November 2006
Natural gas: Information forces gas prices the wrong way
It’s easy to see why Brian Hunter of Amaranth notoriety – and so many others – were caught long of natural gas. The prices of natural gas have risen dramatically since 2000. But how much of that increase has been due to underlying supply and demand?
| Increases in natural gas prices per thousand cubic feet |
|
2000 |
2005 |
Increase |
| Wellhead |
$3.68 |
$7.51 |
104.10% |
| Imports |
$3.95 |
$8.41 |
112.90% |
| City Gate |
$4.62 |
$8.64 |
87% |
| Industrial |
$4.45 |
$8.49 |
90.80% |
| Electric Power |
$4.38 |
$8.45 |
92.90% |
| Commercial |
$6.59 |
$11.56 |
75.40% |
| Residential |
$7.76 |
$12.81 |
65.10% |
| Source: Energy Information Agency, Department of Energy, July 2006, taken from the Sonecon report |
A report by Robert Shapiro, chairman of economics consultancy Sonecon and Nam Pham shows there are flaws in the pricing of the natural gas index that allow for manipulation. “Federal regulators have documented a series of practices by companies and traders resulting in price manipulations,” says the report. The most classic form involves simultaneous buying in futures and spot markets. “A manipulator acquires a large futures position and then goes into the current or near-term market to buy enough natural gas to push up the price. The increase in the current or near-term price of natural gas raises the price of futures contracts, which can then be sold at a profit without driving the price back down,” says Shapiro.
This is archived content. Your current settings does not currently allow access to the archive. To gain access visit the subscription page or call our hotline on +44 (0)207 779 8999.
If you are a trialist or subscriber, please enter your username and password at the top right-hand side of euromoney.com
Subscribers to Euromoney benefit from:
Level 1:
- Online access to the past 12 months content
- Tailored RSS news feeds direct to your desktop
- News delivered directly to your mobile device or PC
- Personalised email newsfeed of 'Top stories' and 'Breaking news'
Level 2:
- Exclusive access to euromoney.com - Read the latest issue early online, search for specific developments by region or sector, interrogate the results of Euromoney's benchmark polls, and view the archive dating back to 2000
- 12 monthly issues of Euromoney magazine
- More than 30 specialist research guides free
- The results of Euromoney’s polls and surveys
- Tailored RSS news feeds direct to your desktop
- News delivered directly to your mobile device or PC
- Personalised email newsfeed of 'Top stories' and 'Breaking news'
Click here to subscribe