By Samantha Santa Maria

Dallas (Platts) - 6 Oct 2006

Despite persistent complaints that hedge funds create unwanted price spikes and volatility, a gas industry executive and an independent energy analyst believe those funds are here to stay--and are a necessary component of a vibrant gas market.

Speaking Thursday at the National Energy Suppliers Association's annual meeting in Dallas, ConocoPhillips President of Gas and Power Marketing Chris Conway and analyst Stephen Schork said hedge funds make the market more attractive to other participants by bolstering liquidity.

"If you just have a market made up of producers, or of producers and consumers, it's not going to be an interesting marketplace," Conway said.

Schork said hedge funds, while sometimes creating price volatility, can coexist with physical and other financial traders despite assertions to the contrary. He cited the advent of Enron, which thrived at a time when hedge funds were emerging in the energy markets. "Enron, for all its faults, was an arbiter between technicals and fundamentals," he said.

Despite the recent collapse of MotherRock and Amaranth Advisors, which lost billions of dollars in the gas market, hedge funds "bring a different view and a different way of trading to the table, and you have to respect it," Schork said.

Conway said he does not support regulation or legislation that would bar any players, including hedge funds, from the marketplace. "The more players the better, despite their reasons for being there," he said. "They bring greater liquidity into the market."

-Samantha Santa Maria, samantha_santamaria@platts.com