Steve Quayle News Alerts

Dec. 13, 2003
Associated Press

WASHINGTON -- A 46 percent surge in the price of natural gas since Thanksgiving has been so startling that a senator plans an investigation.

Natural gas for January delivery surged 60.6 cents, or 9 percent, Friday to $7.221 per thousand cubic feet on the New York Mercantile Exchange. It was the highest close since Feb. 28.

Companies in the chemical, fertilizer and ammonia industries that depend on natural gas as essential ingredient for their products have been among the most vocal in their complaints about gas prices.

"We're extremely alarmed by the events of the last several days," said Peter 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."

However, any increase in prices consumers pay won't be nearly as severe as the recent run-up in futures prices because utilities sign long-term contracts for most of their winter fuel over the summer.

Explanations for the rally vary, but traders are virtually unanimous in acknowledging that they were caught off guard when prices first began rising sharply at the beginning of the month.

Sure, the barometer dropped and snowflakes fell -- and another winter storm could hit the Northeast this weekend -- but the nation's supply of natural gas is adequate for this time of year, analysts say.

Oppenheimer & Co. senior energy analyst Fadel Gheit said natural gas price levels and volatility don't seem consistent with market fundamentals.

"I would like to see Eliot Spitzer take a closer look at the market," Gheit said of New York's attorney general, adding that residential and industrial consumers are paying more for no good reason.

Spitzer has been spearheading the recent examination of trading practices in the mutual fund industry.

Responding to calls for greater scrutiny of natural gas markets, Sen. Orrin Hatch, R-Utah and chairman of the Senate Judiciary Committee, said 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 prepared statement.

Several large energy companies have recently paid millions in fines to settle charges that some traders tried to improperly manipulate natural gas contract prices.

Executives at the New York Mercantile Exchange, which lists the benchmark Henry Hub natural gas futures contract among its products, insisted they had not seen any unusual manipulation of natural gas prices.

J. Robert Collins, the exchange president, 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.

R. David Gary, a spokesman for the Commodities Futures Trading Commission, confirmed 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.

"At the moment, the price of natural gas is serving as the single largest brake on the U.S. economy," said Greg Lebedev, president of the American Chemistry Council.

John Kilduff, senior energy analyst at Fimat USA, said two consecutive weeks of higher-than-anticipated consumption are forcing traders who expected prices to be relatively low this winter to cover their bets.

"It's a brutal free-market economy, and I think fears of supply going forward are what's being priced into this market," Kilduff said.

Also Friday, light, sweet January crude oil futures settled $1.19 higher at $33.04 a barrel.

Heating oil gained 4.08 cents to 92.56 cents a gallon. Gasoline rose 3.66 cents to 90.04 cents a gallon. January Brent crude rose 80 cents to $30.37 a barrel.

http://www.chron.com/cs/CDA/ssistory.mpl/business/2291740