In a refrain that has grown louder and more frequent over the last two years, two large industrial associations urged the federal government Wednesday to take action that directly addresses high natural gas prices, price volatility and domestic natural gas supply.
The American Chemistry Council called on the Minerals Management Service (MMS) to put new initiatives in its five-year leasing plan that speed up gas exploration and development, and the Industrial Energy Consumers of America (IECA) sent a letter to four members of Congress urging them to produce legislation that would grant the Commodity Futures Trading Commission (CFTC) more oversight of the natural gas futures and over-the-counter markets.
The IECA said legislative changes made in 2000 have allowed speculators to take on an increasingly dominant role in the natural gas market, which is increasing the price of gas and the volatility in the marketplace. The letter was sent to Sens. Thad Cochran (R-MS), chairman of the Senate Agriculture Committee, and Tom Harkin (D-IA), ranking member on the committee, and to Reps. Jerry Moran (R-KS), chairman of the House Subcommittee on General Farm Commodities and Risk Management, and Collin Peterson (D-MN), ranking member on the same committee.
“Energy markets have changed drastically and regulatory oversight, transparency and limits to rampant speculation by traders, particularly unregulated hedge funds, [are] needed to meet the challenge,” said Paul N. Cicio, executive director of the group. “Changes made to the Commodity Futures Modernization Act of 2000 (CFMA) were well intended but did not anticipate these rapid market changes or the problems it would cause by relaxing CFTC regulatory oversight.
“Now, instead of the market serving the greater public good, it serves the investment interests of ever-growing unregulated billion-dollar hedge funds that are completely disconnected from the consumer and manufacturing market.”
According to the IECA, there are hundreds of unregulated hedge funds trading energy, and many are of international origin and are not registered with the Securities and Exchange Commission. “None of them care what effects their actions have on consumers of natural gas and oil products such as gasoline.”
IECA noted that recently natural gas and crude oil prices reached new highs in price and volatility and consumers will bear the brunt of their impact through higher home heating and transportation costs and lost manufacturing markets and jobs.
The association, whose members include BASF Corp., Bayer Corp., Dow Chemical, Dow Corning, Eastman Chemical, Huntsman Corp., Tyson Foods and many other industrial and food processing corporations, explained that the CFMA allowed Nymex to become a self-regulating organization that can “make any change it deems appropriate to the design of its energy futures contracts without CFTC approval.
“There is no longer an advance review in place to determine the economic effects of such changes and there is no opportunity to consider public comment… The changes a ‘self-regulated’ Nymex has made to the futures contract in response to further market pressure contributed to the significantly increased volatility, speculation and market that is susceptible to manipulation,” Cicio said in his letter.
IECA believes that the price of natural gas is no longer being set by supply and demand but rather by the investment interests of hedge funds without regard for the interests of consumers. IECA also pointed to problems in the over-the-counter gas market, in which hedge funds also may be active participants.
“We respectfully request that you strongly consider reexamination of the CFTC’s role in the critical energy marketplace with the notion that their regulatory powers need to be restored and strengthened…,” Cicio said. “IECA has several detailed recommendations that could form the basis for legislative provisions in your work to reauthorize the CFTC.”
Meanwhile, the American Chemistry Council (ACC), representing the nation’s largest industrial consumers of natural gas, called on the MMS to make more areas of the Outer Continental Shelf (OCS) available to natural gas exploration and development. The council said that historically high natural gas prices are destroying the competitiveness of U.S. chemical manufacturing.
“Natural gas prices have nearly tripled in recent years, sending our industry’s gas bill up by $10 billion in two short years. Chemical manufacturing operations in other regions of the world have not had to absorb these kinds of cost increases. We have lost $50 billion in business to overseas manufacturers over the past five years. More than 90,000 good-paying American jobs have disappeared in that time,” the council said in a written statement filed with MMS.
The ACC is urging MMS to make some changes to its OCS leasing plan, including publishing an inventory of potential natural gas in the OCS “so the public and decision makers understand the opportunities we have for using our own resources to increase supply and help address the nation’s energy challenges.”
It also is urging MMS to prioritize the areas in the OCS with the greatest natural gas potential and move them forward in the leasing program. ACC wants MMS to streamline its environmental review process, work with states to make coastal zone reviews smoother, and to “hold staff accountable for processing lease sales and permits for exploration and development in the least time consistent with appropriate stewardship of the environment.”
ACC said MMS needs to work closer with energy companies to address other impediments to the leasing, exploration and development process.
Another action suggested by ACC is to revisit Planning Area 181 in the Eastern Gulf of Mexico, which is under a drilling moratorium. “With its strong potential for significant and near-term natural gas production, it should be at the top of the list for exploration and development.”
But ACC also believes that other areas currently under moratoria also should be included in MMS’ five-year leasing plans. “With the country facing some of the highest prices and highest levels of energy imports in history, these unfortunate limitations on domestic resources should be reexamined,” the association said.
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