With gas prices suddenly peeking over $7.00 only a few days after falling near the $6.00 mark, Huntsman Chemical CEO Peter Huntsman once again found an opportunity to rail against futures speculators on the New York Mercantile Exchange (Nymex) and the exchange's own flawed trading rules for high and volatile natural gas prices.
"Government data released today show a record amount of natural gas in inventory for this time of year, and demand for natural gas remains flat," Huntsman said in a statement, referring to working gas levels in storage that are 20% above the five-year average. "Yet in the last two trading sessions the price of gas on the Nymex shot up more than 65 cents and closed up 44 cents. On an annualized basis that cost the U.S. economy between $10 billion and $15 billion. Why? Because, according to one analyst, 'Fund buying jumped in...and sent prices racing.'
"In other words, hedge funds and other paper traders on the Nymex continue to enrich themselves while U.S. gas consumers are forced to endure the result of the world's highest and most volatile natural gas prices," said Huntsman.
Huntsman Chemical buys about 110,000 MMBtu/d of natural gas to fuel its U.S. operations, which include chemical manufacturing and marketing. Huntsman has annual revenues of about $11.5 billion, 11,300 employees and operates in 22 countries.
"Industries continue to close and move offshore. American jobs continue to be lost. The nation's farmers and senior citizens continue to suffer," Huntsman said, blaming it all on high gas costs. "The only ones who prosper are financial markets and traders that do not produce, transport or consume natural gas.
"Just this morning one of our nation's largest financial institutions, in reporting on gas price futures, referred to the forecast of a worse than normal hurricane season and the possibility of decreasing gas imports, which would be excuses to force up the price, as 'good news.' It makes absolutely no sense."
Huntsman said he is surprised that more natural gas consumers are not outraged with the imbalance in the U.S. economy created by "a natural gas pricing system that has been out of control since Congress enacted the Commodities Futures Modernization Act in 2000."
He said HR 1638, legislation sponsored by Rep. Sam Graves (R-MO) and John Barrow (D-GA), both on the Agriculture Committee, "would go a long way to restoring some common sense" to natural gas markets. HR 1638, which has been referred to the Agriculture Committee, would impose tighter daily gas futures trading limits and would set new futures position reporting requirements. The bill would reform the Commodity Exchange Act (CEA), which is being reauthorized this year (see NGI, April 18).
The legislation would limit the maximum daily price fluctuation on any gas futures contract to 8% in either direction from the prior day's settlement price. It also would require the CFTC to review and approve any future changes to rules for natural gas futures contracts. The CFTC would have to seek public comment on a proposed change.
Section 4 of the legislation would require the CFTC to prescribe rules requiring any person holding positions in natural gas contracts either on a contract market or in the over-the counter market to file position reports either on call or continuous if the CFTC deems it necessary. The bill also would increase the criminal and civil monetary penalties for violations of the CEA to a maximum of $1 million for each violation and up to 10 years in prison compared to the five years in prison allowed under current law.
Finally, the bill also would bar for one year a CFTC member from becoming an employee of an entity that is regulated by the CFTC. That last provision apparent is in response to several CFTC members, including former Chairman James Newsome, leaving the commission to assume executive positions at Nymex. Newsome currently is Nymex's president (see NGI, July 12, 2004; July 19, 2004).
"HR 1638 is not a cure-all," said Huntsman. "But it certainly would help restore sanity to the market and reduce the harm being inflicted on the U.S. economy. Demand for natural gas has eroded in the past five years. We have record amounts of storage for this time of year. There is no fundamental reason for this nation's gas prices to be this high or this volatile."
The last several years of high natural gas prices, have provided Huntsman with numerous occasions to blame the exchange, federal regulators and market speculators for high prices and sudden price changes (see NGI, Nov. 22, 2004; Oct. 28, 2004; May 10, 2004; Dec. 11, 2003) . However, several investigations by the Federal Energy Regulatory Commission, the Commodity Futures Trading Commission (CFTC) and Nymex have concluded that market fundamentals rather than hedge fund participation or natural gas futures trading rules have been the cause of the market's convulsions and high price levels (see NGI, May 2; March 14, Feb. 14; Jan. 10; Sept. 6, 2004; Jan. 19, 2004; Dec. 15, 2003).
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