US Regulators Allege Total Rigged Natgas Market for 3 Years

U.S. federal energy regulators extended their years-long effort to crack down on a contested form of market manipulation on Tuesday, alleging that French firm Total SA (TTFNF) and two of its traders rigged southwestern natural gas prices for years.

 

In a brief notification posted on the Federal Energy Regulatory Commission's website, Total was alleged to have made intentionally losing trades - known as "uneconomic" trading - in order to affect index prices on at least 38 occasions between June 2009 and June 2012. Those losses would be offset by larger gains on other related positions, FERC said. It did not mention any potential penalties or fines.

 

Total, which is a relatively small player in the U.S. gas market, said it was convinced its U.S. traders did not commit any of the manipulation alleged by FERC. A spokeswoman at Total said the company had fully cooperated with FERC.

 

It is the latest case in which the regulator has focused on so-called "loss leader" or leveraged trading strategies where traders seek to lose money in one market to benefit larger positions in a benchmark or other financial index.

 

In recent years, FERC has alleged similar violations by JPMorgan Chase & Co, which paid $285 million in fines in 2013, as well as Barclays PLC and BP PLC, which are still fighting the FERC allegations against them.

 

"The cross market manipulation theory for enforcement ... is becoming increasingly popular," said Brooksany Barrowes, a partner at Baker Botts in Washington, DC.

 

Energy traders are watching the cases carefully, fearing they could set a precedent that would leave them exposed to violations in what many say is a gray area of the rules. Barring clear evidence of an intent to manipulate prices, they say, the distinction between rigging markets and using derivatives to hedge a trading position may be all but impossible to determine.

 

The FERC notice alleged the scheme at Total involved making "largely uneconomic trades for physical natural gas during bidweek designed to move indexed market prices in a way that benefited the company's related positions," according to the commission's notice.

 

The staff at the FERC Office of Enforcement issues a notice of alleged violations after it has largely finished its investigation and the subject has had a chance to respond and has not agreed to settle.

 

It is often the first step in the process where the subject of an investigation is publicly identified. The usual next step is for the enforcement staff to make a recommendation to the commission to issue a show cause order, which would require the subject being investigated to show why FERC should not issue a penalty.

 

Total is a small player compared with the banks and BP that were previously pursued for similar strategies. The company barely made the top 35 in terms of total volumes bought and sold in 2014, according to data from FERC filings. Its U.S. gas marketing fell to 593 bcf (16.8 bcm) in 2014, less than half of 2012, according to Total's reports.

 

In addition to Total, FERC also named traders and supervisors on the Total Gas & Power North America West Desk, saying that Therese Nguyen and Aaron Hall devised and executed the scheme. Hall, reached by phone, declined to comment. Nguyen could not immediately be reached.

 

Hall has been at Total since 2006, serving in roles including director of financial trading and natural gas trader for the U.K. and Northwest Europe, according to an online profile. Prior to joining Total, he was a natural gas trader at BP Plc for over 4 years.

 

FERC has issued almost $1.2 billion in fines since the U.S. Energy Policy Act of 2005 significantly increased the penalties it can impose, boosting them to $1 million per day per violation from a prior cap of $10,000 per day.

 

FERC said the West Desk implemented the scheme on at least 38 occasions during the period in interest. FERC also said Nguyen and Hall each implemented the scheme and directed other traders in implementing the scheme.