Second “Whistleblower” Claims Gas Market Prices Manipulated
A second gas energy analyst has backed up the claims provided by Seth Freedman to the Guardian newspaper about suspicious trading activity on Friday 28th September that he believes showed that the energy markets could have been manipulated.
Jason Torquato, like Seth Freedman, also worked for ICIS Heren and said that he noticed at least six occasions in the last year when the price differentials looked suspicious. This was particularly true in activity he noticed on September 9th 2012.
Mr Torquato said he was sure that any manipulation could influence retail gas prices. He said that he had reviewed the activity on September 28th, the day that Mr Freedman suggested manipulation had happened and agreed that activity looked suspicious.
He tolf the Guardian: “I have looked at it in a fair amount of depth, and it looks very suspicious. I had a similar scenario when I was working there in 2011. It was September. I think it was a Friday, and traditionally a Friday is a lot less liquid, when the market is more open to manipulation because of one person doing something.”
Regulators are investigating claims from a “whistleblower” that the energy market has been rigged in a similar way to how Libor, the interbank lending rate that was manipulated by traders working for various banks.
The Financial Services Authority (FSA) and Ofgem are investigating the claims. All of the “big six” energy firms in the UK have put out statements denying any involvement in manipulating the wholesale price of gas.
The Energy Secretary Ed Davey has promised tough action over allegations that wholesale gas prices have been manipulated if they turn out to be true.
Mr Davey said he was “extremely concerned about the allegations” and that he would keep in close contact with both investigations.
He told MPs in parliament today: “Market abuse is always wrong, but at a time when people and companies are struggling with high energy bills, the country would expect us to take firm action if these allegations prove true, and we will.”
Labour’s shadow Energy Secretary, Caroline Flint, said that if the reports were true, they “suggest shocking behaviour in the energy market, that should be dealt with strongly”. She suggested that energy firms should be forced to sell the energy they generate into a pool, to open up the market and ensure fairer prices for consumers.
The energy firms buy their supplies in advance from the market which includes many different sources, from the UK’s own North Sea supplies to gas from Norway, the Ukraine and gas arriving by sea in the form of liquefied natural gas (LNG).
Energy firms agree a price based on supply and demand in advance of when the energy will actually be used. They then sell it on to business and domestic users.
Energy UK, the body that represents energy firms said that its members would co-operate fully with the investigation.
Chief Executive of Energy UK, Angela Knight said: “This is a very serious issue which must be investigated swiftly. The gas market is an international one with many overseas companies trading on it, as well as organisations that are not energy companies.
“Customers need to have confidence in markets and authorities need to have the powers to regulate well and take action if required.”
The whistleblower alleges that the market has been fixed in a similar way to how Libor was fixed by firms making unrealistic bids and colluding with each other to try and fix the price to suit their own trading position.
Astonishingly, this appears to have happened this year, soon after the Libor manipulation was discovered and in the public eye.
It is alleged that on September 28th, dealers made unrealistic bids as price information on wholesale gas prices were being collected.
An analyst from the M&C Energy Group, David Hunter, told the BBC that most of the trading was done directly between companies, not through a trading system that would be easier to monitor. He said that in theory because the trading was done directly between two companies, it was easier to manipulate the price.
The whistleblower, Seth Freedman, worked at ICIS Heron, a financial information company that publishes energy price reports.
ICIS Heron said it had “detected some unusual trading activity on the British wholesale gas market on 28 September 2012, which it reported to energy regulator Ofgem in October”.
It added: “The cause of the trading pattern, which involved a series of deals done below the prevailing market trend, has not yet been established.
“If anyone was to benefit from this it would have been derivatives traders.”
The alleged manipulation in this instance is said to have lowered the wholesale price and may not have resulted in higher bills for customers but means, if it did happen, that prices should have been lower if the wholesale price was illegally reduced.
The cost of wholesale gas, supply costs and profit margins make up 45 per cent of our energy bills.