Natural Gas Intelligence (NGI) has broadly distributed a request for the cooperation of buyers and sellers in the wholesale natural gas market in increasing fixed price trading and reporting transactions to price survey publishers. “The combination of the collapse of the middle man marketing sector and the tight supply situation in the U.S., makes it imperative that all industry segments work to support the efficient operation of the wholesale market,” said the publishing company in a letter sent to several thousand buyers and sellers of natural gas.

Intelligence Press, Inc., better know as (NGI), which has surveyed wholesale natural gas spot prices for the last 20 years, took the unprecedented action of broadcasting emails to market participants in an effort to bolster the market. “The majority of the former large marketers, which did much of the fixed price trading, have either downsized or abandoned trading because of low credit ratings and large collateral requirements,” NGI said. “The market has been decimated by the Enron bankruptcy, the continuing investigations of other marketers and threats of contract abrogation.” The publisher detailed its efforts in a press release issued Tuesday.

NGI and other price survey publishers have cooperated with the Committee of Chief Risk Officers, an organization created by the industry to install standards to combat attempts at price manipulation, and with the Federal Energy Regulatory Commission (FERC), which has been investigating ways to improve the current price surveys and possible alternatives (see Daily GPI, April 25). NGI also has requested the North American Energy Standards Board direct a process to standardize and define price reporting locations, so competing price surveys may be compared more easily.

“The activities of the industry and the price survey publishers have increased the quality and verifiability of the price reports. The number of companies reporting has grown since a low point last November. Some firms, that quit reporting when the price manipulation investigations were first publicized, have resumed reporting. Several smaller regional marketers also are expanding operations to fill in for the downsized middle-man segment and are reporting an increasing number of transactions,” NGI said.

A large number of market participants, producers, utilities and large end users, however, have continued their past practice of indexing much of their sales and purchases to the published prices of NGI and other trade publications, rather than negotiating fixed price contracts. “This gives those participants no input in setting the prices they pay or are paid. It makes them ‘price takers,’ not ‘price makers.’ And it is no help in calculating the indexes.” NGI has been urging buyers and sellers to do at least a portion of their trades at a fixed price.

Many solutions proposed to FERC and Congress up to this point have only addressed perceived procedural problems of the price surveys and have gone as far as to propose government-mandated and controlled price surveys. “This ignores the larger problem of the need to rebuild the market of fixed price transactions, particularly in the monthly baseload market where the bulk of gas is traded,” NGI said. “At some point the would-be reformers will have to address the fact that it’s not the bean-counters that are the problem; it’s a lack of beans.”

NGI maintains that the price publications that have been tracking the market for years have the necessary expertise to shepherd it through this critical period. “Attempting to install a new and expensive price monitoring system at this point in time would further destabilize the market.”

“The best protection against market manipulation is multiple reports of transactions from many companies.” Even without manipulation, a thin market under pressure can produce price spikes. “Prices are high now, and with possible shortages threatening the natural gas market additional hikes will aggravate consumers and drive regulators or Congress to Draconian measures. These in the end will harm producers and consumers alike.”

NGI’s message to the industry is simple — do more fixed price transactions and report them to the publications — before someone else imposes an impossible solution.

In addition to the emails sent out last Friday, NGI this week will be sending its message on Natural Gas Price Surveys by regular mail to additional market participants. A copy of NGI’s full Statement on Natural Gas Price Surveys is available at: https://intelligencepress.com/features/ngi_statement.html . To discuss this issue or to learn how to become a data provider to NGI, please contact Dexter Steis or Ellen Beswick at (703) 318-8848 dexter@intelligencepress.com, ellen@intelligencepress.com or Mark Curran at (503) 235-1174 mark@intelligencepress.com

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