Sen. Jeff Bingaman (D-NM) signaled Monday that he was not completely satisfied with FERC's response to a Senate inquiry into whether traders of natural gas futures contracts are engaging in market manipulation tactics to drive up the prices ultimately paid by end-use gas consumers.
Bingaman, chairman of the Senate Energy and Natural Resources Committee, believes that FERC's reply to a committee letter was "only partial," and he "would like a more complete response," said spokesman Bill Wicker. The senator expressed his concern during a Platts Energy Podium briefing in Washington, DC.
In early February, Bingaman sent letters to the heads of the Federal Energy Regulatory Commission and the Commodity Futures Trading Commission (CFTC) asking them whether they had detected "potentially anomalous market behavior" in gas futures trading, which may have influenced the New York Mercantile Exchange (Nymex) prices that are used by many gas suppliers in their contracts.
The Senate panel received replies from both agencies about three weeks ago, but it has not made them public yet.
The Senate investigation is focusing on how the two agencies monitor trading of Nymex gas futures contracts, particularly as it relates to end-of-month gas trading. A weighted average price is formed during the last half-hour of trading on expiration day, which is used to set the market settlement price for gas. This price is used as the basis for a great deal of contractual supply agreements for gas to flow the entire next month. The Senate also is examining how rigorously the agencies are carrying out their oversight and enforcement activities.
In launching the inquiry, Bingaman cited the collapse of the Amaranth Advisors LLC hedge fund last fall and recent volatility in the gas futures market. In September 2006, it was revealed that Amaranth's energy trading desk co-head lost billions by betting on the future direction of natural gas prices. The fund's losses were reported to be somewhere in excess of $6 billion, and ultimately led to the closure of the Greenwich, CT-based fund (see Daily GPI, Oct. 3, 2006).
On an unrelated issue, Bingaman indicated that he plans to introduce legislation within two weeks that addresses the recovery of potentially billions of dollars of royalties from faulty leases that were issued in 1998 and 1999, according to Wicker.
Bingaman in the past expressed concern with the House bill (HR 6), which forces holders of flawed 1998-1999 offshore leases to renegotiate their contracts or pay a "conservation of resources fee" in order to bid on future government leases. The House passed that legislation in January (see Daily GPI, Jan. 19).
Bingaman believes that HR 6 may have gone too far and could be subject to litigation, Wicker said. "He hopes the Senate [bill] will have a better chance of surviving [any] legal challenges."
Wicker noted that both the House and Senate have the same goal -- to recover the royalty revenues that are due the U.S. Treasury. But "we have slightly different approaches" to achieving that end, he said.
The Government Accountability Office has estimated that the federal government could lose $20 billion or more if the faulty leases, which did not include price thresholds, are not renegotiated with the Interior Department.
The disputed leases were issued following enactment of the 1995 royalty-relief law, which offered producers royalty breaks when oil and gas prices were low to spur exploration and production in the deepwater Gulf of Mexico. The royalty breaks were to end when oil and gas prices exceeded the established price thresholds in the leases. The thresholds were included in 2,370 leases issued in 1996, 1997 and 2000, but Interior's Minerals Management Service left them out of the 1998 and 1999 leases.
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