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Comparing price forecast accuracy of natural gas models and futures markets

Authors
Journal
Energy Policy
0301-4215
Publisher
Elsevier
Publication Date
Volume
34
Issue
18
Identifiers
DOI: 10.1016/j.enpol.2005.08.013
Keywords
  • Natural Gas Price
  • Pricing
Disciplines
  • Economics

Abstract

Abstract The purpose of this article is to compare the accuracy of forecasts for natural gas prices as reported by the Energy Information Administration's short-term energy outlook (STEO) and the futures market for the period from 1998 to 2004. The analysis tabulates the existing data and develops a statistical comparison of the error between STEO and US wellhead natural gas prices and between Henry Hub and US wellhead spot prices. The results indicate that, on average, Henry Hub is a slightly better predictor of natural gas prices with an average error of −0.52 and a standard deviation of 1.25 than STEO with an average error of −0.83 and a standard deviation of 1.34. In addition, the results reveal that during the 13–24 months of the 2-year ahead forecast, STEO is a biased predictor of natural gas prices. This analysis suggests that as the futures market continues to report longer forward prices (currently out to 5 years), it may be of interest to economic modelers to compare the accuracy of their models to the futures market. The authors would especially like to thank Doug Hale of the Energy Information Administration for supporting and reviewing this work.

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