Wednesday 23 July 2014

Energy traders watching the weather to save thousands

Energy traders are making thousands by keeping a close eye on weather data.

So say meteorology experts touting their knowledge of complex weather patterns to traders, who need to know not only when temperatures are going up or down but whether a cold front is teamed with a good wind.

That can make all the difference between gas prices staying put – if there’s wind for turbines – or going up if there isn’t.

Byron Drew at MetraWeather says: “If you’re a UK energy trader, the biggest things you want to know about are starting with the UK temperatures, the biggest drivers.

“You’ll be looking for temperatures going below climate normal level, that’ll increase prices. With something like a longer range forecast, we do a 32 day forecast, you’ll see it’s going to stay warm in the UK for the next month.”

Then it’s case of looking at how this forecast is likely to change, as for example when it looks cooler the stock prices could increase.

Drew says there has been a mixed trend toward clamping an eye on weather information.

The Lead Forecaster at MetraWeather told ELN: “The gas price has fallen away so the amount of volatility that we see isn’t as much as it was a few years ago at the peak.

“That said, because the margins are quite small the demand for really good data and really accurate calls, is very high.”

With “less money sloshing around”, the pressure is on, he explains: “Before if you made a bad call everyone sort of laughed it off and moved on. Now it’s quite tight. There’s a lot more pressure on these decisions and high level analytics to know exactly what’s going on.”

Despite this some energy traders have only a shallow knowledge of the weather, explains Mr Drew: “Some traders are making quite big calls and really know nothing about the weather.

“Those are the people we can help the most… there’s quite a few that require fairly basic information but they want it in a way they can move on quickly.”

The weather intelligence firm based at University of Reading's Enterprise Centre is owned by New Zealand MetService (equivalent to the UK’s Met Office).