GOLD FINANCIAL RISK MANAGEMENT WINNER………Timing, it is said, is everything in life. Certainly, that was true for General Electric Co. when it decided in 2005 to develop a Web-based natural gas hedging simulator to tighten its portfolio hedging strategy and allow the business units to better manage their price risk to the volatile natural gas market. The GE hedging simulator went “live” in the fourth quarter of 2005–a period, it turned out, of the kind of extreme price and supply instability the new system was designed to mitigate. In the final four months of that year, daily U.S. production of natural gas fell to a 12-year low of 49.8 billion cubic feet, because of damage to facilities from hurricanes, while spot prices more than doubled from December 2004 to December 2005, to $15.38, only to plummet back to earth seven months later.
To be sure, even before the onslaught of hurricanes, the natural gas market was already wrestling with the pressures from a flood of real demand from emerging economies and speculation by investors. “We, along with everyone else in the market, were experiencing tremendous volatility in natural gas prices,” says David Rusate, GE’s deputy treasurer of foreign exchange and commodities. “And [given] that increased volatility, we wanted to put more rigor around our risk management approach.”
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