Are Volatile Natural Gas Prices Unreasonable?

Michael Giberson

In letters to the chairmen of FERC and the CFTC, Senator Jeff Bingaman asks what actions the agencies have taken in response to recent episodes of natural gas price volatility. Particularly of concern to the Senator were allegations of manipulation of the NYMEX gas futures contract price at the end of August 2006. (The letter reports that failed investment company Amaranth told NYMEX that the company suspected manipulation. I guess when you lose billions of dollars you have to come up with an excuse more elaborate than “the dog ate my homework.”)

Nominally, in any case, the Senator is not concerned about the misplaced bets of commodity fund speculators, but about the “significant challenge for consumers and businesses across the country, as well as the state regulators” created by price volatility. Of course most of the time you hear consumers complain about price volatility, they’re really complaining about the price level, and Senator Bingaman notes a GAO report of last September found that gas prices last year were up 190 percent since 1993.

More information can be found at the Energy Legal Blog, including copies of the letters sent by Bingaman. Here are links to my earlier comments on the Amaranth failure and the subsequent, unsurprising calls for more investment fund regulation. Finally, a comment with additional links from about a year ago, concerning a report on natural gas markets issued by four state’s Attorneys General and exhibiting concerns similar to those now expressed by Bingaman.