US CFTC lays more natgas manipulation charges

26 July 2007 22:34  [Source: ICIS news]

HOUSTON (ICIS news)--US regulators on Thursday filed the second charge in two days over alleged manipulation in natural gas markets, adding fuel to the political fire over an issue that has hounded the chemical industry.

The Commodity Futures Trading Commission (CFTC), acting in conjunction with the Federal Energy Regulatory Commission (FERC), said it filed a legal complaint against Energy Transfer Partners and three subsidiaries.

It alleged they attempted to manipulate natural gas prices in the wake of hurricanes Katrina and Rita, which hit the US Gulf in 2005.

The regulators proposed a total of $167m (€122m) in fines and loss of profits to settle the complaint.

Energy Transfer Partners is a listed company based in Dallas, Texas, that operates natural gas pipelines, processing plants and storage. The company called the complaint "misguided" and said regulators were using hindsight to second-guess market behaviour in the uncertain period following the storms.

The CFTC alleges that the company and its units attempted to push down the price of physical gas at the Houston Ship Channel (HSC) delivery hub in September and November 2005.

Those were the months immediately following the hurricanes, which battered the US Gulf coast chemical industry and more than halved offshore gas production.

The CFTC claims that Energy Transfer Partners and its associates had first established short positions in HSC financial swaps, then built up huge inventory of physical gas in the days before and after Rita made landfall on 24 September 2005, just east of Houston.

The regulator contends the company then sold the physical gas for October delivery on the IntercontinentalExchange (ICE) on 28 September in an effort to drive the HSC price down even as the evacuation of an estimated 2m residents from the city slashed demand.

The 28 September sales represented 96% by volume of all the ICE trades that day in the HSC gas contract, the CFTC said.

Those sales were then reported to price assessment service Platts. That was an effort to push down the published October price index for HSC gas, on which the financial swaps were based, the regulator said. 

Energy Transfer Partners, which currently employs a former Federal Energy Regulatory Commission (FERC) commissioner as its chief administrative and compliance officer, said it would vigorously contest the complaint.

"These charges are based on an untested theory that attempts to force a natural gas seller to ignore supply and demand in the market and, instead, sell natural gas at a price that the FERC believes in hindsight should have been the 'right' price by comparison to prices in other markets," the company said in a statement.

Energy Transfer Partnership shares fell by $2.45, or 4%, to $58.79 on the New York Stock Exchange on Thursday.

On Wednesday, the CFTC filed charges against hedge fund Amaranth Advisors and its head energy trader for attempted manipulation of natural gas markets involving both ICE and the NYMEX.

The high-profile cases have emerged a month after the US Senate commenced hearings in natural gas markets in June that brought calls from the chemical industry for action on the issue of market manipulation.

($1 = €0.73)

By: Stephen Burns
+1 713 525 2653

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