Drop secrecy of trading in natural gas

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Congress ought to pull away the cloak of secrecy that hides financial trading in natural gas markets.

Putting those transactions out in public view is the best way to ensure that consumers aren’t getting ripped off.

If commodities like corn and soybeans can be traded out in public view, there’s no reason that natural gas can’t be.

Opening the natural gas markets to public scrutiny was recommended earlier this month by four state attorneys general who joined forces in a six-month study of natural gas prices.

The investigation was prompted by a spike in natural gas prices that oil companies said was because of traditional forces of supply and demand. Hurricanes Katrina and Rita disrupted gas supplies, the companies said.

That scenario sounded plausible.

But it doesn’t jibe with the facts, the officials said.

In fact, supply held steady. Usage actually declined 5 percent. But prices nonetheless jumped 18 percent to 28 percent.

“How can you have demand down, and price up and supply level?” asked Iowa Attorney General Tom Miller. “It doesn’t make sense.”

Wisconsin Attorney General Peg Lautenschlager noted that natural gas storage was at or near record levels before the hurricanes struck, and remained at high levels after the damage.

The report prepared for the state officials by the Consumer Federation of America said that only about 20 percent of trades in the natural gas markets are reported. This could allow traders to gain control over huge amounts of natural gas and manipulate the markets, according to Mark Cooper, director of research for the organization.

The report recommends that Congress require traders to register and to report all transactions. In addition, it said, there should be stricter limits on the amount of natural gas that any single trader could control, and that stricter limits should be set on how drastically the price of gas could fluctuate before trading was shut down temporarily during a cooling-off period.

“From a law enforcement perspective, it is almost impossible to ascertain whether any antitrust, consumer or securities laws are being broken, in that we don’t have access to the information typically used to conduct these sorts of investigations,” Lautenschlager testified. “We can’t answer the most basic questions, such as who bought what, and when?”

Congress exempted natural gas markets from reporting requirements in 2000, apparently swayed by the era’s enthusiasm for deregulation.

But there’s no justification for exempting the natural gas markets from the same requirements of transparency under which other markets operate.

The best way to put a stop to price gouging is to make sure that the traders have to operate out in the open where the public can see what they’re doing.