# Weather and Commodities: A Perfect Storm

An episode of [Switched On](https://invisiblenetwork.ai/podcast/1469286286), 19 Feb 2025, 27 min.

Audio: https://podtrac.com/pts/redirect.mp3/traffic.omny.fm/d/clips/e73c998e-6e60-432f-8610-ae210140c5b1/01a10738-3608-4dec-883c-ae3c00026b36/2a198a54-da61-4964-8fdc-b2890075a65b/audio.mp3?utm_source=Podcast&in_playlist=6d114f63-833d-4b78-bbf5-ae3c00026b44

Little connects the natural world to our lives more tangibly than the weather. Weather impacts everything from food to energy production, and shifting weather patterns have the power to shift the economy. From wind droughts to heatwaves, utilities and commodities traders are seeking a better understanding of how enhanced weather modeling could help them predict the future. On today’s show, Dana Perkins is joined by BNEF weather analysts, Jess Hicks and Willa Tobin, to discuss their recent research notes “Weather and Commodities - Nine Things to Watch in 2025” and “Shifting Weather Patterns: A Black Swan for US Commodities”. Complementary BNEF research on the trends driving the transition to a lower-carbon economy can be found at BNEF<GO> on the Bloomberg Terminal or on bnef.com Links to research notes from this episode: Weather and Commodities - Nine Things to Watch in 2025 - https://www.bnef.com/insights/35719 Shifting Weather Patterns: A Black Swan for US Commodities - https://www.bnef.com/insights/35305 See omnystudio.com/listener for privacy information.

## Transcript

[0:00] Speaker 1: This is Dana Perkins and you're listening to Switched on,
[0:03] Speaker 1: the podcast brought to you by B and EF. And
[0:05] Speaker 1: today we're here to talk about the weather. While I
[0:08] Speaker 1: won't be able to tell you whether or not to
[0:09] Speaker 1: grab a coat on your way out of the house,
[0:11] Speaker 1: today we will go through some important definitions when it
[0:14] Speaker 1: comes to the weather. We'll explain the difference between weather
[0:17] Speaker 1: and climate and why it can be hard to draw
[0:20] Speaker 1: straight line between natural disasters like fires and hurricanes and
[0:23] Speaker 1: climate change. We'll also highlight why B and EF's meteorologists
[0:27] Speaker 1: are some of my colleagues who work with the widest
[0:30] Speaker 1: range of teams across BNF. Weather impacts so many things,
[0:34] Speaker 1: from power prices to natural gas stores to emissions, so
[0:38] Speaker 1: it's no surprise that many companies, especially utilities, are looking
[0:42] Speaker 1: at temperature, wind, rain and everything else that goes into
[0:46] Speaker 1: seasonal weather. As we head into another cyclical La Nina period,
[0:50] Speaker 1: what does this mean for the year ahead? Today I'm
[0:52] Speaker 1: joined by B and EF's resident meteorologists and weather analysts
[0:56] Speaker 1: Jess Hicks and Willetobin, and they share findings from their
[0:59] Speaker 1: recently published research notes titled Weather and Commodities. Nine Things
[1:04] Speaker 1: to Watch in twenty twenty five and shifting weather patterns
[1:07] Speaker 1: a black swan for US commodities B and EF Clients
[1:10] Speaker 1: will be able to find both of these at BNF
[1:12] Speaker 1: go on the Bloomberg Terminal or at BNF dot com.
[1:16] Speaker 1: Right now, let's talk about the weather. Jess, thank you
[1:29] Speaker 1: very much for coming on the show today. Thank you
[1:31] Speaker 1: for having me and Willa. Good to have you here
[1:33] Speaker 1: as well.
[1:34] Speaker 2: Yeah, thank you, Dana.
[1:35] Speaker 1: So we're here to talk about the weather, and I
[1:37] Speaker 1: will tell you right now, I'm not going to tell
[1:39] Speaker 1: you what the weather's like here because I'm recording from
[1:41] Speaker 1: London and it's the same way it is every February,
[1:45] Speaker 1: so we'll just leave it at that. Gray is the theme.
[1:47] Speaker 1: But actually I wanted to be a meteorologist as a kid,
[1:50] Speaker 1: so I'm very much looking forward to this. Ten year
[1:53] Speaker 1: old me cannot believe that my job is to sit
[1:56] Speaker 1: here and interview the two of you. And actually, you know,
[1:58] Speaker 1: I'm not going to tell you how old I am either,
[1:59] Speaker 1: but the now me is also really excited. So as
[2:02] Speaker 1: we talk about the weather, so much of our conversation
[2:05] Speaker 1: in this studio and on this show revolves around climate
[2:08] Speaker 1: and emissions targets, can we have a quick definition at
[2:12] Speaker 1: the beginning to frame our conversation about the weather and
[2:16] Speaker 1: create that distinction between weather and climate.
[2:19] Speaker 2: Sure, So the difference between weather and climate really boils
[2:22] Speaker 2: down to time horizons. Weather is technically defined as the
[2:26] Speaker 2: state of the atmosphere at a given point in time,
[2:28] Speaker 2: which can be measured by things like temperature and wind
[2:31] Speaker 2: speed and pressures. Whereas climate, on the other hand, is
[2:34] Speaker 2: a long term average of atmospheric conditions for a region.
[2:37] Speaker 2: So this is going to be more of like your
[2:39] Speaker 2: thirty year averages of those types of conditions, and so
[2:43] Speaker 2: we can think of about that as like the thirty
[2:45] Speaker 2: year average of winter temperatures.
[2:47] Speaker 1: Now, other than the fact that I'm really enthusiastic about
[2:50] Speaker 1: this topic, why is it that we at bn EF,
[2:52] Speaker 1: who are so focused on the energy transition are researching
[2:55] Speaker 1: this now?
[2:56] Speaker 3: So the reason why weather is so important and why
[3:00] Speaker 3: we're researching it is because it's a fundamental part of
[3:02] Speaker 3: our lives. It impacts things as simple as what you
[3:05] Speaker 3: wear every day to things as complicated as the net
[3:08] Speaker 3: zero energy transition. Weather drives these residential and commercial power
[3:13] Speaker 3: demands through heating and cooling needs, but it also fuels
[3:16] Speaker 3: renewable power generation for wind and solar, and can disrupt
[3:19] Speaker 3: production and transportation of oil and gas with any extreme
[3:22] Speaker 3: weather event that hits. So these are just a few
[3:25] Speaker 3: items that come to my mind when I'm thinking about
[3:28] Speaker 3: how weather has an impact. At BNF, as meteorologists, we're
[3:31] Speaker 3: looking at short term weather forecast paired with past weather
[3:34] Speaker 3: data to achieve insights on any impacts for power and
[3:37] Speaker 3: energy sectors. So when we're monitoring weather, it's important not
[3:41] Speaker 3: to just look at what's happening right here now, but
[3:44] Speaker 3: also compare it to the historical averages, so create those
[3:48] Speaker 3: moving baselines and understanding how the weather is changing with time,
[3:53] Speaker 3: so that gives us an insight as to how extreme
[3:57] Speaker 3: a potential shift or a potential upsetted trend can be.
[4:01] Speaker 3: So one example of this in the EU. I've been
[4:04] Speaker 3: keeping an eye on wind speeds in Europe this winter
[4:06] Speaker 3: and we're seeing quite the hit to wind generation in Germany.
[4:10] Speaker 3: And when this hits, there's a massive decrease in wind
[4:15] Speaker 3: power generation and we're seeing this increasingly frequent, especially in Europe.
[4:19] Speaker 3: And then will if you have an example in the US.
[4:22] Speaker 2: Yeah, So for US weather, I've been interested in how
[4:25] Speaker 2: extreme weather is impacting physical infrastructure for the US. So
[4:29] Speaker 2: most recently I looked at how the LA wildfires were
[4:31] Speaker 2: impacting power transmission lines. But then back in the fall
[4:35] Speaker 2: during hurricane season, I was also monitoring which oil and
[4:38] Speaker 2: gas platforms in the Gulf of Mexico were in swaths
[4:41] Speaker 2: of hurricanes.
[4:42] Speaker 1: So we're going to talk about what some of these
[4:44] Speaker 1: extreme weather events actually are, and you'd already highlighted a
[4:47] Speaker 1: couple of them, but before we get there, I want
[4:50] Speaker 1: to have a better understanding of actually what data as
[4:53] Speaker 1: meteorologists you call upon to really formulate your research, and
[4:58] Speaker 1: you know, what information does one need in order to
[5:00] Speaker 1: start assessing this space.
[5:02] Speaker 3: Absolutely, just to start things off, weather is a dynamic
[5:06] Speaker 3: beast to wrangle and there's a lot going on in
[5:08] Speaker 3: terms of what a meteorologist needs to monitor, so it's
[5:12] Speaker 3: important to use as much data as possible. Quite a
[5:15] Speaker 3: bit of this comes in the form of global forecast
[5:17] Speaker 3: models such as GFS, which is the Global Forecasting System
[5:21] Speaker 3: and ECMWF, the European Center for Medium Range Weather Forecasts.
[5:26] Speaker 3: What these offer our forecast data on temperature, precipitation, wind speeds,
[5:31] Speaker 3: cooling and warming, degree days, and even more and so
[5:35] Speaker 3: we have access to this as well as historically recorded
[5:40] Speaker 3: weather data, and at BNF we have access to two
[5:43] Speaker 3: thousand stations globally, so we can call upon this to
[5:47] Speaker 3: create baseline comparisons with upcoming forecast data, and this helps
[5:51] Speaker 3: us understand how abnormal and upcoming weather event will be.
[5:54] Speaker 3: There is also something we monitor called teleconnections. These are
[5:58] Speaker 3: significant relationships. There are links between weather phenomena at wildly
[6:03] Speaker 3: separated locations on Earth. Again a very technical description of
[6:07] Speaker 3: what a teleconnection is. It's basically different atmospheric patterns around
[6:12] Speaker 3: the world, and one you might be familiar with is Enzo,
[6:15] Speaker 3: the El Nino Southern oscillation, which houses El Nino and
[6:18] Speaker 3: La Nina.
[6:19] Speaker 1: So that begs the question what is El Nino and
[6:22] Speaker 1: La Nina? Because I certainly remember talking about this growing up,
[6:25] Speaker 1: where you would see these periods of extreme rain and
[6:28] Speaker 1: in California, it was part of our regular lexicon. But
[6:32] Speaker 1: now I find everybody around the world is throwing these
[6:34] Speaker 1: terms around, and it seems like every year seems to
[6:37] Speaker 1: fall into one of these two categories, which I know
[6:40] Speaker 1: surely cannot be the case. So can you talk to
[6:42] Speaker 1: us a little bit about First of all, what one
[6:44] Speaker 1: is versus the other, and the frequency and duration.
[6:47] Speaker 2: So and so. It is a multi year cycle of
[6:51] Speaker 2: atmospheric patterns. It actually has three phases, which would be
[6:54] Speaker 2: El Nino, La Nina, and the neutral phase. At the
[6:57] Speaker 2: most basic level, El Nino and La Nina are warm
[7:00] Speaker 2: and cold sea surface temperature anomalies. For a section of
[7:03] Speaker 2: the Equatorial Pacific. We are currently in a La Nina,
[7:07] Speaker 2: which is the cold phase of the cycle, but this
[7:09] Speaker 2: does not necessarily mean that the entire globe is colder
[7:12] Speaker 2: than normal. A typical La Nina year will bring wetter
[7:15] Speaker 2: weather to the western Equatorial Pacific, northern Brazil and the
[7:19] Speaker 2: Pacific Northwest for the US, and drier conditions to the
[7:22] Speaker 2: southern US and northeast China. Regional temperature shifts also become apparent,
[7:27] Speaker 2: with warmer conditions across the southern US and cooler conditions
[7:31] Speaker 2: in the US, Pacific Northwest, and on the west coast
[7:33] Speaker 2: of South America. El Nino is one of the oldest
[7:36] Speaker 2: known teleconnection patterns. It was actually first discovered in the
[7:40] Speaker 2: fifteen hundreds by Peruvian fishermen who noticed the periods of
[7:43] Speaker 2: warmer water in the Pacific, bringing fewer fish to their
[7:46] Speaker 2: nets around December, so they named it El Nino due
[7:49] Speaker 2: to the proximity to the birth of Christ in the
[7:51] Speaker 2: Christian religion. So since then there has been extensive research
[7:55] Speaker 2: into this phenomenon that now is a key factor in
[7:58] Speaker 2: our seasonal forecasting. Scientists have also discovered other similar atmospheric
[8:02] Speaker 2: patterns that inform our seasonal outlooks, such as the North
[8:05] Speaker 2: Atlantic oscillation. This pattern is a sea sawing of high
[8:09] Speaker 2: and low pressures in Iceland and the Azores and has
[8:12] Speaker 2: trended more positive over the last three months, bringing warmer
[8:16] Speaker 2: than average temperatures to Europe. Understanding these patterns can give
[8:19] Speaker 2: us clues as to what weather we can expect in
[8:21] Speaker 2: the coming months. While our seasonal forecasts are not yet
[8:24] Speaker 2: accurate enough to tell you how much snow your ski
[8:26] Speaker 2: resort is going to have in the three months prior
[8:29] Speaker 2: to when you were planning it, we can have an
[8:30] Speaker 2: idea of how much above or below normal temperatures and
[8:33] Speaker 2: precipitation will be at a regional level. So this is
[8:36] Speaker 2: really important for our energy storage levels and traders. If
[8:39] Speaker 2: the US is expecting winter temperatures to be mild with
[8:43] Speaker 2: above normal precipitation, this could lead to low gas withdrawals
[8:46] Speaker 2: from a lack of heating demand and bolstering conventional hydroelectric
[8:50] Speaker 2: reservoirs leading to an increase in renewable power generation.
[8:54] Speaker 3: And another quick anecdote for Europe with the impact that
[8:58] Speaker 3: the North Atlantic Oscillation has. We're seeing the presence of
[9:01] Speaker 3: this this year with Lanina. So, like Willis said, in
[9:05] Speaker 3: Europe during a Lanina, we'll normally see cooler than average conditions,
[9:10] Speaker 3: but this year we've actually seen warmer than average conditions,
[9:14] Speaker 3: and that's because the North Atlantic Oscillation has swung into
[9:17] Speaker 3: a positive phase. So this positive phase is dominating over Lanninia,
[9:22] Speaker 3: creating that warmer than average condition in Europe. These trends
[9:27] Speaker 3: are really important to watch for liquid natural gas usage.
[9:30] Speaker 1: And I love that you brought up the LNG part
[9:31] Speaker 1: of this because this features really heavily as we do
[9:34] Speaker 1: at b and EF twice a year, this winter gas
[9:37] Speaker 1: Outlook and Summer gas Outlook, and look at the level
[9:40] Speaker 1: of storage that we have in various parts of the world,
[9:43] Speaker 1: and as traders are looking to try and figure out
[9:45] Speaker 1: what those prices are going to be going forward. My
[9:48] Speaker 1: question really revolves around when you see this warmer weather
[9:51] Speaker 1: than one would infer you need less gas over the
[9:53] Speaker 1: course of the winter in order to get through. Does
[9:56] Speaker 1: that have or is that counterweighted and to what extent
[9:59] Speaker 1: does it count weighted by increased demand for air conditioning
[10:02] Speaker 1: on a particularly hot year, where you're entering a summer
[10:06] Speaker 1: that's going to have higher than average temperatures.
[10:08] Speaker 3: It's something to monitor for sure. So when you're noticing
[10:12] Speaker 3: that warmer than average conditions are settling into an area,
[10:16] Speaker 3: for example, in winter, you are going to notice that
[10:18] Speaker 3: there is less energy demand. Now you and I might
[10:21] Speaker 3: not feel it. You and I might not feel that
[10:24] Speaker 3: it's warmer than average because technically the temperatures are still cool,
[10:28] Speaker 3: but the markets will feel it, and that's going to
[10:30] Speaker 3: be the interesting thing.
[10:32] Speaker 1: Do you work closely with the gas team as a result.
[10:34] Speaker 3: Every single day? So I know for myself in London,
[10:38] Speaker 3: I'm working with every team on my floor, So whether
[10:42] Speaker 3: that be the gas team, the oil team, the wind team,
[10:45] Speaker 3: the hydro team, we're working every single day on passing
[10:48] Speaker 3: ideas to each other and staying on top of the context.
[10:51] Speaker 2: On the US side, we've actually done some research into
[10:54] Speaker 2: how increases in summer gas demand is not enough to
[10:57] Speaker 2: offset losses in warmer winters. One of our gas analysts
[11:01] Speaker 2: in riy Kae Gonzalez put out a report called warmer
[11:03] Speaker 2: Weather low gas prices could threaten energy transitions and it
[11:07] Speaker 2: discusses how when we have warmer winters there is less
[11:10] Speaker 2: demand for gas driven heating. We are also seeing warmer summers,
[11:14] Speaker 2: but in those summers, the increase in power demand can
[11:17] Speaker 2: be filled by renewable energy, so that increase in power
[11:20] Speaker 2: demand is not necessarily being filled by burns in the
[11:23] Speaker 2: natural gas sector.
[11:24] Speaker 1: So it's really clear how weather is so incredibly important
[11:28] Speaker 1: to a number of the different commodities that are covered
[11:31] Speaker 1: at BNF. What I want to know now is a
[11:33] Speaker 1: pivot to finance. When we looked at these most recent
[11:37] Speaker 1: fires that took place in southern California, insurance came up
[11:41] Speaker 1: quite often, and then also the role of reinsurance and
[11:45] Speaker 1: catastrophe bonds. Can you talk about some of the financial
[11:48] Speaker 1: instruments that exist and really how these interrelate with extreme
[11:53] Speaker 1: weather events.
[11:54] Speaker 2: So catastrophe bond or a cat bond is a high
[11:57] Speaker 2: yield debt instrument designed to raise money for companies in
[12:00] Speaker 2: the insurance industry in the event of a natural disaster.
[12:03] Speaker 2: A CAT bond allows the issuer to receive funding for
[12:07] Speaker 2: the bond if the conditions are met, such as like
[12:09] Speaker 2: a tornado or a hurricane or severe flooding. If an
[12:12] Speaker 2: event that's protected by the bond activates a payout to
[12:15] Speaker 2: the insurance company, the obligation to pay interest and repay
[12:19] Speaker 2: the principle is either deferred or completely forgiven. So a
[12:22] Speaker 2: CAT bond has a shorter maturity date of between three
[12:26] Speaker 2: to five years, and the primary investors in the security
[12:29] Speaker 2: are like hedge funds and pensions and other institutional investors.
[12:33] Speaker 2: But on the other hand, a reinsurance is a type
[12:35] Speaker 2: of insurance primarily purchased by insurance companies to provide a
[12:39] Speaker 2: layer of financial protection against weather events that could cause
[12:43] Speaker 2: major financial disasters, and as we're seeing with extreme events
[12:47] Speaker 2: becoming more frequent, the market for these types of bonds
[12:50] Speaker 2: is also growing. In twenty twenty four, the US had
[12:53] Speaker 2: twenty four rather related disaster events that individually caused over
[12:57] Speaker 2: a billion dollars in damages, with seventy one percent of
[13:00] Speaker 2: these events attributed to severe storms. The five year average
[13:03] Speaker 2: cost of these damages in twenty twenty four was around
[13:06] Speaker 2: one hundred and fifty billion, which was more than double
[13:09] Speaker 2: what it was ten years ago. La Nina events have
[13:11] Speaker 2: been linked to more severe storms across the US, and
[13:15] Speaker 2: so this La Nina that we are currently in could
[13:18] Speaker 2: also mean increasing market chairs for these types of bonds,
[13:22] Speaker 2: as severe events could potentially be more frequent this year.
[13:25] Speaker 1: And can you put the financial losses in context, because
[13:28] Speaker 1: you know, I brought up these fires in Los Angeles
[13:30] Speaker 1: and they were really an unprecedented amount of damage in
[13:34] Speaker 1: terms of financial loss. I mean, how much was it
[13:37] Speaker 1: and how does it compare to other natural disasters which
[13:40] Speaker 1: have taken place maybe also in the US.
[13:43] Speaker 2: Yeah, so the LA fires were a really special case
[13:46] Speaker 2: of like the kind of perfect storm of bad conditions.
[13:49] Speaker 2: So it's not that these fires were necessarily the largest
[13:52] Speaker 2: fires we've seen in US history. It's more so that
[13:55] Speaker 2: they were in Los Angeles, a fairly wealthy area, and
[13:59] Speaker 2: so the the property losses were extremely large. So the
[14:03] Speaker 2: estimated monetary toll of the LA fires is expected to
[14:07] Speaker 2: surpass two hundred and fifty billion, which would make it
[14:09] Speaker 2: the costiest weather disaster in US history, and that is
[14:12] Speaker 2: even greater than Hurricane Katrina, which reached two hundred and
[14:15] Speaker 2: one billion, dollars in damages.
[14:17] Speaker 1: So one of the things that the two of you
[14:19] Speaker 1: did headed into this year was great a Things to
[14:22] Speaker 1: Watch research piece where you kind of looked at the
[14:25] Speaker 1: year ahead. And I know it's very difficult, as you've outlined,
[14:28] Speaker 1: to actually predict the weather, but given your experience in
[14:31] Speaker 1: these kind of annual and multi year trends that take place,
[14:35] Speaker 1: what are some of the things that we can expect
[14:37] Speaker 1: in the year ahead.
[14:38] Speaker 2: Yeah, So for the coming year in twenty twenty five,
[14:41] Speaker 2: we are seeing above average fire conditions forecasted for Texas.
[14:45] Speaker 2: This is coming from the National Interagency Fire Center, which
[14:48] Speaker 2: issues wildland fire potential outlooks, and so we're seeing these
[14:51] Speaker 2: above average fire conditions through the spring. And so this
[14:54] Speaker 2: is a combination of below average precipitation, above average winds,
[14:58] Speaker 2: and above average temperatures. And so from the Bloomberg Terminal,
[15:01] Speaker 2: we have these seasonal forecasts, which is showing all three
[15:04] Speaker 2: boxes are checked for Texas for the spring. But the
[15:07] Speaker 2: National Weather Service also issues temperature and precipitation outlooks for
[15:11] Speaker 2: the next twelve months, and so in those we are
[15:14] Speaker 2: seeing above average temperatures for Texas, which means that we
[15:17] Speaker 2: could see fire conditions persisting throughout the year, and so
[15:20] Speaker 2: the only thing that is left is an igniti event
[15:23] Speaker 2: to cause another string of devastating wildfires.
[15:26] Speaker 1: So related to fires, but also related to the energy system,
[15:30] Speaker 1: I want to talk about precipitation and essentially water levels.
[15:35] Speaker 1: Can you make that connection spell it out for us
[15:37] Speaker 1: regarding how rainfall is actually connected to power and emissions.
[15:43] Speaker 3: Absolutely, So I just want to preface this with we
[15:46] Speaker 3: have a focus on the US and Europe, but in
[15:49] Speaker 3: our nine Things Weather to Watch for twenty twenty five,
[15:52] Speaker 3: we took a look at China and what we're seeing
[15:55] Speaker 3: right now in China is something very interesting. So at
[15:58] Speaker 3: the end of twenty twenty four, water levels at one
[16:01] Speaker 3: of the biggest dams, actually the biggest dam in China.
[16:05] Speaker 1: Is it the three Gorgeous Dam.
[16:06] Speaker 3: Three Gorgeous Dam, the water levels measured four meters below
[16:10] Speaker 3: the five year average. Now, this doesn't sound like a lot,
[16:13] Speaker 3: but thirteen southern Chinese provinces in the last six months
[16:18] Speaker 3: have undergone drought warnings. Thankfully though, La Nina is bringing
[16:23] Speaker 3: a much needed reprieve to this area. So I've been
[16:27] Speaker 3: monitoring the weather reports and right now in some areas
[16:31] Speaker 3: of southern China. They're registering sixteen millimeters above the average.
[16:35] Speaker 3: It has relieved the drought stress on any hydropower plants
[16:42] Speaker 3: in southern China along the Yansee River. But this drought
[16:46] Speaker 3: scare has revitalized concerns over a clean, stable energy generation,
[16:51] Speaker 3: especially during periods of low hydropower output for the nation.
[16:55] Speaker 3: So to preface this with context, the issue began in
[16:58] Speaker 3: twenty twenty two there was an tense year long drought
[17:01] Speaker 3: and into twenty twenty three that hit the southern provinces
[17:05] Speaker 3: housing the Yangsee River. So this is the largest river
[17:08] Speaker 3: in China as a whole. This river is crucial for
[17:10] Speaker 3: hydropower and specifically Sichuan Province a key upstream province for
[17:14] Speaker 3: water recharge. It's also a province that makes up thirty
[17:18] Speaker 3: percent of China's hydropower. It saw water levels drop by
[17:21] Speaker 3: thirteen meters that year, so during this period, Sichuan Hydropower
[17:27] Speaker 3: actually recorded an eleven percent drop in hydro power outputs.
[17:31] Speaker 3: So the stability of the hydropower in southern China as
[17:34] Speaker 3: a power source in that area left room for concern
[17:38] Speaker 3: thinking about future peak energy demand, and so this short
[17:41] Speaker 3: term prioritization of coal is offering some stability for China
[17:46] Speaker 3: as they're aiming to amp up the renewable energy capacity
[17:48] Speaker 3: to meet the twenty thirty renewable targets.
[17:51] Speaker 1: So very simply put, when you have low rainfall in
[17:53] Speaker 1: areas that are requiring hydropower to be a part of
[17:56] Speaker 1: their energy mix, they have to turn to other sources,
[17:58] Speaker 1: and in some circumstances that leads to higher emissions. So
[18:01] Speaker 1: rain level is definitely linked. Let's also talk about how
[18:05] Speaker 1: droughts connect to not just hydropower, but also to other
[18:08] Speaker 1: fuel sources like biofuels. Naturally a lot of them come
[18:11] Speaker 1: from sources like soybean, rape seed, So can we talk
[18:15] Speaker 1: a little bit about how there may be droughts right
[18:17] Speaker 1: now and how that's impacting the biofuels market.
[18:20] Speaker 3: It's another interesting topic we touched upon in our nine
[18:23] Speaker 3: Things to Watch, So it's important to think about upstream
[18:27] Speaker 3: as well as downstream impacts. And I really want to
[18:30] Speaker 3: put a spotlight on Brazil and Brazil's upcoming biodiesel outlook.
[18:34] Speaker 3: There's been hurdles at nearly every turn. So brazil biodiesel
[18:37] Speaker 3: relies on that nationally grown soybean and twenty eight percent
[18:42] Speaker 3: of national soybean is grown in Matagrosso, so again another
[18:46] Speaker 3: spotlight on this region in Brazil. Not only was the
[18:48] Speaker 3: planting season hit with fifty six percent below average rainfall
[18:52] Speaker 3: during the first seventy five percent of that season, harvest
[18:55] Speaker 3: season is now saying delays with one hundred percent above
[18:59] Speaker 3: average rainfall, So I just want to stop one hundred
[19:02] Speaker 3: percent above average. So farmers are seeing floods, roads are
[19:08] Speaker 3: becoming impassable, bridges are being destroyed, on top of the
[19:11] Speaker 3: fact that farmers need to get into their fields and
[19:14] Speaker 3: harvest their crop. So what's happening here is that we're
[19:17] Speaker 3: seeing not only potential impacts on germination and a shorter
[19:20] Speaker 3: growing window early on in the crop cycle, but we're
[19:24] Speaker 3: also seeing moisture control issues at harvest. So this all
[19:27] Speaker 3: leads to ending production values of Brazil and soybean potentially
[19:31] Speaker 3: going down. So what will the final output be? Will
[19:34] Speaker 3: be lower than expected, and from there, how does that
[19:37] Speaker 3: impact allocation towards biodiesel on top of other uses. So
[19:41] Speaker 3: this is really important to think about when we're thinking
[19:43] Speaker 3: about Brazil's Fuel of the Future bill that was passed
[19:46] Speaker 3: in October twenty twenty four, and the pressure on Brazil
[19:50] Speaker 3: right now is to push the biodiesel blend and diesel
[19:53] Speaker 3: oil up to fifteen percent. So with this impact on
[19:57] Speaker 3: local soybean, what will be the impact on biodiesel.
[19:59] Speaker 1: This here so floods, droughts that they don't just have
[20:03] Speaker 1: to do with water. So can you actually pivot now
[20:06] Speaker 1: to what impacts renewable energy wind power and what is
[20:09] Speaker 1: referred to as a wind drought.
[20:11] Speaker 3: So these are prolonged periods of time where wind speeds
[20:15] Speaker 3: are registering two meters per second or less, and if
[20:18] Speaker 3: we look at the data that comes out of it,
[20:20] Speaker 3: the impacts are actually pretty shocking. So during an average
[20:23] Speaker 3: wind drought, if wind speeds drop by ten percent, power
[20:26] Speaker 3: generation can drop by up to thirty percent, which is
[20:29] Speaker 3: I don't know about you, but that's a pretty shocking statistic.
[20:33] Speaker 3: And this is becoming very important for countries whose generation
[20:37] Speaker 3: capacity is made up of a high proportion of wind.
[20:39] Speaker 3: So when periods of low wind hit, this could undercut
[20:42] Speaker 3: renewable energy output and exacerbate reliance on fossil fuels. So
[20:46] Speaker 3: right now, if we can turn our spotlight to Europe,
[20:50] Speaker 3: we're seeing a particularly striking impact in countries like Germany,
[20:53] Speaker 3: Europe's top country for wind production. So in twenty twenty
[20:57] Speaker 3: three and twenty twenty four there were four separate months
[20:59] Speaker 3: that Regis stirred wind rout events in Germany. Just two
[21:02] Speaker 3: of these events in twenty twenty four led to win
[21:05] Speaker 3: generation reductions of sixteen percent against the five year average,
[21:09] Speaker 3: and as a result, total German win output for twenty
[21:12] Speaker 3: twenty four fell by six percent from the previous year,
[21:15] Speaker 3: and this was despite capacity increasing three percent year over year.
[21:19] Speaker 3: So you can see the impact something like this can
[21:22] Speaker 3: have on a country. But how do we forecast these
[21:25] Speaker 3: It's incredibly difficult to accurately predict where wind will blow
[21:30] Speaker 3: and how strong it will be. But in Europe, low
[21:32] Speaker 3: pressure systems driven by the Gulf Stream tend to bring
[21:35] Speaker 3: weather and in this case, windier conditions. Tracking rainfall tied
[21:39] Speaker 3: to these systems in long range forecast can offer insights
[21:42] Speaker 3: into when wind dear weather may develop.
[21:44] Speaker 1: So I think we've done a great job of laying
[21:46] Speaker 1: out why not only those who are covering commodities, but
[21:50] Speaker 1: financial players, companies in the energy system, anybody looking in
[21:54] Speaker 1: anything that's project power development, they are going to be
[21:58] Speaker 1: focused on actually chain changes to the weather and what
[22:01] Speaker 1: is becoming increasingly unpredictable as we extrapolate this out, and
[22:05] Speaker 1: we know that a change in climate leads to a
[22:08] Speaker 1: disruption in the water cycle and therefore a change in weather.
[22:12] Speaker 1: Often when you see extreme weather events, there's a debate
[22:15] Speaker 1: over whether or not you can actually link a specific
[22:19] Speaker 1: weather event to anthropogenic climate change. And I want to
[22:22] Speaker 1: understand why it is so difficult to make that connection.
[22:26] Speaker 1: When we zoom out, the connection seems quite obvious. But
[22:29] Speaker 1: when it comes down to a specific place and time,
[22:32] Speaker 1: why is it that there is so much debate over
[22:34] Speaker 1: tying something to a specific natural disaster.
[22:37] Speaker 2: So I think that this question really ties back to
[22:39] Speaker 2: the definition of climate versus weather. When we're talking about weather,
[22:43] Speaker 2: we're looking at the timescale of like hours to days,
[22:46] Speaker 2: So weather changes every day, you know, like yesterday's weather
[22:48] Speaker 2: is not necessarily the same as today's. But in terms
[22:51] Speaker 2: of the climate, this is thought of to be the
[22:53] Speaker 2: typical conditions for a region during a specific time of
[22:56] Speaker 2: the year, and so when we look at climate change,
[22:59] Speaker 2: we can see that over the past like thirty to
[23:01] Speaker 2: fifty twelve hundred years, the weather that we are experiencing
[23:05] Speaker 2: now is not the same as it was back then.
[23:07] Speaker 2: So extreme weather has also been happening since the dawn
[23:09] Speaker 2: of time, but our methods of data collection have only
[23:12] Speaker 2: recently become quite so sophisticated.
[23:15] Speaker 1: Delineation between averages and frequency as opposed to a specific
[23:20] Speaker 1: point in time. Where we know that extreme weather events
[23:23] Speaker 1: do happen, it's just how often and to what degree
[23:27] Speaker 1: of intensity on a global basis. That's really so we're
[23:30] Speaker 1: really ending how we began, which is this delineation between
[23:34] Speaker 1: weather and climate and what conversation each of those terms
[23:37] Speaker 1: is appropriated.
[23:38] Speaker 2: Yes, and so when we talk about extreme weather, it
[23:41] Speaker 2: can be hard to link these events to climate change
[23:43] Speaker 2: just because of the infrequency in which they happen. When
[23:46] Speaker 2: you think about hurricanes, especially like a Category five storm,
[23:49] Speaker 2: those events are only maybe happening like three times a year,
[23:53] Speaker 2: and so it can be very hard to look at
[23:55] Speaker 2: a historical trend in these events when they happen so
[23:59] Speaker 2: infrequently and to then be able to link them to
[24:01] Speaker 2: climate change. But there has been significant research in this
[24:04] Speaker 2: area in linking the intensity of these storms to climate change.
[24:08] Speaker 2: So we know that like factors that contribute to their
[24:10] Speaker 2: intensity are increasing and have been tied to climate change,
[24:14] Speaker 2: things such as sea level temperatures and sea level rise.
[24:17] Speaker 2: And so while we can measure the factors that contribute
[24:20] Speaker 2: to these extreme events and lick those to climate change,
[24:22] Speaker 2: it can be hard sometimes to link the extreme event
[24:25] Speaker 2: itself because these events happen so infrequently, and since weather
[24:29] Speaker 2: has always been happening. But it's really the intensity of
[24:32] Speaker 2: these events that we are seeing as a result of
[24:34] Speaker 2: climate change.
[24:35] Speaker 3: And so I before I was a meteorologist, I was
[24:39] Speaker 3: a paleo climatologist, which is a really fancy way of
[24:43] Speaker 3: saying I studied past climate, and when you're looking at
[24:47] Speaker 3: past levels of CO two, it pairs almost exactly with
[24:51] Speaker 3: past levels of temperature. And when we're seeing these massive
[24:55] Speaker 3: shifts upward of CO two, you see paired rises of
[24:59] Speaker 3: temperature over time. And what's really striking recently is that
[25:04] Speaker 3: the amount of CO two that we're seeing increase year
[25:08] Speaker 3: after year is happening at a much faster rate than
[25:12] Speaker 3: what we ever saw in paleoclimate history. And so this
[25:16] Speaker 3: is why we're seeing the impact of more extreme weather
[25:20] Speaker 3: tied to these increasing global temperatures, because our natural systems
[25:26] Speaker 3: aren't used to this rapid change. And so as weather
[25:29] Speaker 3: is a form of equilibrium it's trying to adjust, and
[25:33] Speaker 3: with that adjustment comes stronger, more intense storms on this occasion.
[25:37] Speaker 3: So that from my perspective, that's kind of what I'm
[25:40] Speaker 3: looking at.
[25:41] Speaker 1: So Jess Willa, thank you for giving me even more
[25:44] Speaker 1: reasons to be checking the weather report and for sharing
[25:47] Speaker 1: some insights regarding how various climate events extreme and otherwise
[25:52] Speaker 1: are connected to our energy system and so many of
[25:55] Speaker 1: the commodities that we deal with on a daily basis
[25:57] Speaker 1: here at BNF.
[25:58] Speaker 3: Thank you very much.
[25:59] Speaker 2: Dana, Yeah, thank you so much for having us.
[26:10] Speaker 1: Today's episode of Switched On was produced by Cam Gray
[26:13] Speaker 1: with production assistance from Kamala Shelling. Bloomberg NEIF is a
[26:17] Speaker 1: service provided by Bloomberg Finance LP and its affiliates. This
[26:20] Speaker 1: recording does not constitute, nor should it be construed as
[26:23] Speaker 1: investment a vice, investment recommendations, or a recommendation as to
[26:27] Speaker 1: an investment or other strategy. Bloomberg a NEIF should not
[26:29] Speaker 1: be considered as information sufficient upon which to base an
[26:32] Speaker 1: investment decision. Neither Bloomberg Finance LP nor any of its
[26:36] Speaker 1: affiliates makes any representation or warranty as to the accuracy
[26:39] Speaker 1: or completeness of the information contained in this recording, and
[26:42] Speaker 1: any liability as a result of this recording is expressly disclaimed.

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