Managing Risk & Maximising Value in Volatile Energy Markets

Featuring: How and why energy is fundamentally different What this means for energy risk management The significance of Enron’s innovations How to deconstruct and analyse complex deals Analysing real options in energy portfolios Creating virtual energy assets Extending traditional techniques to meet energy risks Case studies and exercises for practical application Course overview A comprehensive and systematic introduction to risk management for profitable transactions and asset management in complex energy markets. The course will detail why and how risks in energy – particularly gas and electricity – are more acute than in other traded market sectors, and how classic risk management techniques must be adapted and extended to meet these demanding conditions. Case studies will illustrate how companies have resolved these issues – including Enron, the pioneer of best practice in energy risk management as well as the author of its own dramatic downfall. Practical exercises will confirm the principles being explained. Benefits of attending Learn how energy markets differ significantly from other traded commodities – and how this creates greater risks Discover how risk management techniques can be extended to meet the challenge of volatile energy markets Obtain a comprehensive overview of how all the techniques of risk management can be integrated to provide a best practices discipline for maximising value in complex energy portfolios Who should attend Energy traders requiring risk management training Structuring staff Energy marketing staff Middle and back office personnel CFOs and treasury managers Finance department personnel Compliance managers Commercial legal staff Risk and audit committee members Finance industry staff/ commodity traders encountering energy for the first time Investment houses, SWFs and VCs acquiring energy assets Staff in regulatory and government agencies needing to understand the unique characteristics and challenges of the traded energy markets "Good and practical course" - Transelec SA
Day 1 Orientation for understanding risk in energy Definitions and rigorous approach Energy is different Critical physical properties of energy The players and politics of energy Economic and market consequences Implications for risk Transformation of energy markets Coal, oil, gas and power The monopoly model and its legacy Liberalisation and the disruption of transition The competitive market model and its consequences Case study: Enron What did it achieve? Why did it fail? Long-term lessons Basics of traded energy Physicals: Spot markets Financials: Forwards, futures, derivatives Financial settlement & financial equivalence; EFP Market-based valuation; MTM as the bedrock of risk measurement Price formation in energy Extreme characteristics of energy prices: Volatility and price shifts Modelling spot prices in oil, gas & power Understanding & modelling negative prices Characteristics & behaviours of forward prices Interpreting forward curves: contango, & backwardation Contrasting forward curves and forecasts: A vital distinction Case study: Negative prices in German spot electricity market Case study: Extreme events in UK forward markets Day 2 Energy value chains: from difficult to ultra-difficult Coal Oil; WTI & the Brent complex Gas pipelines, LNG & hubs Power grids, pools & exchanges Emissions The unique and enduring characteristics of energy Consequences for market models 'Real options' in energy and energy contracts Unconventional basis differentials in energy Prevalence of trading in complex spreads Consequences for energy risk Understanding derivatives in energy: the pathway to effective risk management The deconstruction theorem Deconstructing energy transactions Analytic tools: using block-and-arrow diagrams & pay-off diagrams Analysing energy assets as call options on spreads Replicating assets; virtual & synthetic products Structured products Day 3 Risk in energy: more different risks, and more extreme 'Conventional' risk classes: Price, liquidity, basis, credit Volumetric risk – an almost unique challenge Additional basis risks in energy Market illiquidity & systemic risk in energy Case study: Centrica Framing business strategies for changing market conditions Risk measurement Sources and use of best practices Marking to market (MTM) Exposure: the crucial role and difficulties of measuring delta Options and the 'greeks' Rrisk reporting Value at risk The 'At Risk' concept and best practices techniques Calculation, methods, uses, limitations and interpretation of VaR Risk-adjusting methodologies: RAROC, and costing risk Other at-risk applications in energy Basics of risk management theory The 3 paradigms of financial risk management Pragmatic & operational risk management The 'cost of risk', risk capital and risk limits Integrating the theory and tools of risk management Day 4 Market risk management Risk management challenges for energy producers, generators, utilities and consumers Practical guidelines for energy risk management Credit risk management Best Practices for deployment of the RM paradigms in credit risk Stress testing & scenario building Using best practices after the financial crisis Principles for stress testing and reverse stress-testing in energy Extreme value theory Structuring scenarios for stress testing Integrating risk management across the enterprise Risk management for complex energy portfolios Governance for risk management Identifying and capturing value in assets and positions: trading around assets Optimising portfolios using risk management precepts Practical requirements for executing risk management strategies Case study: Enron (2) How did Enron solve the practical new challenges of energy RM? Lessons of Enron for integrated energy risk management Course summary and close