Energy Data Service Loss to Obscure Energy Market Transparency

Last week the Energy Information Administration (EIA) – part of the Department of Energy – announced significant and immediate cuts to its data collation and publication services.  These cuts relate to a budget allocation reduction for FY11 of over $15m.

The service reduction covers all key aspects of their work, including national and international oil and gas; electricity, renewables and coal; US emissions inventory, forecast world energy outlook, and consumption and energy efficiency data.

The United States, and the world, is currently experiencing pain from elevated oil prices.  We, and others, contest that increased uncertainty and elevated prices are here as a trend for the medium to long term.

Many argue that distortions and deficiencies in oil and gas data in the physical markets are responsible for, and facilitiate, further distortion in the financial markets.  Therefore, speculators and market data transparency are to blame for our pain, according to this perception.

The budget cuts to the EIA services are therefore confusing.  The EIA is one of the best-known sources of authoritative and accessible data drawn upon by independent analysts (such as our own humble efforts), thereby contributing meaningfully to greater transparency in the energy markets.

The following data areas related to oil and gas commodity are subject to service cuts:

• Do not prepare or publish 2011 edition of the annual data release on U.S. proved oil and natural gas reserves.
• Curtail efforts to understand linkages between physical energy markets and financial trading.
• Suspend analysis and reporting on the market impacts of planned refinery outages.
• Curtail collection and dissemination of monthly state-level data on wholesale petroleum product prices, including gasoline, diesel, heating oil, propane, residual fuel oil, and kerosene. Also, terminate the preparation and publication of the annual petroleum marketing data report and the fuel oil and kerosene sales report.
• Suspend auditing of data submitted by major oil and natural gas companies and reporting on their 2010 financial performance through EIA’s Financial Reporting System.
• Reduce collection of data from natural gas marketing companies.
• Cancel the planned increase in resources to be applied to petroleum data quality issues.
• Reduce data collection from smaller entities across a range of EIA oil and natural gas surveys.

Through it’s thorough data collation, analysis, and publication work, the EIA contributes meaningfully to enhance understanding of static and dynamic supply and demand dynamics in the United States and beyond.

Note specifically that research on linkages between physical and financial energy markets will be halted.  If uncertainty has volatility and pricing effects, then these cuts will work significantly in the opposite direction. 

This loss in depth and breadth of quality service will reduce clarity of global energy markets, at a time when most will agree that greater transparency is increasingly needed.

The GOP were substantially behind the announced budget cuts.  However, the republicans seem to be extremely confused about their energy policy (other than to support more drilling everywhere) and who should lead their House energy and commerce committee, .  We have written to both the Majority leader and the leader of the Energy and Commerce Committee to seek their views on the role of transparency and speculation in energy market prices and volatility.