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3/4/2006 9:33:41 AM

Updated 02/24/06

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The Trouble with Forecasting
Media hype natural gas rises for winter, quietly passing over downward revisions in the numbers.

By Amy Menefee
Free Market Project
Nov. 16, 2005

Then:  9/7/05
Audio | Video

Now: 11/10/05
Audio | Video

     The media love a big, shocking number and never mind if its revised later.

Send this page to a friend! (click here)     News reports after Hurricane Katrina stunned homeowners with disastrous forecasts of 71-percent-higher natural gas costs for the winter. But now that the picture has improved, the media arent rejoicing with homeowners that their costs arent as bad as expected. Instead, reporters have kept hyping while the estimated costs have kept dropping.

     CBS Evening News anchor Bob Schieffer warned consumers in his September 7 broadcast that natural gas bills in some parts of the country could be as much as 71 percent higher than last winter.

     Even though Schieffer alluded to the fact that that was only in some parts of the country, he didnt begin to tell the whole story. In reality, that 71-percent number was only for the Midwest. The energy expenditures for the nation were indeed supposed to rise dramatically, according to the Energy Information Administration (EIA), but far less than Schieffer said. The actual number, as of that date, was an average of 52 percent higher nationwide.

     In addition, the EIA went on from there to downplay its own predictions: With the full impact on near-term domestic oil and natural gas supply of Hurricane Katrina still being assessed, the fuel price outlook for the upcoming winter remains particularly uncertain for now. The EIA had to forecast based on different models of recovery from hurricane damages.

     Now for the rest of the story, as Paul Harvey would say. The CBS Evening News came back to the topic one month later, when the EIA issued its monthly analysis. Bob Schieffer delivered an almost identical report on October 11, telling viewers On the Money Watch, the natural gas industry says that supplies should be adequate this winter, but you'll be paying as much as 40 percent more than last year.

     It only gets more confusing. Schieffer was basing his reports on information from the EIAs monthly Short-Term Energy Outlook (STEO) that journalists typically cite.

     But in October, when Schieffer was predicting the costs would be 40 percent more than last year, the government was saying the number had declined to 48 percent on average.

     It took another month before Schieffer and CBS Evening News actually reported the number that the STEO cited. On November 10, he said It is going to cost you a lot more to heat your home this winter if you heat with oil or natural gas, predicting a 41-percent increase.

     While a 41 percent average increase is substantial, it reflects two straight months of declining predictions a decline Schieffer didnt acknowledge. Schieffer never admitted the problems with his earlier reports and even when the EIA revised its predictions, he didnt acknowledge the change.

     People expect the weatherman to be wrong part of the time, because they understand a lot of factors go into a weather forecast. Its the same with forecasting natural gas prices. The Energy Information Administration predicts, but those predictions are revised monthly based on a variety of conditions, including fickle weather.

     The media have been far more reliable. Since Hurricane Katrina, theyve picked the highest, scariest numbers and run with them without looking back. Back in September, Schieffer wasnt alone predicting a 71-percent rise, even though that was only for the Midwest.

     Both Julie Chen, of The Early Show, and Scott Rapoport, of the CBS Morning News took the same approach as Schieffer. According to Chens September 13 report, Katrina could prove disastrous for less affluent households this winter. The storm is driving up heating oil prices, and natural gas could soar by as much as 71 percent.

     On September 8, just after the government released its short-term outlook for the month, Rapoport characterized it as predicting an expensive winter for homeowners. The EIA says natural gas prices will be 71 percent higher than last year and heating oil 38 percent higher.

     The other networks joined in the confusion. Both NBC and ABC delivered similar stories. Also on September 8, Brian Williams said on the NBC Nightly News: And here it comes. The bottom line: heating bills this winter are going to be a lot higher, as much as 71 percent higher, the government says, for households that use natural gas.

     Later that month, on the September 28 World News Tonight, Elizabeth Vargas made it a full set of networks telling viewers the highest possible number. Now the government had already forecast a 70-percent increase in the cost of heating your home this winter. Is this going to go up even more now? Betsy Stark answered, And that forecast was after Katrina, but before Rita. So yes, thats possible. Analysts say it will depend on the weather, how cold a winter it is, and it will also depend on the extent of the damage in the Gulf.

     Those factors are just a few of the ones the EIA takes into consideration, said Neil Gamson, an economist who works on the Short-Term Energy Outlook. Forecasters use a model to predict prices, but its affected by weather, other seasonal factors, and supply and demand including available imports.

     They even have to factor in the world price of oil. That itself is a difficult projection, Gamson said.

Paul Hesse, an information specialist with the National Energy Information Center, agreed forecasting with the model is a fluid attempt.

     When they run the model, its based on conditions that are in effect, Hesse said. Theres always a change. He said the recovery from the hurricanes happened more quickly than the Energy Department expected, which caused the price forecasts to decline sharply over the past two months.

Getting it right:

     Not everyone in the media left the truth out in the cold on this issue. Here are few who were hot on the trail of the truth:

     ▪ Anthony Mason on the September 9 CBS Evening News correctly related the prediction natural gas prices to soar more than 70 percent in the Midwest.

     ▪ On the September 29 Today, Katie Couric ominously introduced, Now to your money, or what will be left of it once you start heating your home this winter. But in her report, Alexis Glick correctly identified that the EIA estimates natural gas prices could rise by 71 percent in the Midwest and an average of 50 percent nationwide.

     ▪ CBS Morning News October 13: Susan McGinnis said The government says heating bills could go up as much as 60 percent in some areas, and believe it or not, thats more optimistic than some earlier predictions.


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