School of Energy

The most comprehensive energy training programme currently available. Over five intensive days you will explore every aspect of the global energy markets and the products and issues that drive them.

Course Highlights

Five reasons why you must attend this course:

The programme focuses on the key practical trading and risk issues in all the major energy markets
The practical focus of the course will expose you to the complex risks in the sector via our simulation sessions and equip you with cutting-edge tools to deal with them in the real world
Our faculty of internationally recognised experts are unrivalled in the training world. You are guaranteed to be learning from some of the finest minds in the business
The residential nature of the programme means that these hand-picked individuals will be able to work with you closely to ensure your practical knowledge grows substantially over the five intensive days
There is no other programme like it, you will benefit from 18 cutting-edge case-studies enabling you to apply what you have learned to any scenario

For details of the course trainer, please download the course brochure

Booking Information

Dates	Prices	Book This Course	Discount
22 - 26 Nov 2010	£ 4999		-
04 - 08 Apr 2011	£ 4999		-

Course Programme

Day 1: Energy markets: understanding products, players and developments

Introduction to energy markets

Review of the organisation of energy markets, trading venues and trading purposes
Players in the trading markets: banks, brokers, traders, end users, producers:

What is their role? Why do they trade? How do they make money?

Energy products: characteristics, purpose and differences

Forwards, futures, swaps
Options: Call versus put, European vs American

Energy markets and how they function:

OTC versus exchange trading
Spot versus forward trading
The role of organized markets: EEX, ICE, Nymex, Nordpool, Endex

Current trends and developments

Mark-to-market

Marking economic inventory positions to market
Sources of market prices: quoted prices, indexes, comparable instruments, valuation models
Intricacies of mark-to-market methodology:

Impact of bid/ask spreads
Charges for freight, insurance etc.
Economic reality versus liquidation-basis (switch positions)

Processing positions

Mark-to-market valuation of processing (generation) positions:

Liquidation-based
Equivalence-based

Estimating costs of completion
Impact on an entity's reported results

Electricity markets: physical and financial trading

Forward, spot and imbalance markets
Understanding the generation stack / merit order
Impact of CO2 trading and auctioning of emission rights
Trading spark and dark spreads
CASE STUDY: bidding into the spot market

Natural gas markets: physical and financial trading

Overview of the physical gas markets, with focus on Europe
Oil-indexation for gas contracts
Interconnections between markets: the role of storage, pipelines and LNG

Oil and coal markets: physical and financial trading

Overview of the physical oil markets and supply chain
Overview of the physical coal markets and freight routes
Refineries, crack spreads and trading instruments
Interaction between fossil and bio fuels

Day 2: Energy risk / portfolio management

Portfolio and risk management in a trading organisation

Identifying risk at a corporate level
Taking into account natural hedges and hedging policies of competitors
Long-term risk management versus short-term position management
Types of risk: market, credit, operational, regulatory
Choosing between hedging, diversification and insurance
Approaches to deal with volumetric risk: using options and assets

Market risk management: Value-at-Risk

Sources of market risk
Value-at-Risk as a central risk measure in a trading organization
Calculation approaches to Value-at-Risk: Normal, historical or Monte Carlo simulation
Incorporating options and assets in a Value-at-Risk approach
VaR of a generation portfolio versus customer portfolio

Market risk management: other risk methodologies

Value-at-Risk versus Cashflow-at-Risk
Developing stress tests
The use of stop-loss limits
RAROC: using Value-at-Risk to allocate risk capital and assess trading performance
Daily market risk reporting and limit enforcement

Credit risk management

Counterpart analysis and ratings
Current exposure versus potential future exposure
Clearing and marking-to-market
Credit risk management tools: collateral, credit derivatives, netting, clearing
Detailed analysis of credit risk in a customer contract

Day 3: Price dynamics and energy derivatives valuation

Energy Price Dynamics

Volatility estimation in energy markets:

Historical versus implied volatility
Comparison of volatility numbers
Long- and short-term volatility dynamics
Volatility calculations: MA, EWMA and GARCH

Correlations in energy markets:

Short versus long-term correlation
Interpreting correlation
Correlation vs Co-integration
Mean-reversion estimation techniques

Dynamics of energy prices: the impact of volatility, correlation and mean-reversion on risk measurement and valuation:
Dynamics of forward prices: backwardation versus contango, short- and long-term variations, variations in seasonality

Forward curve building and dynamics

The use of forward curves in trading and valuation: contango, backwardation and seasonal curves
The theory of storage and approaches to forward valuation
Hourly forward curves for power and gas markets: combining history with current price information and fundamentals
Multi-factor models for forward curve simulations
Co-integration to capture the fundamental relations between forward prices

Energy derivative valuation

Mark-to-market versus Mark-to-model
Risk-neutral pricing and hedging assumptions
Option Greeks and delta hedging
Black-Scholes formula: applicability in energy markets
Implied volatility versus historical volatility
Binomial trees to capture early exercise
Using simulations to value energy derivatives:

Exotic contracts or price dynamics
Least-Squares Monte Carlo to avoid perfect foresight

Day 4: Trading strategies as the basis for contract valuation

Forward hedging strategies: optimising return while minimising risk

Hedging against spot price risk: comparing a volume and value hedge
Proxy and dirty hedges, optimal hedge ratio and residual risk
Hedging and liquidity risk
Evaluation of trading and hedging strategies: focus on the optimal hedge ratio and basis risk
Setting up a roll-over hedge
Metallgesellschaft - what went wrong with the roll-over hedge?

Option positions and delta hedging

Optionality in energy markets
Optimising make or buy decisions
Option delta for spread positions: relationship with volume and value hedges
Delta hedging versus rolling intrinsic valuation
Strategies to deal with limited market liquidity

Trading strategies and pricing of transport capacities

Transport capacities as a strip of options
One-directional versus two-directional capacities
The Margrabe's formula applied to
Setting up a transport trading strategy and evaluating performance:

Historical performance
Simulated performance

Valuation of LNG transport capacity
Valuation of power interconnection capacity

The value of swing contracts – theory and case study

Different types of gas long-term contracts (LTC / swing / Take-or-Pay) in energy markets
Impact of volume constraints, carry-forward, make-up rights
Optimal use of volume flexibility with and without free market trading, with and without assets
Valuation approaches to swing contracts:

Relationship with American style options
Finding the optimal moments to take natural gas
The intrinsic value based on forward prices
The rolling-intrinsic and full option value
The impact of co-integration

Day 5: Energy valuation and real options

Net Present Value vs Real option analysis

Traditional Net Present Value analysis: which discount rate to choose?
When is real options analysis appropriate?

Uncertain market dynamics
Optimally using asset flexibility

Real options analogy to American-style options
Different types of real options: postponing, expanding, switching, terminating
Examples of real options in energy markets: gas storage, pipelines, LNG, emission reduction, oil refining, oil and gas exploration

Optimal timing of investment decisions

Dealing with uncertainty in investment decisions
The ability to postpone investments
Real options approach to investment timing: using a tree approach
Strategic issues in investment planning

A power plant as a spread option – theory and case study

How to build an NPV model for a power plant
The impact of the forward curves and sensitivity analysis
The impact of plant characteristics: from must-run to peaking plants
Applying the Margrabe's formula for spread options
Incorporating realistic technical restrictions and maintenance
Using price simulations to capture the flexibility value :

Capturing market fundamentals through co-integration if fuels and power prices
Exploiting mean-reversion in spark and dark spreads

Asset-backed trading strategies for power plants explained

Gas Storage Trading, Hedging and Valuation

Different types and usages of storages
Gas storage as a central balancing element in the gas portfolio
Gas storage valuation approaches: intrinsic, rolling intrinsic, full option value
The least-squares Monte Carlo approach to gas storage valuation
Handling various storage operational and commercial constraints
Optimal trading strategies and back-testing results of gas storage
Risk return trade-offs of storage assets

A hands-on highly practical programme

There will be a wide use of case studies throughout the course; participants need to bring laptop with Excel to work on case studies.

THE TRADING GAME

You learning will be enhanced with intensive trading game sessions, partly in the evenings, on days 1, 2, 4 and 5: in the trading game the players learn how:

To optimize plant dispatch decisions
To handle a customer portfolio book
To apply information from news messages in their trading actions
Positions are marked-to-market
Risk-taking leads to higher credit costs
To use forward contracts to handle future exposures
To apply asset-backed trading strategies to make money
To make investment decisions for new power plant generation capacity