ERP_2018_SG

2018ERP STUDY GUIDE ® ENERGY RISK PROFESSIONAL garp.org/erp Unless otherwise noted. Development of the ERP exam curriculum is guided by GARP’s Energy Oversight Committee (EOC). transportation. 2018 Energy Risk Professional (ERP®) Exam Study Guide 2018 Energy Risk Professional (ERP®) Exam Study Guide ENERGY RISK PROFESSIONAL (ERP®) PROGRAM Each year. an asterisk after a reading title indicates that the reading is freely available on the GARP website.000 gallons per contract } Natural Gas and Coal Markets • ULSD futures: } Electricity Markets and Power Generation 42. the ERP Exam and its curriculum remain consistent with It objectively assesses and validates candidates’ skills and current industry practice.org/erp 1 . measurement. Certified ERPs can apply knowledge about 2018 ERP LEARNING OBJECTIVES AND STUDY GUIDE the production. and question is developed from and directly references a management of risk in the energy industry. This document topics and required readings listed in the 2018 ERP Study summarizes all readings removed from the 2017 curriculum Guide and 2018 Learning Objectives (LOBs) are updated and includes new readings added for 2018. and storage of physical The 2018 ERP Learning Objectives and 2018 Study Guide energy commodities. Our dual collaboration with EOC energy professionals. Candidates are expected to be familiar with the learning objectives ERP CURRICULUM and be able to apply the principles on the Exam. for energy professionals. annually in conjunction with the EOC to ensure the ERP Exam remains a timely and accurate assessment of the COMMONLY-USED CONTRACT SPECIFICATIONS knowledge and skills required of energy market and risk Exchange-traded energy commodity futures and option professionals. knowledge of the tools used to manage and measure energy risk. structure and practical application are valuable exam tools that candidates should reference of energy derivatives. specific reading and related learning objective.000 MMBtu per contract } Risk Management Tools • Market Risk Valuation and Management • Credit and Counterparty Risk Assessment • Operational Risk and Enterprise Risk Management On the following pages. exam questions will assume the ERP EXAM following standard volumetric terms: The ERP Exam Part I and Part II evaluate a candidate’s knowledge of key concepts aligned with the topics below: • Crude Oil: 1. to assess members and certified ERP alumni helps to ensure that and validate energy professional knowledge and skills.000 barrels (equal to 42. The exam the 2018 ERP Study Guide Changes. contracts are typically transacted in standardized lot sizes. assessment of energy market data frequently when preparing for the Exam. a panel of 2018 ERP STUDY GUIDE CHANGES senior practitioners and academics with energy market Returning 2017 ERP candidates should also review experience and risk management expertise. and identification.000 gallons per contract • Gasoil (diesel) futures: ERP EXAM PART II | 60 QUESTIONS 100 metric tons (MT) per contract } Financially-Traded Energy Products • Natural gas (Henry Hub) futures: } Risk Assessment and Energy Price Modeling 10. Each exam and price modeling.000 gallons) per contract ERP EXAM PART I | 80 QUESTIONS • Gasoline futures: } Crude Oil and Refined Product Markets 42. we invite Certified ERPs from a variety of The ERP certification is the world’s first and only disciplines and geographies to participate in the exam internationally recognized designation developed by development process. garp. insurance. .COMMONLY-USED ABBREVIATIONS AND ACRONYMS The following is a list of commonly used abbreviations and acronyms that appear in the LOBs and that may appear on the Exam: } Bbl: Barrel of ____________ } KPI: Key performance indicators } BOE: Barrel of oil equivalent } KRI: Key risk indicators } BTU: British Thermal Unit } kW: Kilowatt } CCP: Central counterparty } kWh: Kilowatt-hour } CDD: Cooling degree days } LMP: Locational marginal pricing } Cf: Cubic feet } LNG: Liquefied natural gas } CFD: Contract for Differences } LSE: Load serving entity } CFR: Cost and freight } Mcf: Million cubic feet } CIF: Cargo. and freight } MMBtu: Million British Thermal Units } CIP: Cargo and insurance paid } MT: Metric ton } CPT: Carriage paid to all transport } MtM: Mark-to-market } CRO: Chief Risk Officer } MW: Megawatt } CSA: Credit Support Annex } MWh: Megawatt-hour } CVA: Credit value adjustment } NGL: Natural gas liquid } DA: Day-ahead } NOC: National oil company } DAP: Delivered at place } NPV: Net present value } DAT: Delivered at terminal } NYMEX: New York Mercantile Exchange } DDP: Delivered duty paid } OPEC: Organization of the Petroleum } DES: Delivered ex ship Exporting Countries } EFP: Exchange for physicals } OTC: Over-the-counter } EIA: (US) Energy Information Agency } PFE: Potential future exposure } ERM: Enterprise risk management } PPA: Power purchase agreement } ETS: Emissions trading system } PSA: Production sharing agreement } EWMA: Exponentially weighted moving average } PTR: Physical transmission right } EXW: Ex-works } PV: Photovoltaic installation (solar) } FAS: Free alongside ship } PSC: Production services contract } FOB: Free on board } RAROC: Risk-adjusted return on capital } FTR: Financial transmission right } RBOB: Reformulated gasoline blendstock for } GARCH: Generalized auto-regressive oxygen blending conditional heteroskedasticity } RCSA: Risk control self-assessment } HDD: Heating degree days } RTO: Regional Transmission Organization } ICE: Intercontinental Exchange } SMP: System marginal price } IEA: International Energy Agency } ULSD: Ultra-low sulfur diesel } IOC: International oil company } VaR: Value-at-risk } IRR: Internal rate of return } VOLL: Value of lost load } ISDA: International Swaps and Derivatives } VPP: Volumetric production payment Association } WACC: Weighted average cost of capital } ISO: Independent System Operator } WTI: West Texas Intermediate crude oil } JCC: Japan customs cleared (oil price) 2 © 2018 Global Association of Risk Professionals. org/erp 3 . The exam structure has been designed in conjunction with the EOC to assess learning outcomes associated with the physical energy commodity markets based on the following topics and weights: Crude Oil Markets and Refined Products 40% 32 questions Natural Gas and Coal Markets 25% 20 questions Electricity Markets and Power Generation 35% 28 questions ERP Exam Part I Total 100% 80 questions garp. 2018 Energy Risk Professional (ERP®) Exam Study Guide ERP Exam Part I The four-hour ERP Exam Part I consists of 80 multiple choice questions. blending and other refining processes • Refinery complexity • Refining margins and their determinants • Finished products and specifications 4 © 2018 Global Association of Risk Professionals. Crude Oil Markets ERP EXAM PART I Part I Exam Weight | 40% Topics and Readings The broad areas of knowledge covered in readings related to Crude Oil Markets and Refined Products include the following: } Physical properties of crude oil • Crude oil grades • Unconventional crude oils • Global benchmarks • Economic fundamentals } Exploration and production • Reserve identification • Project development • Fiscal regimes • Oil and gas lending and collateral evaluation • Economics of production } Transportation and storage economics } Crude oil refining • Distillation. . How Pipelines Make the Oil Market Work – Their Networks.* 7. Operation. and Exploration • Chapter 4. Energy Markets. OK: PennWell Books. OK: PennWell Books. Incoterms 2010. Conveyances (pp. Moffett. 2013). Accounting for International Petroleum Operations 4. Oil Pricing 5. Oil Transportation and Storage • Chapter 17. Access. (Office of the Comptroller of the Currency. (London. 2017). March 2016). (December 2001). Allegro Energy Group. Charlotte Wright. October 2011). Leasing.* 3. UK: Risk Books. (Tulsa. garp. • Chapter 15. The Market for Crude Oil (Crude Oil Fundamentals and The Price of Crude Oil sections only) • Chapter 12.org/erp 5 .* 6. Vincent Kaminski. (MathPro.582 only) • Chapter 17. Reserve Valuation • Chapter 18. Strategy and Finance. 2018 Energy Risk Professional (ERP®) Exam Study Guide Readings for Crude Oil Markets | 32 Questions 1. Australian Customs and Border Protection Service. Refining 2. Oil and Gas Exploration and Production Lending. The International Council on Clean Transportation. 557 . Developing Oil and Gas Projects • Chapter 5. An Introduction to Petroleum Refining and the Production of Ultra Low Sulfur Gasoline and Diesel Fuel. Andrew Inkpen and Michael H. and Regulation. (Tulsa. • Chapter 16. 6th Edition. * This reading is freely available on the GARP website. 2011). • Chapter 3. Production of Oil and Gas Products • Chapter 10. Fundamentals of Oil & Gas Accounting. The Global Oil and Gas Industry: Management. Natural Gas and Coal Markets ERP EXAM PART I Part I Exam Weight | 25% Topics and Readings The broad areas of knowledge covered in readings related to Natural Gas and Coal Markets include the following: Natural Gas } Physical properties of natural gas • Types of natural gas. . units of measure. and heat content • Benchmarks. and heat content • NGLs and condensates } Global natural gas markets and economic fundamentals • Market dynamics and pricing • Gas sales agreements and trading } Transportation and storage economics } LNG • Market dynamics and pricing • Contracts and shipping Coal } Physical properties of coal • Types of coal. and trading • Global coal markets and economic fundamentals } Transportation 6 © 2018 Global Association of Risk Professionals. units of measure. contract specifications. Melling.Petrochemicals • Chapter 9. Chris Le Fevre. 2014). NGL Markets . and Roles and Risks of Major Players. Oxford Energy: Gas Storage in Great Britain (January 2013). Managing Energy Price Risk. (London. UK: Risk Books.2nd Edition (Tulsa. Natural Gas Liquids: A Non-Technical Guide (Tulsa. The Development of European Gas Contracting • Chapter 2. William Leffler. LNG Sale and Purchase Agreement • Chapter 15. The Dynamics of a Liberalised European Gas Market – Key Determinants of Hub Prices. • Chapter 12. 2013.). • Chapter 6.Fuels 7. Michael D.* • Chapter 2. LNG Tanker Contracts 6. Tusiani and Gordon Shearer. The Role of Gas Storage * This reading is freely available on the GARP website. OK: PennWell Books. The Dynamics Between Oil-Indexed and Spot Prices • Appendix.* • Chapter 1. 4th Edition (London. Logistics • Chapter 8.1 – 1. • Chapter 7. Natural Gas Transportation and Storage 3. • Chapter 10. 2018 Energy Risk Professional (ERP®) Exam Study Guide Readings for Natural Gas and Coal Markets | 20 Questions 1. Vincent Kaminski. December 2014) Sections 1. garp. LNG Project Formation • Chapter 13. OK: PennWell. 2016). 2016). Vincent Kaminski. Upstream Gas Supply Agreements • Chapter 14. 2010). NGL Markets . Refineries and the Unnatural Gas Liquids • Chapter 7.4 only. (Carnegie Endowment. Anthony J.* 5.org/erp 7 . UK: Risk Books. Natural Gas Pricing and its Future: Europe as the Battleground. Coal 2.A Nontechnical Guide . LNG: Fuel for a Changing World . Energy Markets. Jonathan Stern and Howard Rogers. Key Terms of Long-Term Oil-Indexed Take-or-Pay Contracts 4. US Natural Gas Markets • Chapter 12. (Oxford Energy. peak. mid-merit. and spark spread • Market data and price discovery } Investing in generating capacity } Electric energy markets and trading • Power pools (ISOs and RTOs) and bilateral trading • Contracts and structured solutions for energy markets } Liberalized (deregulated) wholesale power market design • Energy markets (day-ahead vs. capacity markets • Ancillary services • Integration of renewable energy } Global electricity markets and economic fundamentals } Emission reduction programs and regulation 8 © 2018 Global Association of Risk Professionals. Electricity Markets and Power Generation ERP EXAM PART I Part I Exam Weight | 35% Topics and Readings The broad areas of knowledge covered in readings related to Electricity Markets and Power Generation include the following: } Properties of electricity • Types of power generation • Transmission and distribution } Electricity market economics • Base load. real-time) and balancing markets • Energy-only vs. heat rate. . and off-peak generation • Capacity factor. German Federal Ministry for the Environment. Complex Electricity Markets 3. 2012). International Renewable Energy Agency (IRENA).* 7.* 11. Centralized Markets for Energy • Chapter 8. Rafal Weron. Transmission • Chapter 5. Storage Technologies for the Power System (2014). KU Leuven Energy Institute. Negative Electricity Market Prices (2014). Cross-Border Electricity Trading: Towards Flow-Based Market Coupling (2015). † All rights reserved. garp.* 13.* 9.* * This reading is freely available on the GARP website. (US Department of Energy. Chapter 4: Technology Assessments – Solar Power Technologies. Introduction to Electricity Markets. Inquiries concerning reproduction of this section should be made to GARP. Rebecca Busby. 2015).org/erp 9 . Heat Rates. Industry Overview • Chapter 2. KU Leuven Energy Institute. 2017 Energy Risk Professional (ERP) Exam Part I (Hoboken. KU Leuven Energy Institute.* 5. Other Electricity Markets • Chapter 9. The Current Electricity Market Design in Europe (2015). • Chapter 6. KU Leuven Energy Institute.* 12. OK: PennWell Books.* 10. Parsons. Economic Optimization of the System • Chapter 6. Wind Farms: Developing and Operating Wind Power Plants 6. Emissions Markets 2. Modeling and Forecasting Electricity Loads and Prices. Emissions Trading Basic Principles and Experiences in Europe and Germany (November 2016). 2006) • Chapter 1. The Future of Electricity New Technologies Transforming the Grid Edge (March 2017). (Hoboken. (Tulsa. NJ: John Wiley & Sons. 2018 Energy Risk Professional (ERP®) Exam Study Guide Readings for Electricity Markets and Renawble Generation | 28 Questions 1. 2017). John E.* 4. Load • Chapter 3.* 8. Generation • Chapter 4. Bilateral Contracts and Trading • Chapter 7. World Economic Forum. KU Leuven Energy Institute. Renewable Energy Integration in Power Grids (April 2015). NJ: John Wiley & Sons. Wind Power: The Industry Grows Up. Quadrennial Technology Review 2015.† • Chapter 1. Spark Spreads and the Economics of Tolling Agreements (December 2010). Capacity Mechanisms (2013). Kenneth Skinner. probability. and management of energy market.ERP Exam Part II The four-hour ERP Exam Part II consists of 60 multiple choice questions. data analysis and energy price modeling. and operational risks. based on the following topics and weights: Financial Energy Products 30% 18 questions Risk Assessment and Energy Price Modeling 20% 12 questions Risk Management Tools 50% 30 questions ERP Exam Part II Total 100% 60 questions 10 © 2018 Global Association of Risk Professionals. measurement. and the identification. statistics. The exam structure has been designed in conjunction with the EOC to assess learning outcomes associated with financial energy products. . counterparty credit. Simkins and Russell E. Energy Finance and Economics: Analysis and Valuation.6 to 6. • Chapter 2. NJ: John Wiley & Sons. • Chapter 2. (Hoboken. • Chapter 11. Introduction to Risk Management • Chapter 6. Fuel Hedging and Risk Management. Transactions in the Oil Markets 5. Gajjala. 2014). 2016). Derivatives Markets. • Chapter 4. DPCs and SPVs (Sections 2. Inc. (Hoboken. Real Options and Applications in the Energy Industry 6. Jon Gregory. Shipping and Airlines – Basics for Fuel Hedging garp.2 only) • Chapter 3. 2013). US Natural Gas Markets • Chapter 18. 2013). • Chapter 2. Simkins. Robert McDonald. Risk Management. Basic Principles of Central Clearing 2. • Chapter 11. 3rd Edition. (West Sussex. Commodity Forwards and Futures (Sections 6. Major Energy Consumers and the Rationale for Fuel Hedging • Chapter 4.1 to 6. 2013). Valuation and Risk Management in Energy Markets. Glen Swindle.3. NY: Cambridge Press. NJ: Pearson Education. (New York. UK: John Wiley & Sons. S. and 6. NJ: John Wiley & Sons. 2018 Energy Risk Professional (ERP®) Exam Study Guide Financial Energy Products ERP EXAM PART II Part II Exam Weight | 30% Topics and Readings The broad areas of knowledge covered in readings related to Financial Energy Products include the following: } Physical energy commodity markets • Basis markets and pricing benchmarks • Fundamental price drivers } Physical versus financially-settled transactions } Structure and operation of OTC and exchange markets • Central clearing } Energy derivative contracts • Forwards and futures • Swaps • Options and real options } Hedging mechanics and cash flows • Global regulatory framework for financially-traded energy products Readings for Financial Energy Products | 18 Questions 1. (Upper Saddle River. Forwards and Carry 4. Vincent Kaminski.. Betty J. Mohamed Dafir and Vishnun N. UK: Risk Books. Energy Markets (London. Exchanges. 2014).org/erp 11 . editors.8 only) 3. and the Future of Energy. OTC Derivatives.1 and 2. Central Counterparties. NJ: John Wiley & Sons. Understanding and Analyzing Spot Prices • Chapter 3. Michael Miller. pp. Les Clewlow and Chris Strickland. NJ: John Wiley & Sons. Stylized Facts of Electricity Loads and Prices (Sections 2. Mathematics and Statistics for Financial Risk Management. 29-53 only) • Chapter 4. 2006). 2017). Probabilities • Chapter 3. Linear Regression Analysis 2. . Distributions (Sections on Parametric Distribution through Student’s t Distribution. Modeling and Forecasting Electricity Loads 12 © 2018 Global Association of Risk Professionals.1 and 3.4 and 2. • Chapter 2. Energy Derivatives: Pricing and Risk Management. AUS: Lacima Publications. • Chapter 2.2 only) 3. (Hoboken. Inc.7 only) • Chapter 3. Risk Assessment and Energy Modeling ERP EXAM PART II Part II Exam Weight | 20% Topics and Readings The broad areas of knowledge covered in readings related to Risk Assessment and Energy Modeling include the following: } Quantitative tools for risk analysis • Probability theory • Statistics • Regression analysis } Energy commodity price formation • Fundamental drivers • Technical properties and time series analysis } Modeling energy prices • Correlation and volatility estimation Readings for Risk Assessment and Energy Modeling | 12 Questions 1. Volatility Estimation in Energy Markets (Sections 3. 61-79 only) • Chapter 10. pp. Basic Statistics (Sections on Averages through Kurtosis.1-2. Modeling and Forecasting Electricity Loads and Prices. (Sydney. Rafal Weron. • Chapter 2. 2000).. (Hoboken. 2nd Edition. economic. and probability of default • Potential future exposure • CVA • ISDA Master and CSA • Collateralization and netting agreements } Country and sovereign risk metrics and management • Political. social. and security risks • Financial market indicators Operational Risk and ERM } Principles for sound operational risk management } Evaluation and management of operational risk • KRIs • KPIs } Liquidity/funding risk • Liquidity stress testing • Contingency funding } Cybersecurity } ERM frameworks and risk governance } Integration of risk management in strategic decisions • Economic capital frameworks and capital allocation • RAROC • Stress testing and scenario analysis } Case studies in ERM implementation Business Ethics and the GARP Code of Conduct garp.org/erp 13 . 2018 Energy Risk Professional (ERP®) Exam Study Guide Risk Management Tools ERP EXAM PART II Part II Exam Weight | 50% Topics and Readings The broad areas of knowledge covered in readings related to Risk Management Tools include the following: Market Risk Valuation and Management } VaR and other risk measures • Liquidity risk and liquidity adjusted VaR • Expected shortfall } Risk metrics associated with option contracts (“Greeks”) • Delta-gamma hedging • Model control and price validation Credit and Counterparty Risk Assessment } Credit risk measurement • Credit ratings and scoring } Counterparty risk measurement and management • Expected loss. loss given default. 4 only) 7. (July 2015) (Pages 1 to 39 only).2. NY: Cambridge University Press.4 Credit Risk only) 6. Netting. Jon Gregory. Collateral and Capital. Implementing Enterprise Risk Management – From Methods to Applications. Control. 2nd Edition. Hull.4. Collateral (Sections 6. Wrong-Way Risk (Sections 17.4 only) • Chapter 10.1 to 7. (Hoboken. Glen Swindle. Quantifying Credit Exposure (Sections 10. 2014). Default Probabilities. Managing Energy Risk: An Integrated View on Power and Other Energy Markets. • Chapter 4.1 to 17.* 8. Risk Management (Section 3. NJ: John Wiley & Sons. (Hoboken. Integration of KPIs and KRIs * This reading is freely available on the GARP website. Measures and Implications – 2015 Edition.8 only) • Chapter 17. NJ: John Wiley & Sons. Risk Control Self-Assessments • Chapter 15. The xVA Challenge: Counterparty Credit Risk. Readings for Risk Management Tools | 30 Questions ERP EXAM PART II 1. Value-at-Risk 4. • Chapter 16. Valuation and Risk Management in Energy Markets. Strategic Risk Management • Chapter 17. Liquidity Risk 3.1 to 14. Markus Burger. 2000). 14 © 2018 Global Association of Risk Professionals. • Chapter 3. Volatility • Chapter 12. • Chapter 10. Aswath Damodaran. Measuring Market Risk. (New York. 2014). 2015).5 only) • Chapter 12. Kevin Dowd. Energy Derivatives: Pricing and Risk Management.1 to 6. Credit Spreads and Funding Costs (Sections 12.6 only) • Chapter 7. NJ: John Wiley & Sons. Stress Testing 5. 4th Edition. Risk Management and Financial Institutions. AUS: Lacima Publishing. The ERM Framework • Chapter 13. Credit Value Adjustment (Sections 14. Counterparty Risk (Sections 4.2. 2017). • Chapter 13. (Hoboken.1 to 10.3 only) • Chapter 5. . Country Risk Determinants. (Hoboken. • Chapter 8. How Traders Manage Risk • Chapter 10. 2nd Edition. and Gero Schindlmayr. Les Clewlow and Chris Strickland. Close-Out. NJ: John Wiley & Sons. (Sydney.1 to 12. Value-at-Risk and Expected Shortfall • Chapter 24. 3rd Edition. 2005). Credit Exposure and Funding (Sections 7. (Hoboken.1 to 4.2. Funding. and Related Aspects • Chapter 6.5 only) • Chapter 14. Risk Metrics and Credit 2. NJ: John Wiley & Sons. John C. 2015). James Lam. Bernhard Graeber. • Chapter 7. NY: McGraw-Hill Education. NJ: John Wiley & Sons. John Fraser. and Kristina Narvaez. Contingency Funding Planning 10. Implementing Enterprise Risk Management: Case Studies and Best Practices (Hoboken. Liquidity Stress Testing • Chapter 7.org/erp 15 . 2nd Edition (New York. The Road to Resilience: Managing Cyber Risks (2016). Liquidity Risk Management – A Practitioner’s Perspective. Implementing Risk Management within Middle Eastern Oil and Gas Companies 13. 2016). The Essentials of Risk Management. (Hoboken. Shyam Venkat and Stephen Baird. 2015). Value and Risk: Enterprise Risk Management at Statoil • Chapter 20. • Chapter 17. Global Association of Risk Professionals (GARP). • Chapter 3. NJ: John Wiley & Sons. 12. Code of Conduct. Michel Crouhy. 2014).* * This reading is freely available on the GARP website. garp. Dan Galai. World Energy Perspectives. Betty Simkins. and Robert Mark. Risk Capital Attribution and Risk-Adjusted Performance Measurement 11. World Energy Council. 2018 Energy Risk Professional (ERP®) Exam Study Guide 9. • Chapter 4. ...................................................................................................................................... Chris Strickland....... Trafigura Ben Baglin....... PSE&G Michael Sell..................................................... Global Association of Risk Professionals Jonathan C...... British Petroleum 16 © 2018 Global Association of Risk Professionals.................................................. Goodman......................... Lacima Group Dr.............................................................................................. Global Association of Risk Professionals Dr........................2018 Energy Oversight Committee Richard Apostolik....................................... Rice University Glenn Labhart............................................................................................ Stein..... Labhart Risk Advisors Alessandro Mauro............................ EOC Chair.................................................................................................................................................................... EDF Trading Gordon E................................................................. Vince Kaminski....................................... Hess Corporation Dr...................... Glen Swindle................................................................................... Scoville Risk Partners Gary Taylor................................................ NRG Energy) Dr............................................. Retired (Occidental Petroleum.......................................................... MKS (Switzerland) SA Peter O’Neill....................................................................................................................... Lawrence Austen........... ERP........................ Archer Daniels Midland Dr.................................................................. ERP........................ ....................................................................................... Massachusetts Institute of Technology Laurent Pommier.................................. John Parsons.. . 17) .Creating a culture of risk awareness ® garp. connecting members in more than 190 countries and territories. media. © 2018 Global Association of Risk Professionals. training. All rights reserved. and events. GARP’s mission is to elevate the practice of risk management at all levels. setting the industry standard through education. (11.13.org The Global Association of Risk Professionals (GARP) is the leading association dedicated to the education and certification of risk professionals.