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This new 42-page report explains the purpose, basics, and practical application of Weather Risk Management Strategies. You'll learn the differences in weather risk vehicles, how to create a weather risk management strategy, and how to choose a weather analysis service. You'll also get a list of Weather Forecasting and Analysis Services, and Weather Derivatives Sites, as well as a glossary of terms.
Executive Summary
Weather is the single most important factor in energy demand. Weather extremes sharpen energy price spikes and at the same time, they increase consumption. Additionally, milder winters and summers cause reduced revenue for some, and increased revenue for others. Therefore, the impact of the weather is economically significant.
As much as 70 percent of all business activity is affected by the weather. In the late 1990s, innovative trading companies, primarily in the energy sector, recognized this risk management opportunity and began offering solutions to help companies manage this class of natural hazard risk. Structured either as derivatives or as insurance contracts, weather transactions typically cover local or regional variations in temperature, precipitation, or other weather features over a period from one week to a full winter or summer season.
Warmer weather can lead to lower margins from fewer volumes of natural gas being sold or transported. Colder weather that increases the volumes of natural gas sold to weather-sensitive customers can result in the inability of some of our customers to pay their bills. Either warm or cold weather that is outside the normal range of temperatures can lead to less operating cash flow, thereby increasing short-term borrowings to meet current cash requirements.
Energy traders react to significant weather by buying. Generally, hurricanes in the Gulf, cold snaps, and heat waves are things that cause energy prices to rise. Hurricanes and severe storms shut down production platforms. Cold snaps and heat waves boost demand. If, as a power marketer, you are not following weather events daily, you may be left behind your competitor, who is better informed.
About the Publisher: "Understanding Weather Risk Management " is published by Energy Business Reports, an energy industry think tank and leading source for energy industry information and research products. Other reports available from Energy Business Reports include: Cellulose Ethanol Market Potential, Natural Gas Storage Effects on Energy Trading, Fuel Cell Technology and Market Potential, Clean Coal Technologies Market Potential 2007, and Commercialization of Coal Gasification Technologies.
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