When it comes to guessing the weather, energy companies are throwing less caution to the wind.
Analysts and experts say energy companies are increasingly seeking out private firms to provide weather prediction models to inform their decision-making. The nation’s energy companies are among the major companies for the private sector meteorology industry, which could grow to $1.8 billion by 2020, according to a recent report from Dallas market research firm Markets and Markets.
“Weather has become now the primary driver for commodity prices in energy,” said Paul Corby, senior vice president of energy for Planalytics, a Berwyn, Pa.-based firm in its third decade of providing “business weather intelligence” tailored to clients’ market needs and the commodities they sell.
“It has an impact on storage, injection, withdrawals — weather’s the number one driver,” he said referring to the cycles of filling and removing natural gas from storage inventories and delivering it to homes and businesses.
Energy companies are the bulk of the companies seeking consultation. A survey published by American Meteorological Society in 2007 estimated about three-fourths of weather companies work with energy companies — the most-served industry out of 20 weather-driven sectors identified including the transportation, agriculture and insurance sectors.
Far from competing, the publicly funded National Weather Service lists scores of weather companies in a directory on its website.
“It’s a greater understanding on the part of these (energy) companies, that, hey, you are significantly impacted by weather and you can take advantage of knowledge in that area,” said Richard Woolley, chief operating officer and chief forecaster at Weather Trends International. The Bethlehem, Pa.-based group serves both energy producers such as Chesapeake Energy Corp. and informs traders of weather derivatives on Wall Street.
Smart production and consumption of energy has always relied on accurate weather forecasting. From an energy producer’s standpoint, an accurate report can help it plan for what a consumer is going to need.
But last winter brought new urgency, said Jeff Archibald, manager at Fairfax, Va., energy consulting firm ICF International. Historic cold caused a price spike in natural gas and gutted storage reserves. Rivers froze and halted barge transportation of coal, leaving some power plants short on supply.
Consumers drained natural gas reserves so much that storage in late March hit the lowest level in more than a decade and was down 51 percent from the year before, according to data from the U.S. Energy Information Administration.
“It really threw a lot of planning out of the window,“ Mr. Archibald said.
One reason energy companies choose the highly specialized private sector reports over the National Weather Service is that the weather service generally offers short-term models of two weeks or less. Mr. Woolley said government reports are “geared towards matters of life and death. It’s not necessarily geared toward the profit of a company.”
Plus, the private sector allows room for innovation.
Weather Trends, for example, offers clients an 11-month forecast that it claims can better predict any day’s weather from one year out than the other models can predict from one week out. By scrapping the “traditional, physics-based meteorological model,” according to an online sales pitch, it developed a prediction model based on 150 years of weather data.
“The algorithms we built are our secret sauce,” the pitch reads.
StatWeather Inc., a firm in Houston, Texas, that serves several dozen energy clients, claims to offer “the most accurate weather forecasting paradigm available in the world today.”
Ria Persad, StatWeather president, said her company develops forecasts based on patterns in historical weather data. But the service was only developed through decades of research and development.
“Predicting long-term weather is notoriously difficult,” said Ms. Persad, who added that the Farmer’s Almanac — the weather periodical published continuously since 1818 — is “hit and miss.”
Despite the boom in weather services available, Mr. Corby worries producers are ignoring them and relying too much on the glut of natural gas being produced by newly tapped formations in the U.S. to keep prices down through demand spikes.
“We’ve got so much shale gas — especially here in Pennsylvania — that a lot of companies are not managing the risk wisely,” he said. “Utility companies are not using the information as much as they should be.”
Daniel Moore: firstname.lastname@example.org or 412-263-2743