Experts: Weather, Storage Management Gaining Importance
In the ever-changing climate of energy deregulation, portfolio
management tools, such as weather hedging and storage control, are
becoming more vital, a panel of industry experts said Thursday at
the LDC Forum Conference in Boston, MA.
Since 1997, 1,000 weather-market trades have taken place,
representing $2-3 billion in nominal savings, said Darren Wilcox,
manager of developing markets for Southern Company Energy Marketing
(SCEM). He estimated $15 to 20 billion are at risk each year due to
weather changes. He said the purchases in the weather market, such
as heating degree-day collars, floors and swaps have helped
Southern protect itself.
"Several well capitalized players are making markets in weather
risk management products," Wilcox said. "Wall Street is offering to
raise debt capital through weather-linked notes, and analysts are
beginning to recognize this developing market."
Another result of deregulation, said Peter Tumminello, vice
president for Enserch Energy Services Inc., is the ownership of
storage is changing hands to new players. These new players need to
"get smarter" he said about storage management because the storage
space will be limited by the end of the summer. "Due to the
remarkable year-on-year inventory, its an interesting market right
now for storage. I would argue that storage space will be extremely
valuable by the end of this summer. In fact, we're already enter
this refill season with storage 40% full throughout the U.S."
While it is too early to estimate the impact of new storage or
pipeline projects on storage value, Tumminello said future factors
such as the decreased storage ability, lower rig counts, electric
generation demand and load growth will drive the value of storage
upward. On the other side, the trends of the tightening
summer-winter spread, increasing market optimization and low price
volatility offer threats to storage value in the future.
With the plethora of divergent trends facing the industry,
Tumminello argued storage players need to be fully aware of trading
tools, such as balancing and peaking services and the ability to
repackage storage contracts to adjust turn capabilities, in order
to succeed. "If modeled properly, storage will continue to be the
best physical balancing tool in the market."
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