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Commodity Risk Management Conference Managing Weather Risk in Uncertain Times Paul E. Walsh Founder and Managing Principal G2 Weather Intelligence, LLC [email protected]
| Date post: | 13-Jun-2015 |
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CommodityRiskManagementConferenceManagingWeatherRiskinUncertainTimes
PaulE.WalshFounderandManagingPrincipalG2WeatherIntelligence,LLC
G2WeatherIntelligence,LLC
©2008G2WeatherIntelligence,LLC.AllRightsReserved
HelpingbusinessesmakemoremoneybyproacCvelyplanningfortheinfluenceofweatheronconsumersandbusiness
“Always check the weather
report before you pray for
rain.”
‐MarkTwain
ManagingWeather‐RelatedUncertainty
Threecomponents:1. Understandingvalueatrisk($)2. OperaConalmanagement(managingtheknowable)
Real‐Cme
TacCcal Seasonal
Verylong‐leadScenarioPlanning
3. Financialmanagement(hedgingtheunknowable) WeatherderivaCvehedgingsoluCons
Trust,butVerify:OnSeasonalForecasCng,Uncertainty,andWeatherRiskManagement
• Seasonalforecastsusefulforunderstandingclimatetrendsandanomalies
• ForecastsbasedonlargescaleinteracConsbetweentheoceanandatmosphere
• OperaDonaldecisionsshapedbyprobabiliDesandoddsviceabsolutes
• Financialhedgingusedtooffsettheuncertaintyinherentinseasonalforecast
Spring2009WeatherDriver:LaNinaRedux
ThePacificDecadalOscillaCon(PDO)
• ThePacificDecadalOscillaCon(PDO)isapaXernofPacificclimatevariabilitythatshiYsphasesonatleastinter‐decadalCmescales,usuallyabout20to30years
ANewRegimeofColderWeather?
??
“Ingeneral,theclimateregimenolongerresemblestherecentwarmspellofthelast25years.ThepersistenceoftheverycoldPacificOceanofthethelastcoupleofyearshasresultedin…paKernsmoresimilartothe1950s‐1970s.Ifthis“old‐school”paKernpersistsmuchlonger,theglobaloceanswillconQnuetocooloff,andwewilllikelyheadintoacoolermulQ‐decadalclimateregime.”‐‐DrToddCrawford,WSISeasonalForecaster
TypicalJanuary–MarchWeatherDuringModeratetoStrongElNinoandLaNina
Spring2008–StrongLaNinaTemperatureAnomaly
Spring2008–StrongLaNinaPrecipitaConAnomaly
USClimatePredicConCenter(CPC)February2009
TemperatureAnomalyProbability
83.3%probabilitynormal/
warmerthannormal
Northwest:73.3%
probabilitynormal/
colderthannormal
USClimatePredicConCenter(CPC)February‐April2009
TemperatureAnomalyProbability
SouthwestSpring:73.3%
probabilitynormal/
warmerthannormal
Northwest:73.3%
probabilitynormal/
colderthannormal
WeatherServicesInternaConalSeasonalTemperatureForecast
February–March2009 March–May2009
“…theobjecQvemodelsareinunusuallygoodagreementfortheFebruary–Aprilperiod,showingacoldperiodacrossmuchofthewesternandnorthernUSandaverymildperiodintheSoutheast.”DrToddCrawford,WSISeasonalForecaster
WeatherServicesInternaConal(WSI)MonthlySeasonalTemperatureForecast
February2009 March2009 April2009
USClimatePredicConCenter(CPC)February2009
PrecipitaConAnomalyProbability
83.3%probabilitynormal/
wePerthannormal
Northwest:73.3%
probabilitynormal/
colderthannormal
CPCFebruary‐April2009PrecipitaConAnomalyForecast
Florida83.3%
probabilitynormal/drierthannormal
OhioRiverValley73.3%probabilitynormal/
wePerthannormal
Southwest73.3%probability
normal/drierthannormal
WeatherServicesInternaConalSeasonalPrecipitaConProbabilityForecast
February–March2009 March–May2009
Goodforecastagreementre:drynessinFloridaandthesouthwest/westTexas.
DroughtMonitorandForecastThroughApril2009
DroughtcondiConstopersistandworseninCaliforniaandTexasanddevelopinFlorida.
2009HurricaneSeasonOutlooks
Consensustodate:belowthe10‐yearmovingaveragebutabovethelong‐termaverage.UpdatesavailableatG2Weather.comastheseasonprogresses
FinancialWeatherHedging
• CompaniesusederivaCves(currency,fuel,interestrates,etc)tomanageuncertainty
• WeatherderivaCvesoluConsareaformoffinancialprotecCondesignedtoreducerevenuevolaClitycausedbychangesinweather
– Payoutstriggeredbasedongovernment(NOAA)weatherdata
– Noproofoflossnecessary– TemperatureandhurricanefuturesandopConstradedattheCME
CMEGroupWeatherVolume&OpenInterestVo
lum
e (th
ousa
nds)
O
pen Interest (thousands)
Volume
OpenInterest
Summary
• WeatheruncertaintymanagedusingoperaConalandfinancialsoluCons– Goal:tobecomeweather‐riskneutral
• Spring2008climateriskconsensus– LaNinainfluencedclimate;potenCallysimilarto2008– Coldandwetinthenorth;wetinthecentral/MidwestUS– Droughtinthesoutheast(Florida),southwest,andCalifornia
• HurricaneriskconCnuestobeelevated– Consensusforbelowthenear‐termaveragebutabovethelong‐term(30‐year)normal
QuesCons?
PaulWalsh,G2WeatherIntelligenceLLC
– Direct:+1.917.463.4238– Mobile:+1.610.246.0623– Blog/Website:www.G2Weather.com
“Changingthewaybusinessthinksabouttheweather”
AddiConalContactInfo
WeatherDerivaDveSoluDons
CMEGroup• ChrisCnaHanson,AssociateDirector,AlternaCveInvestment• [email protected]• 312‐930‐1308
WeatherDataSoluDons
WSIAgTrader• DaveSmith• [email protected]• 978.983.6786
“Changingthewaybusinessthinksabouttheweather”
