- The Washington Times - Tuesday, December 16, 2003


A surge in natural gas prices is raising fears of higher heating costs this winter and has prompted calls in Congress for an investigation into possible price gouging and market manipulation.

Natural gas prices, on both the spot and futures market, have soared nearly 50 percent since just before Thanksgiving. The spot price on a key trading center yesterday was $6.59 per thousand cubic feet compared with $4.45 on Nov. 25, an increase of 48 percent.

Industrial users of natural gas have called for an investigation into potential market abuses. Sen. Orrin G. Hatch, Utah Republican, chairman of the Senate Judiciary Committee, promised hearings into the issue.

“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,” Mr. Hatch said.

He said he couldn’t understand how normal market forces could prompt a 50 percent jump in price so quickly when supplies appear adequate.

Last week, the Energy Department said natural gas supplies remained at nearly 3 trillion cubic feet, slightly above the five-year average for this time of year.

Analysts said a combination of events have spooked the market, including an onslaught of severe weather in the Northeast and Midwest and the memory of similar conditions a year ago when an unexpected cold spell caused a sudden drop in supplies and soaring prices.

Energy Secretary Spencer Abraham said told reporters yesterday that weather has been a factor in the price surge, but “it may not be the only factor.”

Still, Mr. Abraham cautioned against “premature finger-pointing” and warned of continued price volatility in natural gas markets if production is not increased.

Analysts said that two recent weeks of higher-than-expected natural gas demand also led traders, who thought prices would moderate this winter, to shift gears and move to cover any potential losses, driving up prices.

Both the Federal Energy Regulatory Commission and the Commodity Futures Trading Commission are keeping a close watch on natural gas markets, but neither agency has indicated anything illegal going on so far.

But some analysts argue there is no reason for gas prices to have increased so rapidly in recent weeks.

“Traders are hyping the markets. There are producers that are hyping the potential shortages. … I don’t want to call it a conspiracy, but all of these players are operating in concert,” said Fadel Gheit, senior energy analyst at Oppenheimer & Company.

Others say the market only reflects the uncertainty about supplies because a sudden cold spell could quickly erase the supply cushion now in place.

Earlier this year, the Energy Information Administration estimated that average heating costs for families using natural gas will be about 6 percent higher this winter, or about $850 for the heating season. But that assumed a normal winter and wholesale gas prices of $5 per thousand cubic feet.

David Costello, an EIA economist, said a more recent estimate put winter heating costs at 10 percent higher than last winter, but that estimate did not take into account the latest price surge.

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