Course description
North American Gas and Power Trading and Risk Management is a three-day instructor-led energy course presented by the energy training experts at Mennta Energy Solutions.
This highly interactive three-day course will expose delegates to North American gas and power trading and risk management through real-life case studies, team trading simulations and engaging discussions.
The course will enable participants to gain a practical working knowledge of gas and power market drivers, main players and common traded instruments. Delegates will gain a practical understanding of the various dimensions of risk in gas and power markets and the various tools to manage and transfer those risks.
We will present new approaches to hedge energy exposures with derivatives as well as useful techniques to unbundle gas and power structures in long term contracts and physical assets. Particular emphasis is placed on the use of derivatives as well as physical assets and contracts to manage price, credit, volumetric, and operations risk. A new section covers regulatory risk management and compliance for energy trading operations and case studies with lessons learnt from recent market manipulation cases.
Numerous case studies and trading simulations are presented throughout the courses, with particular emphasis on the interpretation and use of trading and risk management concepts introduced in real-life examples. Delegate participation and group discussion is highly encouraged.
The trading simulation will provide an opportunity for delegates to use the main hedging instruments as well as take advantage of market views as a response to changes in gas and power market conditions. Delegates will execute their own trading strategy and will calculate and monitor their own P/L, adjust their hedge book, as well as keep positions within limits such as volumetric, stop losses, VaR and Stress tests.
Please note: a laptop and Excel version 2007 or later is required in order to engage in market data.
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Suitability
- Energy Traders and Marketers
- Energy Analysts
- Gas and Power Utilities staff
- Power and Fuel purchasing managers<
- End-users of derivatives in corporations
- Market Risk Managers
- Credit Risk Analysts
- Risk consultants
- Risk and Audit Committee Members
- CFOs and Treasury Managers
- Finance department personnel
- Compliance and Internal Audit
- Middle and Back-Office Personnel
- Government agencies
Suitability
- Energy Traders and Marketers
- Energy Analysts
- Gas and Power Utilities staff
- Power and Fuel purchasing managers<
- End-users of derivatives in corporations
- Market Risk Managers
- Credit Risk Analysts
- Risk consultants
- Risk and Audit Committee Members
- CFOs and Treasury Managers
- Finance department personnel
- Compliance and Internal Audit
- Middle and Back-Office Personnel
- Government agencies
Content
101: Overview of Gas and Power Markets (I): Main players, market structure, and drivers
• Overview of the Physical and Financial Gas and Power Markets
• Market Hubs, Exchanges and OTC markets
• Risk dimensions: Price, basis, volume, regulation, weather, operations
• Long or short? Volumetric and Financial Considerations
• How are gas and power bought and sold?
• Gas markets: Supply and demand drivers
• Power markets: Supply and demand drivers
• Impact of increasing renewable penetration on power and gas markets
• Case Study: Power and Gas Market response to supply and demand shocks
102: Overview of Gas and Power Markets (II): Spot Prices, Basis, Forward Curves
• Spot and Forward Prices for Gas and Power
• Forward curve analysis for gas and power markets
• Case study: Forward curves vs. Price Forecasts
• Shaping the forward curve: Bullets, Trading Packages and Shaping Factors
• Dealing with illiquid hubs and long term maturities
• Understanding energy price behavior and its volatility structure
103: Gas and Power Physical and Financial Instruments (I): Physical Contracts and Linear Instruments
• Physical purchase and sale contracts: Fixed Price, Index Price and Basis Deals
• Main Types of Derivatives: Futures, Forwards, Swaps and Options
• Exchange-based and OTC trading: Futures vs. Forwards. NYMEX ‘look-alike’ Forwards
• Open Interest, Bid-ask Spreads and Volume
• Clearing, collateral and margin issues
• Swaps (Fixed-for-Floating, Index, Swing), Basis Swaps
• Hedging Physical Purchases and Sales with Forward and Swaps
• Case Study: Hedging seasonal production with a Strip of Futures
104: Gas and Power Physical and Financial Instruments (II) - Options
• Options and Strips of Options
• Using Energy Options: Hedging and Speculation
• Options types and payoffs
• Average Price (Asian) Options
• Understanding optionality and contract components
• Implied price and implied volatility views in option strategies
• Case Study: Gas Hedging with Swaps vs. Options
• Case Study: Daily Options vs. European Options vs. Asian Options
• Case study: Optionsellers.com and the risk of selling options
105: Mark to Market, P/L and Position management
• Front, Middle and Back Office
• Mark to market vs. Mark to Model
• Bid-ask spreads in Gas and Power transactions
• Introducing the Liquidity Dimension
• Setting up reserves for illiquid positions
• Profit and Loss decomposition for a trading book
• Case study: Pricing a Natural Gas swap. Step by step calculations
• Case Study: Assigning liquidity levels to an energy derivatives book
201: Trading Strategy and Technical Analysis
• Trading Psychology and Technical Analysis
• Line Charts, Bar, and Candlestick Charts
• Identifying Trends, Support, Resistance
• Moving Averages, Oscillators, Divergence and Convergence Indicators
• Integrating Fundamental and Technical Analysis
• Backtesting Trading Models
• Trading psychology and behavioral finance. Common trading and hedging biases
202: Market and liquidity Risk Management (I)
• Market risk measurement and reporting
• Understanding and interpreting “at-Risk” measures:
• Value at Risk, Earnings at Risk (EaR), Cash Flow at Risk (CFaR)
• Sensitivity analysis and Stress Tests
• Market Liquidity vs. Funding Liquidity Risk
203: Hedging Strategy and Key Risk Indicators (KRI)
• Hedging and Trading Philosophy and Policy
• Tenor and Volume Decisions
• Key dimensions in hedging: Market, Credit, Liquidity, Accounting, Regret
• Common hedging mistakes
• Case study: Alternative hedging programmes: Pros and Cons
• Trading Limits: Stop Loss, VaR/EaR limits, Volumetric and Counterparty Limits
• Risk adjusted performance (RAROC)
204: Gas and Power Physical and Financial Instruments (III): Physical Assets and Contracts as Real Options
• Physical Assets as Real Options
• Using basis swaps to fix prices; hedge transportation and transmission
• Pipeline capacity
• Natural Gas Storage and Calendar Spread Strategies
• Optimization based on Intrinsic Value
• Re-optimization
• Battery storage
• Monetization of Real Options
205: Gas and Power Physical and Financial Instruments (IV): Cross-Commodity Instruments and Real Options
• Hedging Physical Asset and Contractual exposures
• Spark Spreads and Heat Rate Forwards and Options
• Case Study: Generation Assets as real options
• Modeling renewable generation: Solar and Wind
• Case Study: Monetization of the optionality in Generation Assets
301: Market and Liquidity Risk Management (II)
• Position Management for portfolios with assets, physical contracts and financial instruments
• Exposure Maps and Front-month Equivalent positions
• Overview of main VaR methodologies
• How to Game “at- Risk” limits
• Backtesting market risk models
• Case Study: Analysis of Amaranth’s Natural Gas calendar spread trading strategy
302: Greeks, Option Strategies and Volatility
• Zero Cost Collars and Three Way Collars
• Extendable and Participating Swaps
• Energy option ‘Greeks’: uses and limitations
• Case Study: Explaining P&L changes with “Greeks”
• Straddles and delta-neutral strategies
• Tips for negotiating with derivatives counterparties
• Common Derivatives Pricing mistakes and how to avoid them.
• Implied volatilities, Volatility skews and volatility surfaces
• Case Study: Bank of Montreal Natural Gas Options Book
303: Volumetric Risk and Weather derivatives
• Key sources of volume risk in power markets
• Volumetric risk and Operational Risk:
• Unplanned Outage Insurance
• Case study: Hedging storage contracts and operational risk
• Possible problems when hedging physical exposures with financial forwards: Plant outages, Plants not dispatched.
• Hedging Volumetric Risk: Weather Derivatives and Multiple-trigger contracts
• Prepayment deals and force majeure
304: Counterparty Risk Analysis
• Key issues in credit risk management for Gas and Power Markets
• ISDA agreements: Netting, Collateral and Credit Triggers
• Other Credit Risk mitigation tools: Prepayments, Letters of Credit, Credit derivatives
• Novation and OTC Clearing
• Market Based Default Probabilities: Bond Markets and Credit Default Swaps
• Current Exposure and Walk Forward Analysis of Credit Exposures
• Credit Exposures and Potential Future Exposure Modeling
• Case study: PG&E bankruptcy
305: Regulatory Risk Management and Compliance (NEW)
• Regulatory risk management and compliance in energy physical and financial trading
• Identifying potential regulatory risk ‘red flags’
• A practical framework for analysis of market manipulation
• Case study: FERC enforcement case against BP for alleged market manipulation
• FERC market manipulation cases against JP Morgan and Barclays Bank
• Proactive compliance monitoring techniques
• Effective exception reporting and intervention