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El Paso Refutes Allegations

Oil and natural gas prices in California are higher than elsewhere in the United States "simply because the demand in California has exceeded the available supply," and not due to any market manipulation, a senior official at El Paso Corp said yesterday.

The company's response comes after it was accused by federal regulators of manipulating prices in the California market to boost profits.

The price of natural gas across the United States is at a six-month low, dropping from $10 to $3.45 per million British thermal units (MMBtu) -- a decrease of roughly 66 percent -- over the last six months, according to El Paso Energy estimates. Reduction in demand and increases in supply, along with moderating weather nationwide, have led to this decrease in prices.

While natural gas prices have also fallen in California, they are still significantly higher than in the rest of the United States.

"This is because a natural gas supply/demand imbalance still exists in California not, as some have argued, because of transportation agreements on the El Paso Natural Gas pipeline system," said Norma Dunn, senior vice president of communications and government affairs for El Paso. "We are pleased that California, along with the rest of the country, has received some recent price relief; however, it is important to understand that reduced daily demand for natural gas in California has caused these lower prices."

Several factors have contributed to a reduction in demand for natural gas in California in the past month, Dunn said. First, there is more electricity available from non-gas-fired electric generation, such as nuclear and hydroelectric facilities. This has decreased the need for fuel for gas-fired plants. Second, energy conservation efforts statewide have caused an overall decrease in the demand for power, resulting in a decrease in demand for natural gas. Third, natural gas storage facilities across the country are refilling at a rapid pace, which has had a downward impact on natural gas prices.

"While reduced prices for natural gas may make it seem that the California market has come back into balance, in actuality, it has not. A comparison of natural gas prices between California and a comparable market such as New York indicates that prices remain high in California relative to the rest of the country due to a continuing imbalance between supply and demand," Dunn said. "Although demand for natural gas has decreased, demand is still higher than available natural gas supply, primarily because the state does not have sufficient pipeline infrastructure to serve its needs."
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