Managing unhedged risk factors such as weather, comments from Swiss Re

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Stuart Brown, Head of Origination, Weather & Energy EMEA Asia-Pacific, Swiss Re Corporate Solutions
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Gastech News asked Stuart Brown, Head Origination Weather & Energy APEMEA at Swiss Re Corporate Solutions for his thoughts on how to manage unhedged risk factors, how to minimize costs and reduce weather-related risks as well as the impact of recent disputes and terrorist attacks on energy prices.

Gastech News: What are the main unhedged risk factors for energy companies?

Stuart Brown: We still see weather-driven gas demand as underhedged, or actually unhedged by many European utilities. Although managing weather risk is very common among Europe's top-tier energy companies, there is still a large number of those who don't use the weather market.

Gastech News: What steps can be taken to minimise costs and reduce weather-related risks?

Stuart Brown: The tools for reducing weather risks include contract flexibility, storage, and financial solutions such as weather derivatives. The principal weather risk in the utilities business is the impact of air temperature on energy demand. This demand uncertainty plays havoc with supply management and procurement, which has in turn a significant impact on price hedging and margins.

Gastech News: What is the impact of recent disputes and terrorist attacks on energy prices?

Stuart Brown: I don't believe the market has seen much of an impact – energy prices are moving based on fundamentals rather than temporary factors.

Gastech News: At the European Autumn Gas Conference you will be moderating a panel discussion on “Price convergence and the new realities of price formation”, what can we expect going forward in terms of convergence in regional gas prices?

Stuart Brown: All the market developments are pointing toward continued convergence in regional gas prices.

Do you think recent disputes and terrorist attacks have had an impact on energy prices? Leave your comments below.

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