A meteorological clash of nations is confounding the world’s commodity markets. Global weather agencies can’t agree on whether to expect a La Nina event in coming months. The U.S. has backed off its prediction, Australia remains watchful, while Japan has decided La Nina is already here. Disagreements arise because each nation has different standards for measuring the weather.
The ocean-cooling phenomenon — a shift from last year’s warming El Nino — can roil commodities markets with dramatic shifts in weather that wreak havoc on demand and supplies. The yes-no-maybe confusion is giving heartburn to natural gas, coal and agricultural traders who depend on forecasts to place bets on whether prices will rise or fall.
“There are billions of dollars of capital at stake,” said Teri Viswanath, managing director of natural gas at PIRA Energy Group in New York.
Gas traders are already banking on a La Nina to help deliver the frostiest U.S. winter since the “polar vortex,” a chill that sent prices surging across the U.S. in 2014. And Australia’s coal is headed for the first annual gain in six years, in part on speculation that a La Nina will curb supplies. The last La Nina flooded coal mines in Indonesia and Australia, the world’s two largest exporters of the fuel.
La Nina is just one phase in a larger three-part cycle known as the El Nino Southern Oscillation, or ENSO for short. La Nina represents the cool phase, El Nino is when the equatorial Pacific warms, and ENSO Neutral is in-between.
After 2015’s strong El Nino, the Pacific has been cooling, nudging the ocean toward borderline La Nina conditions, said Mike McPhaden, a senior scientist at the National Oceanic and Atmospheric Administration’s Pacific Marine Environmental Laboratory in Seattle. The weak trend leaves plenty of room for interpretation.
“Different groups of experts are reading the tea leaves slightly differently and coming up with different evaluations of where we are headed,” McPhaden said. “It’s not like last year’s strong El Nino that rang all the bells and that had everyone in the scientific community on the same page about what was happening.”
Gas prices are so dependent on weather conditions, the market is craving some consistency among the forecasts, Viswanath said. So far, the Pacific isn’t cooperating. For a La Nina to form, the cooling ocean has to also trigger changes in the atmosphere.
“ENSO is not an off-on switch,” said Michelle L’Heureux, a meteorologist with Climate Prediction Center in College Park, Maryland. “It is not like when you walk outside and it is raining on you and you can say ‘It is raining.’ It is an incredibly sprawling, complex phenomenon.”
While weather experts agree on what a La Nina is — a cooling ocean pattern that affects the atmosphere — where to set the boundaries for measuring the event is where disagreement lies, said Andrew Watkins, supervisor of climate prediction services for the Australian Bureau of Meteorology in Melbourne. “The differences in the operational definitions revolve around the variables and the thresholds we examine to make a declaration.”