dissemination of daily price and quantity information including daily storage estimates.
- Additional information will be needed -- if electric/natural gas market convergence develops into a Btu market
- Institutional practices such as scheduling shipments (nominations) of the commodity along the transmission system need to be brought into sync. The industries operate differently with respect to contracting and nominations. Some standardization across the industries will be needed to support exchanges.
EIA Information - Valuable Support to Many Market Activities
What role does EIA play as an information provider?
- EIA collects data, as necessary, works to ensure its validity, combines it with other data, and interprets it for the industry. We provide information that is credible and unbiased by virtue of our position as a disinterested party.
- EIA data provide the baseline needed to produce market assessments, trend analyses and forecasts..
Why is EIA in the energy information business?
#1 There is a strong need for information.
#2 EIA's information is accurate
#3 EIA's information is unbiased -- we don't have a stake in the outcome/results of the data.
#4 EIA's information is accessible to all. All non-sensitive information is available to our customers.
#5 EIA's information is comprehensive. We want our customers to know what they're getting and what is the significance of the information. For instance, we want our customers to understand that EIA's industrial prices represent only 17 percent of industrial deliveries.
#6 The government has the authority to compel reporting. Concerns are often expressed about the coverage in "voluntary" reporting systems.
EIA is taking advantage of technology to provide information in a convenient and timely manner.
Eia Web and Product Links
There's probably no better way to show how the information revolution has affected EIA than to go to our web site and show some of the products and services that are available there. Our products on the Internet range from current assessments of the market, data and other publications, geographical information systems, analytical reports which provide in-depth analysis of industry issues, and projections of market trends.
- For those of you interested in very current information on developments in the industry, we have the Weekly Natural Gas Market Report.
- If you are interested in either the most current monthly information or longer time series, we have the - Natural Gas Monthly. The data collection in the natural gas area is of course, one of our most important activities and the NGM provides the latest survey information, as well as early estimates of some of the major data series, such national level consumption by sector and national level production.
- Many people rely on EIA for an unbiased perspective or assessment on developing trends or concerns and one very popular report is the Natural Gas: Issues and Trends
- Another widely accessed product on the web is the Short-term Energy Outlook. The current version of the model is posted for your use, you can access it, alter the assumptions if you choose and develop your own assessment of the near term gas consumption or price.
- Mid-term projections out to the year 2015 can be found in the Annual Energy Outlook. The next issue will provide projections to the year 2020.
- An assessment of natural gas productive capacity over the next year is available in Natural Gas Productive Capacity for the Lower 48 States
- Another product is the EIA Geographical Information System. EIA-GIS currently contains digitized maps and associated facility and attribute data for 125 domestic pipelines. The system also provides information on pipeline capacity and deliverability.
- EIA has altered its way of doing business to accommodate the changing needs of the users. We are
- emphasizing ease of access to our information products through the Internet
- designing our information products with the Internet and other electronic options in mind (i.e. the CD InfoDisc)
- working on more timely release of information
- and finally, encouraging the use of electronic means of obtaining information from our survey respondents
EIA Information - Valuable Support to Many Energy Market Activities
EIA has welcomed the growth of the Internet and has been one of the leaders among Federal agencies providing electronic access to data and reports.
- The EIA put up it's Website in the summer of 1995 and the response to the Website has been dramatic. The number of unique daily users has shown a steady increase and has ranged between 1500 and 2500 per day during 1997. On a monthly basis, the number of unique users increased from 8700 in January 1996, to 22,400 in December 1996, to about 54,000 in August 1997 - a sixfold increase between Jan 96 and August ‘97.
- An interesting corollary is that our distribution of paper products has declined from 455, 000 in 1995 to 323,000 in 1996 , a 29 percent decrease.
- Apparently many customers have found our electronic information useful, and we will continue to increase and improve our available products.
Partnership... We Want Your Input
- Some of the Information Challenges Facing EIA as the Industry Continues to Restructure
- We are aware that some information which had been in the past provided as a part of a regulatory requirement is now considered more sensitive business information. We are continually working with the industry and our respondents to preserve this aspect of the information.
- Another challenge for us is the changing role of players in the market. Coverage of some of our pricing series has declined substantially, particularly the industrial and to a lesser degree commercial sector. We are continuing to address these issues. We are concerned that as the retail unbundling goes forward more coverage of the prices paid by residential consumers will be lost.
Our challenge at EIA is to continue to provide comprehensive energy information to the industry through our data collection and analytic programs. In this effort, we will be embarking on a series of focus groups with our major customer groups.
We need your input to develop the best programs to meet your information needs. Our goal is to foster partnerships with the industry.
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