Wednesday, April 18, 2012

The EIA's Natural Gas Projections

The geniuses at the EIA have released their short term energy outlook for 2012. This is the natural gas section. Their opinion is basically that they have no idea what the natural gas price will be going forward, but it will probably be low.

It's amusing to look at the EIA's past natural gas price projections. Here is a thoughtful critique of the track record of natural gas price forecasts:

From 2002-2009, there are no AEO forecasts that come remotely close to predicting the actual price movements during the same period.

The actual gas price in 2009 was best predicted by the 2004 forecast and worst predicted by the 2008 forecast. A forecasting tool that gets more accurate as one goes farther back in time is hardly one that we ought to rely on to provide us with a reliable view of the future based on near-term fundamentals.
EIA also publishes a retrospective on their past projections.

I can't predict what the natural gas price will be, either. But I can predict that people will eventually stop exploring for and producing a resource that sells for less than marginal cost. I can also predict that people will substitute natural gas for other more expensive sources of energy.

4 comments:

Stagflationary Mark said...

CP,

Their opinion is basically that they have no idea what the natural gas price will be going forward, but it will probably be low.

September 30, 2007
The Rear View Mirror

This chart shows the EIA's predictions for the world price of oil in the year 2015 and also shows the years that the predictions were made.

Enjoy! Hahaha! :)

CP said...

Perfect. I haven't seen a good one of their natural gas projections.

Actually, the way you should represent this information is a set of curves/time series.

Each one shows the projections for a given year culminating with the actual price for that year.

If you do this with corporate earnings projections what you see is that analysts are basically right, but they miss the turns because they are just extrapolating.

If you do that here you would see that the predictions have no predictive value.

How are you enjoying your paper towels? You aren't being careless with them?

Stagflationary Mark said...

CP,

How are you enjoying your paper towels?

Funny you should ask.

Outstanding news on the paper front, lol. Sigh.

Felix Hoenikker said...

FUN! I actually did exactly that a few years back and EIA and Woodmac were consistently low. CERA is okay