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ICIS opens talks on energy market rigging allegations

Were allegations that the price of wholesale gas are manipulated true?

Gas flame burningTalks have opened between the price reporting agency ICIS and authorities regarding allegations that prices in the wholesale gas market were being rigged.

The Financial Services Authority (FSA) is currently conducting its own investigation into whether trading has been manipulated, while key brokers such as Marex Spectron, Tullett Prebon and ICAP recently announced that they are devising their own price indices to compete with or even replace the methods used by ICIS.

It comes as British Gas owner Centrica looks set to announce another rise in profits in 2012, which has once again placed wholesale gas prices in the spotlight and led to questions from industry and consumers alike about what is being done to curb increases.

The issue was first raised last autumn, triggering energy regulator Ofgem and the FSA to review all material provided by ICIS.

Investigation ongoing

Despite claims to the contrary from some insiders, the Guardian reports that sources close to the investigation say it is nowhere near winding down, with the FSA carrying out extensive questioning and research.

A number of long gas contracts have been linked to indices provided by ICIS and speculation has arisen concerning poor reporting or deliberate manipulation by traders.

Meanwhile, the US Federal Energy Regulatory Commission also announced last November that it was pursuing a penalty of $435 million (£287 million) from Barclays for manipulating the electricity market between 2006 and late 2008 – something the bank denies.

The Guardian also reported that traders from the Citigroup bank were responsible for some of the trades at very low prices, which led to the investigation being launched in the first place by the FSA.

Expressing concern

The Russian gas business Gazprom has expressed concern over the possible manipulation of over-the-counter gas trading, though there is no accusation that Citi was acting improperly.

Speaking to Bloomberg recently, Jonathan Stern, founder of the Oxford Institute of Energy Studies, said the new ICAP price indices is a step in the right direction as it is based on firm trades, rather than reported ones.

“Price reporting agencies are getting their information from brokers, so it makes sense that the brokers, who do thousands of trades a day, come up with a composite price over the entire day,” he said.

“These prices from the PRAs are OK, but they’re all over the place and what are they really based on?”

The FSA investigation continues.

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