The "Texas team" of BP's Southeast gas trading desk engaged in next-day fixed-price natural gas trading at the Houston Ship Channel (HSC) in 2008 in order to benefit its HSC-to-Henry Hub spread position tied to the index, according to testimony by industry analysts filed at FERC Monday by the agency's Office of Enforcement (OE) staff.
Based on his analysis of the Texas team's physical positions and their HSC-Henry Hub spread position, Patrick Bergin, a consultant at Houston-based FPS Consulting, found that starting on Sept. 18, 2008 -- after the value of the Texas team's physical trading at HSC-Henry Hub spread position jumped following Hurricane Ike -- its physical trading at HSC "changed markedly," according to OE's filing [IN13-15].
The Texas team's new trading direction included "increased and heavy net selling at HSC, increased physical net long positions between the HSC and Katy market hubs, increased sales at HSC of gas from Katy, increased use of BP's daily firm transportation capacity on the Houston Pipeline System [HPL] to deliver Katy gas sold at HSC, and a notable shift to consistent losses on the Texas team's physical trading at HSC in contrast to consistent profits on such trading during 2008 before the investigative period [Sept. 18, 2008 - Nov. 30, 2008]."
The testimony came more than a year after the Federal Energy Regulatory Commission ordered BP America Inc. and affiliates to show cause in the long-running case involving the alleged gaming of the physical and financial markets at HSC (see Daily GPI, Aug. 6, 2013). The Commission initially proposed a near-$29 million penalty for transactions taking place during the investigative period, although its filed public testimony Monday redacted all the witnesses’ monetary calculations.
BP is slated to file responsive testimony by Dec. 8, followed by FERC rebuttal and deposition of witnesses. The hearing is slated for March 2, 2015 with an initial decision by July 15, 2015.
BP immediately disputed the allegations in the initial charges and again denied wrong-doing Tuesday. “We stand by what we previously disclosed publicly in February 2011 -- that BP natural gas traders did not engage in any market manipulation in late 2008 as alleged by FERC Enforcement staff,” a BP spokesman told NGI.
The initial charges were based on an OE investigation alleging that traders on the Texas team traded physical natural gas at HSC in a manner designed to increase the value of the company's futures market position. FERC's complaint included affiliates BP America Inc., BP Corp. North America Inc., BP America Production Co. and BP Energy Co.
BP had revealed in a quarterly Securities and Exchange Commission filing that FERC staff originally notified the company of its preliminary conclusions in November 2010, at which time BP said it gave a detailed response. OE subsequently made public a preliminary determination accusing BP of making fraudulent physical trades to set up its futures market position (see Daily GPI, Aug. 1; Feb. 2, 2011).
Bergin's analysis also relied on a telephone call between Texas team members Clayton Luskie and Gradyn Comfort recorded Nov. 5, 2008; and analysis and testimony of Rosa Maria Abrantes-Metz, a managing director at Global Economics Group. Abrantes-Metz, who was retained by OE to analyze BP's trading activity, concluded that the Texas team's increased use of BP's daily firm transportation capacity in the HPL "had the effect of increasing the supply of next-day fixed-price gas at HSC.
"This increased utilization was not justified by the price spread between Katy and HSC, and...the team's losses on transport were not significant when compared with the time periods prior to the investigative period," according to OE's summary of Abrantes-Metz's testimony. The analyst also concluded that the Texas team consistently failed to take advantage of profit-maximizing opportunities when they made selling decisions in the investigative period."
FERC staff also filed a list of "adverse" witnesses, employees of BP, whom it expects to call to testify at a public hearing. The list includes Luskie and Comfort, who will be asked to testify regarding trading procedures and their recorded phone call, which sparked the investigation. Luskie will also testify regarding the Texas team's ability to transport gas from Katy to HSC using BP's firm transportation capacity on HPL, and its actual use of that capacity in 2008. He "also will testify regarding how the Texas team tracked their physical and financial positions in 2008," the staff filing said.
Additional BP witnesses will include other members of the trading team, plus company compliance and administrative personnel. Witnesses from McGraw Hill Financial (Platts) and IntercontinentalExchange (ICE) also have been subpoenaed to appear to verify price data. Rick Dietz, vice president of contract administration for Kinder Morgan Midstream, also was subpoenaed “to describe Kinder Morgan's transactions and use of transportation at locations in and around HSC and Katy during the investigative period."