A major producer group, in a letter last week to Connecticut Gov. M. Jodi Rell, said access restrictions on U.S. natural gas supply rather than intentional manipulation of gas prices were the primary reason for volatility in the market. It hoped the governor, armed with better information on the gas market, would withdraw her request for an immediate congressional investigation into possible manipulation of gas prices.

“Unless we address the need for additional access to the most economic supplies, additional investigations and reporting alone will not relieve the pricing pressure on the market,” wrote R. Skip Horvath, president of the Natural Gas Supply Association (NGSA). “Constraints placed on domestic natural gas resources, coupled with weather swings, in fact represent the biggest driver for natural gas market volatility levels,” he said.

“We are hopeful that these clarifications will enable you to withdraw your request to Congress for an investigation and, importantly, help policymakers and consumers focus on addressing long-term solutions aimed at natural gas supply and demand fundamentals in order to help alleviate pressure on natural gas prices,” he told Rell.

Horvath noted that more than 6,000 companies are producing more than 50 Bcf/d in the United States, and are expected to spend almost $162 billion this year on exploration, drilling and production activity. Despite continuing restrictions on access to new lands, the Energy Information Administration projects that domestic gas production, absent any hurricanes, will increase this winter relative to last winter, he said.

In addition, Horvath noted that approximately 100 Bcf of storage capacity has been added in the U.S. since last winter, and storage levels are expected to hit another record of more than 3.5 Tcf by the start of this year’s heating season on Nov. 1. Storage levels earlier this month were pegged at 3,069 Bcf, exactly the same level as last year and 9% higher than the five-year average. “These numbers are publicly available and we would be happy to assist you in understanding why the storage numbers you quoted in the letter [to Congress] were in error,” he told Rell.

Horvath believes that energy consumers are being adequately protected. “While the outcome has yet to be determined with regard to a number of pending energy market enforcement actions, we do believe these cases indicate that federal oversight agencies, such as the Commodity Futures Trading Commission and the Federal Energy Regulatory Commission, are protecting the public, and that should provide additional assurance that the market is functioning as intended for the benefit of consumers and suppliers,” he said.

Rell earlier this month asked the chairmen and ranking members of the U.S. House and Senate committees with oversight of the energy industry to begin an immediate probe of possible manipulation of gas prices (see Daily GPI, Sept. 14). Bill Wicker, spokesman for the Senate Energy and Natural Resources Committee, said the committee has received Rell’s request, but it hasn’t done anything yet. “We’re considering what the next step is. We’ll take it seriously,” and “we’ll be back in touch with the governor fairly soon.”

Rell accused the natural gas industry of attempting to drive up prices by cutting off production needed to fill storage. However, she based her price manipulation accusation on the proposition that gas storage for winter was lagging, when in fact it is already nearly full (see Daily GPI, Sept. 17). Rell also cited a Sept. 4 news release by Chesapeake Energy Corp. that said it was “electing” to cut production by 200 MMcf/d and reduce the number of rigs it operates because of low gas prices (see Daily GPI, Sept. 5).

“This practice, if true, is an unconscionable fleecing of U.S. citizens by natural gas suppliers who ‘elect’ to reduce production in order to drive up prices paid by their captive customers,” she said at the time.

The chairman of Chesapeake Energy has demanded an apology from Rell — but it’s not likely the Republican governor will oblige. Chesapeake CEO Aubrey McClendon said Rell’s letter “contains incorrect and reckless statements” indicating “a lack of understanding of the natural gas market” and the role played by Chesapeake, which is one of the largest U.S. gas producers and the most active driller (see Daily GPI, Sept. 21).

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