THE WALL STREET JOURNAL/DOW JONES NEWSWIRES: Oil Firms Face U.K. Scrutiny Over High Natural-Gas Prices: “Britain's energy watchdog said Tuesday that it doesn't rule out market manipulation as a factor behind surging natural-gas prices and will investigate contracts involving a number of companies, including ExxonMobil Corp., Royal Dutch/Shell Group, BP PLC and Centrica PLC.”: “A Shell spokesman declined to comment on the details of Ofgem's analysis until the company has examined it more closely. (ShellNews.net)
By ADAM SMALLMAN and NINA SOVICH
DOW JONES NEWSWIRES
October 5, 2004
LONDON -- Britain's energy watchdog said Tuesday that it doesn't rule out market manipulation as a factor behind surging natural-gas prices and will investigate contracts involving a number of companies, including ExxonMobil Corp., Royal Dutch/Shell Group, BP PLC and Centrica PLC.
The energy regulator, Ofgem, attributed almost all of the sharp rise in natural-gas prices over the past year to a mix of higher crude-oil prices and declining North Sea gas output. The regulator poured cold water on widespread market speculation of a price squeeze underpinning much of the price increases, but it said contract difficulties may have contributed to a small part of the price movement.
The front-month natural-gas contract traded on London's International Petroleum Exchange has tripled in price since the summer of 2003. The cost to the U.K. of that price rise is £3.6 billion ($6.41 billion), Ofgem said. The contract prices rocketed from around 13.4 pence in late August 2003 to 35.65 pence in early November of that year. Almost a year later, the price is now 42.36 pence.
The Financial Services Authority said Tuesday that it found no evidence of market abuse, though it promised to continue "to undertake surveillance of activities within the traded gas market."
Ofgem Chief Executive Alistair Buchanan said the regulator is "concerned that, at times of high prices, around 5% of U.K. gas supplies were physically available but did not reach the market under existing contractual arrangements." He added: "There's a small knot of contracts that are stopping gas flowing and we'll continue to discuss and examine those contracts," he said. A preliminary report may be available in a month, an Ofgem spokesman said.
The seven companies named in Ofgem's ongoing inquiry are Shell, ExxonMobil, BP, Centrica, Total SA, Amerada Hess Corp. and Perenco. The inquiry covers three gas fields in the North Sea: Sean, Indefatigable and Leman.
A Shell spokesman declined to comment on the details of Ofgem's analysis until the company has examined it more closely.
A spokesman for BP said it is surprised to be cited by Ofgem as a subject of its probe, saying the company didn't own Leman and Indefatigable in October 2003. He said BP sold the fields to Perenco in September 2003. BP is a minority owner in Sean, he added.
Steve Smith, managing director of markets at Ofgem, said the long-term contracts "are complex, but we saw gas in the ground that could have been brought up and wasn't. We have to look into those contracts to find out why," he said.
Mr. Buchanan said the contracts would be viewed in light of the U.K.'s Competition Act. If a company is found to have breached the Competition Act, it could be fined up to 10% of its annual global revenue.
Ofgem also said it has assigned a senior official to work with the European Commission's Competition Directorate with an eye to uncovering any breaches of competition law.
The British regulator wants the EU's help in answering whether it was reasonable for several European gas companies to store gas rather than offer it for shipment to the U.K. It also wants to know whether surplus gas and pipeline capacity was offered to allow for more U.K. imports.
Write to Adam Smallman at adam.smallman@dowjones.com
and Nina Sovich at nina.sovich@dowjones.com