Finger pointing follows leap in natural gas prices
By SIMON ROMERO New York Times
Saturday, December 13, 2003
Houston — Natural gas prices have surged nearly 50% since Thanksgiving despite an apparent lack of events that normally create such spikes, such as tight supplies or forecasts of unusually cold weather.
The frenzied climb in prices has led to calls for investigations by politicians and executives of gas-dependent industries into whether traders have improperly manipulated natural gas markets.
Companies in the chemical, fertilizer and ammonia industries that depend on natural gas as an essential ingredient for their products have been among the most vocal in their complaints about gas prices, which have soared to their highest level since February.
“We’re extremely alarmed by the events of the last several days,” said Peter R. Huntsman, the chief executive of the Huntsman companies, a large manufacturer of chemical products. “If what is happening with natural gas would happen with crude oil, we’d have declared war on OPEC by now.”
High natural gas prices, if they are sustained, could cascade through the economy and result in higher heating and electricity costs for consumers, because gas is used by many power plants as the main fuel, analysts said. Natural gas, which has remained relatively expensive over the last year, rose 9% in the futures markets on Friday, to $7.22 per thousand cubic feet, compared with $4.93 at the end of November.
Several traders and analysts suggested that trading strategies at large hedge funds and other financial firms were behind much of the swift run-up in natural gas prices. Some funds were thought to have made large bets in the futures markets at the beginning of this month that the price of natural gas would fall below $5 per thousand cubic feet. Pressure by funds that made opposite bets and a scarcity of other traders in the market could have subsequently caused prices to climb.
“There’s a great deal of speculative froth at the moment,” said Kyle Cooper, an energy futures analyst with Citigroup in Houston.
Hearings on price increase
Responding to calls for greater scrutiny of natural gas markets, Sen. Orrin G. Hatch (R-Utah), chairman of the Senate Judiciary Committee, said on Friday that he would hold hearings next month into whether improper manipulation of natural gas markets was taking place.
“Natural gas is so critical to U.S. consumers and the economy that if someone has been manipulating this market, they should go to jail,” Hatch said in a written statement. “I feel we must determine once and for all if these price surges are the result of market forces or if there continues to be price manipulation.”
Several large energy companies, including Duke Energy of Charlotte, N.C., and Dynegy Inc. of Houston, have recently paid millions of dollars in fines to settle federal charges that they tried to manipulate prices of natural gas contracts improperly.
Cooper, like most other experts in the natural gas market, said there were few fundamental reasons for natural gas prices to climb so high in such a short period of time.
Natural gas inventories in the United States, for instance, stand at nearly 3 trillion cubic feet, or 7% above the level registered at this time last year. Natural gas stocks are also about 3% higher than the five-year average for such inventories, the Energy Information Administration said this week.
R. David Gary, a spokesman for the Commodities Futures Trading Commission, which oversees and regulates trading of natural gas contracts, declined to say whether the commission had initiated an investigation of the price increases. But Gary did confirm that the commission had increased surveillance in recent days of large financial participants in the natural gas markets, standard procedure after such a wide price swing.
Executives at the New York Mercantile Exchange insisted on Friday that they had not seen any unusual manipulation of natural gas prices.
J. Robert Collins, the president of NYMEX, said much of the recent run-up in gas prices was related to lower investments in infrastructure, drilling and trading activities by energy companies since the collapse of Enron two years ago.
Supplies tight
Natural gas, which accounts for about a quarter of the nation’s energy needs, has remained relatively expensive during the last year as supplies tightened largely because the fuel, promoted as a cleaner-burning alternative to coal and oil, came under increasing demand to fire new electricity plants.
“What’s happening in natural gas markets has the very real potential to stop the manufacturing recovery in its tracks,” said Greg Lebedev, president of the American Chemistry Council.
Analysts expect the volatility in the natural gas markets to continue next week.
