Gas prices: US natural gas market liable to manipulation reveals report

U.S. natural gas prices are still at risk of being artificially increased and manipulated by energy traders as more companies abandon the market and price competition is reduced, a federal regulator r…

U.S. natural gas prices are still at risk of being artificially increased and manipulated by energy traders as more companies abandon the market and price competition is reduced, a federal regulator report said 29 January 2003. In an assessment of the U.S. natural gas market for 2003, Federal Energy Regulatory Commission investigators stated their concern that in the absence of proper monitoring by energy regulators, market manipulation could continue under the current restricted supply conditions. “Evidence indicates that price manipulation has occurred in certain natural gas marketplaces, and may be continuing,” the report said. Neither the companies involved in price manipulation, or the regional markets that are affected, were identified in the report. Evidence of price manipulation by traders has already been discovered by Federal investigators with FERC, the Commodity Futures Trading Commission and the Justice Department. “Nevertheless, it is likely that revelations of improper behavior will continue for some time,” the report said. The investigation into natural gas began as a result of California“s complaints of price-inflation during the state“s 2000-01 energy crisis. At the same time California“s wholesale electricity prices increased ten times over, resulting in power cuts. Prices of natural gas,used to fuel many power plants, also went up by a similar amount. In January 2003 Prosecutors charged a former El Paso Corp (EP.N) trader, Todd Geiger, with reporting 48 fake natural gas trades to Platt“s Inside FERC Gas Market report and and said he was part of a conspiracy. Geiger has denied the charges. The Inside FERC newsletter publishes a natural gas price index widely used by the industry. Most pricing in the U.S. gas industry is linked to futures prices quoted on the New York mercantile Exchange, which is regulated by the CFTC. However, the underlying USD 100 billion annual spot market for physical gas supplies often uses formulas linked to price indices for delivery points along the huge North American pipeline network. On 27 January 2003, Michelle Valencia, a former trader with Dynegy Inc., was charged with reporting 43 false trades during 2000-01 to Inside FERC. Like Geiger, she has pleaded not guilty American Electric Power Co Inc. dismissed five traders last autumn for passing false prices to industry publications. The FERC report said another critical issue for the U.S. natural gas market in 2003 is the deteriorating financial state of many companies. The failure of Enron Corp and the federal investigations have prompted El Paso, Dynegy and several other companies that once dominated trading to abandon the business or retrench. Their problems have spread out through the industry. “This serious financial situation could cause price increases and (in the longer run) delivery problems for natural gas customers,” the report said.