US Senate says natgas trading needs new controls

25 June 2007 16:23  [Source: ICIS news]

WASHINGTON (ICIS news)--US natural gas markets and gas prices must be brought under tighter federal scrutiny and control amid excessive and unregulated speculation by traders, a US Senate report said on Monday.

 

The report, “Excessive Speculation in the Natural Gas Market,” was issued by the Senate’s permanent subcommittee on investigations, which found that “excessive speculation distorts prices, increases volatility and increases costs and risk for natural gas consumers”, including the US chemicals industry, among others.

 

North American chemical manufacturers are almost wholly dependent on natural gas as a feedstock. Since 2000, US gas prices have risen nearly four-fold from the longstanding price range of $1-2/m Btu that prevailed prior to 2000.

 

The Senate report, issued in advance of hearings that will be held later on Monday, also found that “current restraints on speculative trading to prevent market manipulation and price distortions are inadequate”.

 

In addition, the report said that the agency that is supposed to regulate US gas trading practices, the Commodity Futures Trading Commission (CFTC), “is unable to meet its statutory mandate to prevent market manipulation and excessive speculation from causing sudden, unreasonable or unwarranted energy prices”.

 

The subcommittee staff report, which was launched in October 2006 following the September collapse of natural gas hedge fund Amaranth Advisors, recommended that Congress increase the authority and funding for the commission.

 

The report also said that gas trading on the Intercontinental Exchange (ICE) should be brought under the regulatory purview of the commission. At present, gas trades on the ICE are not regulated by the CFTC. 

 

While the commission does have oversight for gas trading on the New York Mercantile Exchange (NYMEX), the Senate report said that when the commission warned traders operating on NYMEX that they were amassing too large a share of gas trades on that market, the speculators simply moved their activity over to the unregulated ICE market.

 

“To repair the broken regulatory system, Congress needs to require currently unregulated exchanges, such as ICE, to comply with the same statutory obligations as regulated markets, such as NYMEX,” the report said.

 

Those unregulated gas markets, said the report, “must operate under the same rules to prevent market manipulation and excessive speculation from affecting the price of vital energy commodities”.

By: Joe Kamalick
+1 713 525 2653

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