Huntsman Chemical on Wednesday reiterated its call for tighter natural gas futures price movement limits on the New York Mercantile Exchange (Nymex) and for an investigation into gas prices and the gas market participants on the exchange.

Last winter the company, which is a major global manufacturer of diversified chemicals and a large gas buyer, made a similar call for an investigation into the natural gas market (see Daily GPI, Dec. 11, 2003).

“The United States has more natural gas in storage for this time of year than at any time in history,” said CEO Peter R. Huntsman. “Yet our gas prices are orders of magnitude higher and more volatile than any place in the world. American consumers and the manufacturing sector of our economy suffer while so called ‘technical traders’ (hedge funds and others) prosper. It makes no sense, and someone in Washington or New York needs to investigate.”

Huntsman, citing a Nymex price surge of 25% in last week’s trading, said “the pricing system remains badly broken.” He pointed to comments from natural gas traders that the market is being dominated by technical buyers, hedge funds and speculators.

In 2001, Huntsman Chemical lost about $250 million in income mostly because of high gas prices. It laid off about one-third of its U.S. workforce, about 1,000 full-time employees and another 250 contractors. “We shut down some of our gas consuming facilities. And you know the sad thing about it was that 10 months later the price was at $2/MMBtu again,” Huntsman said in an interview with NGI. “It didn’t need to go down that low and it didn’t need to go up that high. It’s the volatility that kills companies like ours.”

Since that time, the company has dramatically changed its supply portfolio and pricing strategies, said spokesman Don Olsen. It also has been forced to pass through some of its high fuel costs to its customers.

Huntsman said his company is looking to move some more parts of its business overseas because of the energy price situation, particularly the natural gas market. “You can go to China, which doesn’t have any [domestic natural gas production] at all. You can go to Europe, the Middle East, South America. You can go anywhere and get more stable gas prices.

“When gas prices go up the way they do on the Nymex, it affects the price of oxygen, nitrogen, ethane, propane and a lot more products. It’s not just natural gas. I can’t hedge against those products. I can’t lock in my finished prices. We are trying to get customers to agree to lock in a contract that has a surcharge for gas. But as the economy gets more global, customers realize that if they buy from one of our other facilities in China or Europe, they won’t have to pay the gas surcharge. Their price of gas over there may move 20% up or down in a year, whereas it moves 20% in two or three trading days here.

“Why would they buy from an American business? We have the highest price of gas anywhere and the most volatile price of gas.”

The company has spent a great deal of time on Capitol Hill over the last year lobbying members of Congress to look into gas pricing. “We are pleased with the amount of interest we are seeing,” said Huntsman. “This is an element of energy policy that has been generally overlooked, possibly because Congress has been so focused on increasing gas supplies. We share their urgency to increase supplies, but getting more gas to market is a longer term solution. Overhauling the pricing structure is something that can be done almost immediately.”

He is asking Congress to consider two market corrections. The first would be to increase market transparency on Nymex so consumers may see who is trading and how much of the market any one entity controls. The second would be to impose daily trading limits on gas futures trading much like those that exist on “virtually every other commodity traded on the Nymex.”

Olsen said the current $3/MMBtu trading limit on natural gas futures with a five-minute stop in between is ludicrous. “Theoretically the price of gas can move $165/MMBtu in a single trading period. That’s not meaningful in our view.”

Huntsman said the company is not claiming there is “anything necessarily illegal” happening on the exchange. “However, Nymex sets its own trading rules; it is responsible for price spikes and for otherwise causing market volatility. The Commodity Futures Trading Commission is supposed to provide consumers with oversight of trading but all it can do is make certain Nymex is playing by its own rules.”

Some market observers have attributed Nymex’s reluctance to impose tighter trading limits on natural gas futures to its “good business sense.” After all, stopping trading more frequently could reduce participation in the markets and lower the exchange’s bottom line, critics claim. Disclosing more information about traders also could put pressure on confidentiality agreements with customers, which might damage exchange business.

“They profit like any exchange does, off the number of people that trade,” said Huntsman. “Look at the amount of volatility over the last couple of years as volatility has increased, volume has increased, and the number of hedge funds and the percentage of hedge funds and money managers that have gotten into the market certainly have increased.”

Nymex spokeswoman Nachamah Jacobovits denied that there was any connection between trading limits and Nymex profits. “The sole purpose of having limits at appropriate levels is because the cash market is going to move with or without us,” she said. “If Nymex is closed, that doesn’t stop people from doing business, it just stops them from hedging. What a limit does is create an artificial barrier to being able to do business at the price you need to do it at.

“If we restricted you from being able to hedge at the price that the gas market really thought that the gas should be, why would you use us? We wouldn’t be serving our purpose in a lot of ways.

“If we had a limit at 75 cents, and it was hit again and again and we shut down for five minutes and then shut down for another five minutes, it would be disruptive. It probably wouldn’t have a long-term impact on our volume. It would just make it harder for people to do business.

“Nobody likes it when the price moves especially when it is moving up real fast. But the fact is that it is far better to have a regulated market available than not. This is what Mr. Huntsman is not realizing. He is shooting the messenger.”

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