Study Questions Natural Gas Costs Speculative Trading Often Plays Bigger Role in Price Increases Than Supply-and-Demand Factors

By Kukec, Anna Marie | Daily Herald (Arlington Heights, IL), March 8, 2006 | Go to article overview

Study Questions Natural Gas Costs Speculative Trading Often Plays Bigger Role in Price Increases Than Supply-and-Demand Factors


Kukec, Anna Marie, Daily Herald (Arlington Heights, IL)


Byline: Anna Marie Kukec Daily Herald Business Writer

Illinois Attorney General Lisa Madigan and three other attorneys general Tuesday pointed the finger at traders, hedge funds and investment banks for speculating in the natural gas market to help drive up prices.

A "huge influx of money" - possibly around $60 billion - in the unregulated financial markets have reinforced the upward spiral of prices by increasing volatility and risk, according to their report released during a news conference in Washington, D.C.

The report also seeks federal regulation of natural gas traders, stressing that it's unknown under the current system whether any laws have been broken, said Benjamin Weinberg, chief of the Public Interest Division of the Illinois attorney general's office.

"The common thinking was that supply was tight and demand was soaring. And that Hurricanes Katrina and Rita had contributed," said Weinberg. "But the study shows that demand was really flat."

Attorneys General Madigan with Tom Miller of Iowa, Jay Nixon of Missouri and Peg Lautenschlager of Wisconsin started the study about six months ago when prices were predicted to reach record levels. They also expected consumers this winter would face average heating bills of $1,000 or more for the first time in history.

Natural gas utilities, including Naperville-based Nicor Gas, have cited supply and demand along with shortages caused by the hurricanes as contributing factors for the higher prices. The price of natural gas is passed directly to consumers without markup.

A Nicor spokeswoman declined to comment until company executives could review the 115-page report.

The Citizens Utility Board, a Chicago-based consumer watchdog group, said the report confirmed what they had suspected. …

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