Comparing price forecast accuracy of natural gas models and futures markets

✍ Scribed by Gabrielle Wong-Parodi; Larry Dale; Alex Lekov

• Publisher: Elsevier Science
• Year: 2006
• Tongue: English
• Weight: 217 KB
• Volume: 34
• Category: Article
• ISSN: 0301-4215
• DOI: 10.1016/j.enpol.2005.08.013

✦ Synopsis

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 À0.52 and a standard deviation of 1.25 than STEO with an average error of À0.83 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.