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FERC: BP Gamed Market at Houston Ship Channel

FERC's Office of Enforcement said Thursday it made a preliminary determination that units of BP plc violated Commission rules against manipulation of the natural gas market in a case involving trading at the Houston Ship Channel (HSC).

The BP entities involved are BP America Inc., BP Corp. North America Inc., BP American Production Co. and BP Energy Co. (collectively, BP).

Staff of the Federal Energy Regulatory Commission (FERC) said BP fraudulently traded "physical natural gas in the Houston Ship Channel and Katy [TX] markets and trading points to increase the value of its financial swing spread positions.

"Specifically, staff alleges that BP accomplished its fraud by using transportation capacity between the two markets uneconomically. In doing so, BP contributed to lower HSC Gas Daily daily [price] indices to increase the value of its financial positions by making early and repeated sales; using high market concentrations; and by trading relationally to its financial spread," the Commission said.

FERC staff said the violations occurred from about mid-September 2008 through November 2008.

Earlier this year the company disclosed in a quarterly filing with the Securities and Exchange Commission that FERC and the Commodity Futures Trading Commission (CFTC) were investigating "several BP entities regarding trading in the next-day natural gas market at the Houston Ship Channel during October and November 2008" (see Daily GPI, Feb. 2).

"We stand by what we previously disclosed publicly in February 2011: that BP natural gas traders did not engage in any inappropriate or unlawful activity in late 2008," the company said in a statement. "We disagree with the FERC staff preliminary conclusions. BP will continue to defend the appropriateness of its conduct."

A spokesman for the CFTC would neither confirm nor deny that the agency is investigating BP for alleged market manipulation. "Until the Commission issues a formal administrative complaint, we don't comment on investigative activities," he said.

This is not the first time trading at the busy Houston Ship Channel hub has come under fire. FERC levied a $30 million penalty against Energy Transfer Partners for allegedly manipulating physical natural gas prices at the same point in the 2003-2005 period (see Daily GPI, Sept. 22, 2009).

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