A Washington, DC-based watchdog group has called on the Department of Justice (DOJ) to investigate whether large natural gas producers, notably Chesapeake Energy Corp. and ConocoPhillips, are conspiring to limit their production to raise demand for and increase the price of natural gas in violation of the antitrust laws. ConocoPhillips said the allegations are "without foundation."
"In the past few months, natural gas prices have dropped to a 10-year low, while inventories of natural gas have risen exponentially...At the same time, there is a glut of natural gas due to advances in drilling from shale rock and an unseasonably mild winter. In March, the country's supply of natural gas reached a level [of] 59% above the five-year average," wrote Melanie Sloan of Citizens for Responsibility and Ethics in Washington (CREW) in a letter to DOJ Tuesday.
"In response, large producers of natural gas, including Chesapeake Energy and ConocoPhillips, are curtailing their production in order to raise demand and increase the price customers pay for natural gas." In January, Chesapeake Energy announced plans to scale back the number of new drilling rigs to 24 from 47, while cutting production by approximately 500 MMcf/d, with a promise to double that if prices continued to fall, Sloan said.
"This tactic appeared to work. In February, after Chesapeake said it made even greater than promised cuts, the price of natural gas rose by more than 5%. More recently, the production cuts contributed to a 'sharp rally in natural gas' during April," she said. In addition to scaling back domestic production, companies are seeking to export gas abroad.
"As these facts suggest, natural gas companies are trying to have it both ways. On the one hand, they are seeking to raise gas prices by decreasing natural gas production and exporting gas at higher prices to remove some of the excess gas now in storage. On the other hand, gas companies are continuing to seek approval to dig more wells, thereby increasing the supplies of natural gas. At bottom, these actions have one thing in common: natural gas companies are trying to manipulate the natural gas prices to their best advantage," she said.
"These actions undermine U.S. efforts to lower our dependence on foreign oil and remove incentives that cheaper gas prices create for consumers...But the actions of gas producers, such as Chesapeake Energy and ConocoPhillips, go beyond undermining U.S. energy policy objectives as they suggest these companies are conspiring to restrict the nation's supply of natural gas in order to raise its price."
The producers' actions appear to restrain free trade in violation of Section 1 of the Sherman Act, she said. "Gas companies appear to have entered [into] horizontal agreements to restrict their output of natural gas in order to raise gas prices above their current, historically low prices. Consumers certainly are harmed by these practices. Currently low natural gas prices are a bright spot in an otherwise fairly bleak economy."
ConocoPhillips denied the allegations leveled by CREW. "These allegations are without foundation and in no way consistent with our proven track record of being a responsible producer and stewards of our shareholders' investments in us. ConocoPhillips complies with all laws, including antitrust laws," the company told NGI.
And as previously disclosed, "due to the current low-price environment of natural gas and other economic factors associated with those wells, ConocoPhillips expects its continued gas shut-ins in North America to be approximately 54 MMcf/d, which represents 0.08% of total U.S. production," ConocoPhillips said.
Chesapeake Energy was not available for comment.
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