2019 Erp Lobs 030419 PDF

ENERGY RISK PROFESSIONAL
2019
ERP
Learning
®
Objectives
2019 Energy Risk Professional (ERP®) Learning Objectives
2019 Energy Risk Professional (ERP®)

Learning Objectives
ENERGY RISK PROFESSIONAL Each year, certified ERPs from a variety of disciplines
(ERP®) PROGRAM and geographies are invited by GARP to participate
The Global Association of Risk Professionals (GARP) in the exam development process. GARP’s dual
created the ERP Certification Program for energy collaboration with EOC members and its certified
market practitioners seeking a professional designation ERP alumni ensures that the ERP Exam and curriculum
that assesses and validates their knowledge and remain consistent with current industry practice.
skills. Certified ERPs can apply knowledge about the
production, transportation, and storage of physical 2019 ERP LEARNING OBJECTIVES
energy commodities; structure and practical application AND STUDY GUIDE
of energy derivatives; assessment of energy market data The learning objectives are a valuable exam
and price modeling; and identification, measurement, development tool that candidates should reference,
and management of risk in the energy industry. along with the ERP Study Guide, when preparing for
the Exam. Each exam question is developed from
ERP CURRICULUM and directly references a specific reading and related
Development of the ERP Exam curriculum is guided by learning objective. Candidates are expected to be
GARP’s Energy Oversight Committee (EOC), a panel familiar with and able to apply the learning objectives
of senior practitioners and academics with practical on the ERP Exam Part I and Part II, respectively.
energy market experience and risk management
expertise. The exam topics and required readings 2019 ERP STUDY GUIDE CHANGES
listed in the ERP Study Guide and Learning Objectives Returning 2018 ERP candidates should also review
(LOBs) are updated annually in conjunction with the the 2019 ERP Study Guide Changes. This document
EOC to ensure the ERP Exam remains a timely and summarizes all readings removed from the 2018
accurate assessment of the knowledge and skills curriculum and includes new readings added for 2019.
required of energy market and risk professionals.
COMMONLY-USED CONTRACT
ERP EXAM SPECIFICATIONS
The ERP Part I and Part II Exams evaluate a Exchange-traded energy commodity futures
candidate’s knowledge of key concepts aligned and option contracts are typically transacted in
with the topics below: standardized lot sizes. Unless otherwise noted,
exam questions will assume the following standard
ERP EXAM PART I volumetric terms:
• Crude Oil and Refined Products Markets
• Natural Gas and Coal Markets • Crude Oil: 1,000 barrels (equal to 42,000 gallons)
• LNG Market Fundamentals per contract
• Electricity Markets (includes Renewables • Gasoline futures: 42,000 gallons per contract
Generation) • ULSD futures: 42,000 gallons per contract
• Gasoil (diesel) futures: 100 metric tons (MT)
ERP EXAM PART II per contract
• Measure and Model Market Risk • Natural gas (Henry Hub) futures: 10,000 MMBtu
• Measure and Model Credit/Liquidity Risk per contract
• Apply Financial Energy Products to Manage Risk
• Risk Governance, ERM, and Capital Planning
© 2018 Global Association of Risk Professionals garp.org/erp 1

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, Insurance, 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)

ERP EXAM
PART I

2019 Energy Risk Professional (ERP®) Learning Objectives Exam Part I
ERP Exam Part I

ERP EXAM PART I
The four-hour ERP Exam Part I consists of 80 multiple-choice questions. 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 30% 24 questions

Natural Gas and Coal Markets 25% 20 questions
LNG Market Fundamentals 10% 8 questions
Electricity Markets (includes Renewables Generation) 35% 28 questions
ERP Exam Part I Total 100% 80 questions

Crude Oil Markets and Refined Products

PART I EXAM WEIGHT | 30%
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, blending, and other refining processes
• Refinery complexity
• Refining margins and their determinants
• Finished products and specifications

READINGS FOR CRUDE OIL MARKETS AND REFINED PRODUCTS | 24 QUESTIONS

ERP EXAM PART I
1. Andrew Inkpen and Michael H. Moffett, The Global Oil and Gas Industry: Management, Strategy and
Finance. (Tulsa, OK: PennWell Books, 2011).
Chapter 3. Access, Leasing, and Exploration
• Summarize the process of accessing new reserves and outline the steps involved in developing a
petroleum project.
• Explain how key subsurface geological structures affect oil and gas production, e.g., permeability
versus porosity.
• Identify the ownership of subsurface mineral and resource rights based on jurisdiction and market assumptions.
• Compare the fiscal regimes used in international petroleum agreements.
• Describe the typical components of a lease agreement and methods used to establish royalty payments.
• Compare and contrast the physical and economic characteristics associated with various reserve classifications
(e.g., proved, developed, undeveloped, P90), including conventional and unconventional reserves.
• Define reserve replacement and reserve life; determine their values given a set of market assumptions.
• Describe the effect of various field value assumptions on bidding strategies in lease auctions.
Chapter 4. Developing Oil and Gas Projects

• Identify and describe the various steps and associated risk elements that may be considered in taking an
upstream project from concept to completion.
• Explain and apply the concept of unitization in the creation of joint development zones.
• Calculate and interpret relative project economics using the following metrics: NPV, IRR, WACC, and risk-
adjusted return.
• Classify pre-completion, post-completion, and macroeconomic risks and explain their impact on project
development decisions.
• Describe potential risk exposures related to the use of contractors and subcontractors in petroleum projects.
• Identify and calculate key elements of cash flow in an oil exploration and development project and their
determinants, including capital investment, wellhead price, gross revenue, and operating expenditures, as well
as simple royalty and tax payments.
Chapter 5. Production of Oil and Gas Products

• Explain how specific upstream costs impact an energy company’s earnings, and why production costs may
vary by location.
• Assess the economic performance of an oil well, including operating profitability, break-even price, working
interest, and tax allocations.
• Classify and describe the costs and factors associated with the production of an oil field, with focus on
primary, secondary, and tertiary recovery methods.
• Assess the terms and conditions of a partnership management agreement; understand how duties are shared
and disputes are settled between parties involved.
• Describe the nature of relationships, incentives, and potential conflicts among various stakeholders along the
oil and gas supply chain.
• Identify and assess political risks that impact crude oil production decisions.

Chapter 10. The Market for Crude Oil

ERP EXAM PART I
• Explain the evolution of crude oil pricing in recent decades due to market and political forces.
• Differentiate between various grades of crude oil based on chemical composition and physical
characteristics that include sulfur content, gravity, and viscosity.
• Distinguish between various global benchmark crudes and understand the role of benchmark prices in
the global crude oil market.
• Distinguish between spot, forward, and futures transactions in the crude oil markets.
• Describe the factors that affect a crude oil futures contract and determine its value given a set of
market assumptions.
Chapter 12. Refining

• Compare the operational and economic characteristics of independent refiners and integrated oil companies.
• Describe steps in the physical refining process and identify the end-products typically produced.
• Assess the economics of refinery operations including the relationship between the cost of crude oil and
refinery margins; describe the impact of a refinery’s complexity on its optimal product mix and profit margin.
• Calculate and interpret results of a crack spread given input and output prices.
• Explain crack spread volatility, input and finished product values, technical value, netback value, netback
margin, gross margins, and net refining margins.
• Identify and describe the factors affecting refining economics, including location, technology, environmental
mandates, capacity utilization, scheduling, and refinery complexity/efficiency.
2. The International Council on Clean Transportation, An Introduction to Petroleum Refining and the
Production of Ultra Low Sulfur Gasoline and Diesel Fuel. (MathPro, Oct 2011).*
• Identify the major classes of refineries and explain the key characteristics that determine a refinery’s
product yield.
• Differentiate between various units of the refinery complex and the primary inputs (feedstock) and the
product outputs associated with each.
• Explain the refining process, including separation, distillation, conversion, blending and finishing, and
maintenance scheduling.
• Identify and describe key blending practices for standard gasoline and diesel blendstock, including the use
of ethanol.
• Explain why and how the sulfur content of gasoline is reduced in the refining process.
• Identify and describe the primary characteristics of refined product classifications including light distillates
(liquefied petroleum gas, gasoline, naphtha), middle distillates (kerosene, jet fuel, diesel fuel) and heavy
distillates and residuum (heavy fuel oil, lubricating oils, paraffin wax, asphalt/tar, petroleum coke).
3. Charlotte Wright, Fundamentals of Oil & Gas Accounting, 6th Edition. (Tulsa, OK: PennWell Books, 2017).
Chapter 15. Conveyances (to page 582)
• Define conveyances and the types of interests covered under a conveyance, including working interests,
royalty interests, production payment interests, and net profits interests.
• Describe the circumstances in which a farm-in or farm-out arrangement is used.
• Define the term sole risk, under what circumstances sole risk can arise, and its financial implications.
• Understand how a working interest may be sold to a third party; calculate the payouts distributed under a
working interest.
• Explain how working and nonworking interests are affected by pooling or unitization decisions and how the
interests are valued after pooling or unitization.
*This reading is freely available on the GARP website.

Chapter 17. Reserve Valuation

ERP EXAM PART I
• Understand the specific categories of information that must be included in the financial statements of oil and
gas companies.
• Describe and calculate the factors that make up the reserve life, reserve replacement, and net wells to gross
wells ratios.
• Calculate the reserve cost ratios and their application in the financial analyses of oil and gas companies.
• Explain why lifting costs per BOE is a popular performance indicator and how it is applied to depreciation,
depletion, and amortization calculations.
Chapter 18. Accounting for International Petroleum Operations

• Differentiate among the characteristics of various fiscal systems used in global petroleum contracts including
concessionary, contractual, and production sharing/service agreements.
• Calculate the economic revenue generated from various global petroleum contracts, given a set of inputs.
• Explain how profit oil is derived and how it impacts project economics.
• Illustrate the application of a joint operating agreement and describe the circumstances when it is used.
4. Vincent Kaminski, Energy Markets. (London, UK: Risk Books, 2012).

Chapter 16. Oil Transportation and Storage
• Identify classes of oil tankers; describe the transport characteristics, e.g., typical route and cargo specification
for each class of tanker.
• Describe and apply common types of charter contracts used for crude oil shipments (Incoterms).
• Calculate the cost of transporting a shipment of oil using the Worldscale pricing system.
• Explain the relative economics associated with pipeline, rail, tanker, and other transport methods.
• Describe how pipeline shipment times and unexpected disruptions in shipments can impact commodity
traders and oil consumers.
• Differentiate types of crude oil storage facilities, including above-ground, below-ground, tanker ship and
pipeline; explain how storage level reports are generated.
• Discuss the content and use of primary inventory storage reports produced by different agencies including
the EIA, IEA, and the JODI framework.
Chapter 17. Oil Pricing

• Understand the physical and financial characteristics of Brent, the role of dated Brent, the Brent complex, and
the use of a Brent CFD.
• Calculate and apply crude oil spreads or differentials.
• Explain the market factors that prompted the emergence of the Dubai-Oman benchmark and discuss the
issues associated with its adoption and operation.
• Identify and differentiate crudes referenced in global trade, such as: WTI, WTI Houston, Brent, Dubai, Urals,
Saudi Light, Bonny Light, and Maya.
• Identify global spot markets with active trade and benchmark prices, including Cushing/WTI, Brent,
and Dubai.
• Explain the differences between trade in spot and forward cargoes.
• Describe the relationship between inventories and how the cost of storage shapes the forecast of spot prices.
• Identify market fundamentals that drive changes in spreads of various types, including location spreads, and
quality spreads.

5. Owain Johnson, The Price Reporters. (London, UK: Routledge, 2018).

ERP EXAM PART I
Chapter 3. How Price Benchmarks Work

• Understand the rationale for using pricing benchmarks and the benefit in using benchmarks in petroleum
commodity transactions.
• Describe the rationale for using price reporting agency (PRA) assessments as pricing benchmarks.
• Explain why markets rarely switch PRA benchmarks and the steps taken to prevent benchmark
price manipulation.
• Identify and explain the usage of other types of benchmark prices, e.g., exchange benchmarks and official
selling prices).
Chapter 11. PRA Pricing Methodologies

• Understand the role of pricing methodology within PRAs and the trend towards transparency in methodology
in recent years.
• Explain the use of various types of panels by PRAs in establishing prices, including the key strengths and
weaknesses of the panel methodology.
• Describe the circumstances under which a volume-weighted average is most likely to be used and its relative
strengths and weaknesses when compared to the panel methodology.
• Define market-on-close (MOC) and explain its usage.
• Understand why a PRA may choose to adopt a hybrid methodology combining several different
methodologies to determine a price for a given market.
Chapter 12. Market-on-Close

• Describe, in technical terms, how the market-on-close (MOC) price assessment functions.
• Understand the use of incrementability in commodity trades.
• Explain the criticisms of the MOC methodology and identify the markets which do not use MOC.
Chapter 15. PRA and European Regulation

• Understand the rationale behind the implementation of European Benchmark Regulation and key
terminology, including LIBOR, MAR and REMIT.
• Explain how REMIT was designed to combat market manipulation in the natural gas and power sectors.
• Describe the challenges PRAs face from new European regulations, particularly as those regulations apply to
reporting requirements.
• Understand the potential impact to physical energy commodity markets from changes to MIFID II and EMIR;
discuss the broad consequences new European Benchmark Regulations have on the energy sector.
6. Incoterms 2010, Australian Customer and Border Protection Service (Australian Customer and Border
Protection Service, 2010).*
• Describe the risk profile associated with various Incoterms, including CIF, DDP, DAP, DES, EXW, FAS,
and FOB.
• Understand how a buyer or seller’s responsibility may increase or decrease, depending on the type of
Incoterm used in a shipping contract.

7. How Pipelines Make the Oil Market Work: Their Networks, Operation, and Regulation. (Allegro Energy
ERP EXAM PART I
Group, December 2001).*

• Describe how crude oil pipeline networks operate and are regulated; explain the scheduling and operational
challenges associated with balancing seasonal and regional consumption patterns.
• Calculate pipeline economics when given a set of market assumptions.
• Compare the relative economics, advantages, and disadvantages of transporting crude oil via waterborne
shipments, railroad tank cars, trucks, and pipelines.
• Understand inter-regional flows and how the oil market’s infrastructure moves oil from producing regions to
consuming regions.
• Explain the central role of hubs and understand how pipeline networks move products across the
United States.
8. Oil and Gas Exploration and Production Lending, (Office of the Comptroller of the Currency, March 2016).*
• Identify risk factors associated with oil and gas production lending and explain how these risks can arise.
• Explain guidelines for the governance of production lending operations, including underwriting, financial
analysis and valuation of collateral, assessment of engineering reports, and equipment.
• Explain guidelines and best practices for monitoring and documenting performance of a lending portfolio.
• Describe guidelines for assigning a rating to oil and gas production loans.

Natural Gas and Coal Markets


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
• NGLs and condensates
• Global natural gas markets and economic fundamentals
• Market dynamics and pricing
• Gas sales agreements and trading
• Transportation and storage economics
COAL
• Physical properties of coal
• Types of coal, units of measure, and heat content
• Benchmarks, contract specifications, and trading
• Global coal markets and economic fundamentals
• Transportation

READINGS FOR NATURAL GAS AND COAL MARKETS | 20 QUESTIONS

ERP EXAM PART I
1. Vincent Kaminski, Managing Energy Price Risk, 4th Edition (London, UK: Risk Books, 2016).
Chapter 12. Coal
• Differentiate between various types of coal and the physical properties associated with each type of coal
used in different regions of the world.
• Describe the features of popular coal contracts, including exchange-traded and OTC contracts.
• Compare the economics of coal-fired and natural gas-fired power plants; assess the economic motivation for
fuel-switching decisions under various scenarios.
• Explain the methods used in the physical transportation of coal around the world.
• Identify global coal benchmarks, contract specifications, and key global markets.
2. Jane Nakano and Sarah Ladislaw, A Tale of Three Coal Markets: US, China, and India. (Center for
Strategic & International Studies, 2018).*
• Compare recent trends and market dynamics in the U.S., Chinese, and Indian coal markets.
• Explain the impact of local market factors, such as regulations, trade dynamics, and economic trends, on the
U.S., Indian, and Chinese coal markets.
3. Richard Lassander and Glen Swindle, Natural Gas Trading in North America. (Princeton, NJ: Scoville Risk
Partners, 2018).
Chapter 3. Natural Gas Markets
• Understand the types of market participants who constitute “natural” long and shorts.
• Describe the risk exposure faced by various market participants.
• Explain the factors affecting natural gas prices in the forward markets, including the impact of seasonality.
• Describe the composition of a typical natural gas trading desk, including the following elements: origination,
regional desks, and exchange desks.
• Understand how a typical natural gas transaction is handled by a natural gas trading desk.
Chapter 4. Supply and Demand

• Interpret a natural gas production chart and understand the factors that can impact natural gas production.
• Understand how rig counts are used as a metric to analyze natural gas markets and the criticism of
this method.
• Explain why wells may be categorized as “drilled but uncompleted” (DUC).
• Define the following natural gas production categories: associated, non-associated, condensate, and
unconventional; differentiate between wet and dry natural gas production.
• Explain the factors that have led to a steady natural gas production surplus in North America since 2010.
• Identify the primary drivers of natural gas consumption and explain the dynamic between natural gas and
coal consumption in the power sector.
• Understand the role seasonality plays both in consumption trends and in the utilization of natural gas
storage facilities.

Chapter 5. Storage and Transport

ERP EXAM PART I
• Understand why storage capacity is needed for the natural gas market to function effectively.
• Differentiate between the types of natural gas storage facilities and identify key characteristics, such as: base
gas percentages and injection/withdrawal rates, for each.
• Understand the difference between firm and interruptible capacity on a pipeline network, and the process
and associated costs to secure access to a pipeline for shipment.
• Describe the process for scheduling a gas day on a pipeline, including the procedure for dealing with cuts and
balancing decisions.
• Explain the effect shale gas production has had on established natural gas supply and demand trends in the
North American market.
Chapter 8. Basis Markets (pages 158-176 only)

• Understand how the concept of basis is typically applied in the natural gas markets.
• Describe the operation of a pipeline network, including how charges incurred in pipeline shipments affect
natural gas price determination.
• Explain the role temperature plays in natural gas storage, shipment, and price formation, including the
occurrence of price spikes.
• Understand how supply imbalances affect local natural gas pricing.
4. William Leffler, Natural Gas Liquids: A Non-Technical Guide. (Tulsa, OK: PennWell, 2014).
Chapter 6. Refineries and the Unnatural Gas Liquids
• Explain how the various units within a refinery complex produce NGLs and which NGLs are produced by a
specific unit.
• Describe how each type of NGL is applied, both within the refinery, and by external consumers.
• Understand why some NGLs are more volatile than others and the steps a refinery will take to safely
manage them.
Chapter 7. Logistics
• Understand the basic methods of transporting NGLs by land and the common sizes of transportation vehicles.
• Explain the different methods for moving NGLs by pipeline, including batch shipments, and the challenges
involved with pipeline shipment of NGLs.
• Understand how NGLs are stored in both above-ground and underground facilities, and the rationale for the
use of each.
Chapter 8. NGL Markets - Petrochemicals

• Discuss the operation of an olefin plant and how the product slate is affected by the feedstock used by
the plant.
• Understand the rationale for cracking NGLs and how the by-products from the cracking process are
typically used.
• Understand how feedstocks are valued and how producers may receive credits for the production of NGL
by-products.
• Evaluate a slate of feedstocks for a cracking plant to determine which feedstock has the greatest
economic value.

Chapter 9. NGL Markets - Fuels

ERP EXAM PART I
• Understand the commercial uses for propane and the circumstances in which it competes with electricity.
• Describe the relative advantages and disadvantages of the use of propane as a motor vehicle fuel.
• Explain the rationale for blending butane into gasoline.
• Describe the situations in which gasoline is used as a diluent.
5. Anthony J. Melling, Natural Gas Pricing and its Future: Europe as the Battleground. (Carnegie Endowment,
2010).*
Chapter 1. The Development of European Gas Contracting
• Describe the structure of natural gas spot markets in Europe.
• Explain why netback pricing is used and calculate a netback price from a set of inputs.
• Explain the mechanics of clauses commonly found in European gas sales agreements, such as price review
and capacity charges.
Chapter 2. The Dynamics Between Oil-Indexed and Spot Prices

• Understand the role the German Border Price and National Balancing Point play in establishing natural gas
prices for Europe and how the two prices interact with each other.
• Describe the market response when natural gas supplies are in balance in a period of scarcity, or in a period of
oversupply.
• Discuss how technological developments in the power generation sector have affected the price of natural
gas in Europe.
• Understand the risks associated with negotiating pricing terms in natural gas contracts or the use of price
reopener clauses.
Appendix. Key Terms of Long-Term Oil-Indexed Take-or-Pay Contracts

• Describe and understand the use of contractual terms frequently contained in a gas sales agreement,
including take-or-pay obligations and nominations.
• Explain and calculate annual contract quantity clauses typically found in a European gas sales agreement,
including minimum bill and take-or-pay.
• Describe and evaluate the operational and economic implications of a take-or-pay clause to consumers.
• Explain the role of a make-up bank and understand how carry forward quantities affect the economics of a
gas sales agreement.
• Understand the application of and clauses covered by a price reopener in a gas sales agreement.
6. Jonathan Stern and Howard Rogers, The Dynamics of a Liberalised European Gas Market – Key
Determinants of Hub Prices, and Roles and Risks of Major Players. (Oxford Energy, December 2014).
(Sections 1.1 – 1.4 only).*
• Compare the price evolution and historical patterns of European wholesale natural gas prices to
oil-indexed prices.
• Explain factors driving the change from long-term contracts to hub-based trading and the steps taken by
some market participants to maintain oil-index pricing methods.
• Explain why prices among European hubs have diverged during the past few years.
• Describe the origin of natural gas supplies for European hubs, including price determinants for imported gas.

7. Chris Le Fevre, Gas Storage in Great Britain (Oxford Energy, January 2013).*
ERP EXAM PART I
Chapter 2. The Role of Gas Storage

• Describe the role of cushion gas in the operation of a natural gas storage facility and understand how cushion
gas affects the economics of a storage site.
• Differentiate between the major types of natural gas storage facilities and the strengths/weaknesses of each.
• Understand how system operators use storage facilities to provide volume flexibility to natural gas consumers.
• Explain how the market value of storage is determined within a liberalized natural gas market, including its
intrinsic and extrinsic value.
• Identify the broad categories of risk associated with natural gas storage, and how these risks are identified
and evaluated.

LNG Market Fundamentals


LNG MARKET FUNDAMENTALS INCLUDE THE FOLLOWING:
• LNG
• Market dynamics and pricing
• Contracts and shipping

READINGS FOR LNG MARKET FUNDAMENTALS | 8 QUESTIONS

ERP EXAM PART I
1. Michael D. Tusiani and Gordon Shearer, LNG: Fuel for a Changing World - A Nontechnical Guide, 2nd Edition
(Tulsa, OK: PennWell Books, 2016).
Chapter 12. LNG Project Formation
• Explain the basic operation of an LNG train and the steps in the LNG liquefaction process.
• Describe the contractual arrangements used in LNG production, sale, and transportation.
• Identify and describe the necessary components for the establishment and development of an LNG project;
understand the benefits and challenges of each.
• Assess the development and impact of market pricing mechanisms, including the use of the JCC, S-curve, and
Henry Hub-linked formulas.
• Describe the factors that mitigate risk in a project finance venture.
Chapter 13. Upstream Gas Supply Agreements

• Describe the three categories of business structures associated with an LNG sales agreement; understand the
benefits and drawbacks of each.
• Describe the qualitative and quantitative specifications typically found in a gas sales agreement.
• Explain the role of feed gas in an LNG sales agreement.
• Describe how LNG revenues are allocated along the LNG value chain and how the price of natural gas
is determined.
Chapter 14. LNG Sale and Purchase Agreements

• Describe the historic evolution of LNG contracts and how these developments have affected the methodology
used to price LNG.
• Explain long-term LNG contract buildup provisions and annual contract quantity adjustment provisions,
including volume flexibility, round up/round down provisions and excess quantities.
• Explain the different LNG pricing formulas typically used in Asia (S-curve) and Europe (weighted average);
understand and calculate the LNG price under each approach.
Chapter 15. LNG Tanker Contracts

• Define the terms bill of lading and charterparty; describe their practical application.
• Describe the typical phases of waterborne transportation and the variety of charterparty contracts utilized
in practice.
• Describe the considerations for owning and chartering an LNG tanker, given a set of market assumptions.
• Identify and describe key commercial terms in an LNG charterparty.

2. Perspectives on the Development of LNG Market Hubs in the Asia Pacific Region. (US Energy Information
Administration, March 2017)*
• Understand the physical, economic and regulatory factors needed for the creation of a fully-liquid natural gas
trading hub; describe the steps involved in the process of becoming a liquid hub.
• Explain the factors and stakeholders involved in establishing spot and futures prices at a natural gas
trading hub.
• Describe why LNG plays a much larger role in the development of a natural gas trading hub in Asia than it
does in the operation of European or North American natural gas hubs.
• Discuss how LNG transactions have typically been priced in Asia (including the JCC) and the factors
influencing the evolution of price discovery in Asia.
• Understand the steps governments in Asia are currently taking to liberalize their national natural gas markets,
including imported LNG.
• Identify the indexes actively tracking LNG prices in the Asia-Pacific region, and understand their basic price
formation formulas.

Electricity Markets
(includes Renewables Generation)

ELECTRICITY MARKETS (INCLUDES RENEWABLES GENERATION) INCLUDE
THE FOLLOWING:
• Physical properties of electricity

• Types of power generation (fossil fuel and renewable)
• Transmission and distribution
• Electricity market economics
• Base load, mid-merit, peak, and off-peak generation
• Capacity factor, heat rate, 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. real-time) and balancing markets
• Energy only vs. capacity markets
• Ancillary services
• Integration of renewable energy
• Global electricity markets and economic fundamentals
• Emission reduction programs and regulation

READINGS FOR ELECTRICITY MARKETS

ERP EXAM PART I
(INCLUDES RENEWABLES GENERATION) | 28 QUESTIONS
1. John E. Parsons, Introduction to Electricity Markets. (Jersey City, NJ: GARP, September 2017).
Chapter 1. Industry Overview
• Compare the roles of generation, transmission, and distribution in an electricity market.
• Identify different types of electricity markets and compare the roles of different market participants.
Chapter 2. Load
• Define load and explain the characteristics of electricity demand patterns across different time periods.
• Compare baseload generating units, intermediate units, and peaker plants.
• Calculate and interpret the load factor, and explain how the load factor can impact the cost of electricity.
• Interpret a load-duration curve and relate this curve to the economics of electricity generation.
• Describe the process of load forecasting and explain how to account for uncertainty when forecasting loads
over different time periods.
• Describe characteristics of electricity demand (including demand elasticity), construct a demand and supply
curve for electricity, and compare factors that influence short-run and long-run demand elasticity.
• Describe and calculate the VOLL.
• Compare electricity demand patterns for retail and industrial consumers.
• Compare different types of demand management and demand response programs.
Chapter 3. Generation
• Describe the operating characteristics of the following generation technologies: coal-fired; natural gas-fired,
including combustion turbine and combined cycle gas turbine units; oil-fired and dual-fired generation;
nuclear; hydropower; wind power; and solar, including PV and CSP.
• Calculate and relate the heat rate and the thermal efficiency of a generating plant, and explain factors that
can impact a plant’s heat rate and its thermal efficiency.
• Construct and interpret both a short-term and a long-term operating cost curve; explain factors that impact
the operating cost of a generating plant.
• Apply the heat rate and other cost factors to calculate the marginal cost of electricity for a generating plant.
• Compare and calculate the capacity factor and availability factor, and explain how these factors vary for
different types of generating plants.
• Describe the role of and challenges related to energy storage, and compare different energy
storage technologies.
Chapter 4. Transmission
• Describe the role of a transmission system and explain the challenges related to electricity transmission.
• Compare and explain how different factors can determine the capacity of a transmission line, including
thermal limits, voltage limits, and angle stability limits.
• Describe active and reactive power and understand their role in voltage control.
• Apply binding constraints to determine the capacity of a transmission line and describe considerations in
determining a safety margin for each type of limit.
• Describe Kirchhoff’s Laws and use these laws to calculate the feasibility of dispatching power on each line in a
hypothetical system with two generators and two transmission lines.
• Describe the role of ancillary services and compare characteristics of different types of ancillary services.
• Define losses in an electrical system and explain different ways in which losses can arise.

Chapter 5. Economic Optimization of the System

ERP EXAM PART I
• Describe a supply stack and explain the typical role of each type of electrical generator in the supply stack.
• Determine the marginal generator and the amount of electricity produced by each generator in a supply stack
under the following conditions:
-- Each generator has a constant marginal cost.
-- The marginal cost of each generator increases with the quantity of power produced.
-- Losses, transmission constraints, and dispatch constraints exist.
-- Define and calculate the system lambda for a supply stack.
• Summarize the process of unit commitment, and explain the impact of different types of dispatch constraints
on the unit commitment process.
• Describe resource adequacy and planning reserve margins, and relate these concepts to the decision to invest
in new generating capacity.
• Define, interpret, and calculate the levelized cost of electricity.
• Apply the levelized cost of electricity, the load duration curve, and the value of lost load in deciding which
types of incremental generating capacity to build in an existing power grid.
Chapter 6. Bilateral Contracts and Trading

• Describe the features of standardized bilateral contracts for firm power.
• Summarize the price discovery and assessment process when determining a bilateral contract price, and
describe the role of price reporting agencies in this process.
• Distinguish between spot and forward markets for electricity contracts.
• Describe and calculate the spark spread, dark spread, marginal (market) heat rate, and the cost of cover, and
apply these factors to calculate the profitability of an electricity contract.
• Describe PTRs and identify the benefits and drawbacks of PTRs.
• Explain how credit risk arises in a bilateral contract, and calculate the current exposure and potential future
exposure of an electricity contract.
• Describe features of different types of structured contracts, including PPAs, capacity sales, tolling
agreements, and full requirements contracts, and assess the risks of each contract.
• Calculate the intrinsic value of a tolling agreement and determine how the holder of a tolling agreement
would optimize its economic value under a given set of assumptions for a defined period of time.
• Construct and interpret a price-duration curve, and use a price-duration curve to determine the profitability
of different generators on a power grid.
• Define scarcity pricing and determine the system price during scarcity pricing hours.
• Apply the fuel cost pass-through method and the supply-stack model to determine the sensitivity of
electricity prices to changes in different market factors.
• Explain the distinctive characteristics of electricity prices, including price spikes, time-varying volatility, mean
reversion, and locational basis, and explain how each of these characteristics can arise.

Chapter 7. Centralized Markets for Energy

ERP EXAM PART I
• Explain how energy is traded over an exchange, including the use of an order book, and describe special
considerations that arise when the exchange acts as a central counterparty.
• Explain how power pools operate and explain how the SMP is determined within a power pool.
• Evaluate a complex bidding strategy, describe the motivations for complex bids, and determine the system
marginal price given a set of complex bids.
• Describe a multi-settlement market; summarize the steps a system operator can take to allocate generating
capacity at different time steps to meet forecast and actual demand.
• Explain interactions between the day-ahead market and the balancing market in a multi-settlement market.
• Compare a uniform price system, a zonal price system, and an LMP system.
• Explain how prices are determined at each node within an LMP system, and calculate the LMP at each node
and the congestion surplus.
Chapter 8. Other Electricity Markets

• Explain how ancillary service markets work; determine the output of each generator and the energy price in a
system in which some generators function as operating reserves.
• Describe the features of capacity markets, explain the motivation for capacity markets, and compare capacity
markets to energy-only markets.
• Determine if an electricity market is able to cover the cost of new capacity in the absence of capacity markets.
• Describe features of transmission markets and explain the impact of transmission constraints on the
energy price.
• In a region with two neighboring systems, determine the amount of power generated by each system and the
system energy price in each of the following situations:
-- The systems are disconnected.
-- An unconstrained transmission line exists.
-- A constrained transmission line exists.
• Compare PTRs and FTRs, and calculate the payoff of an FTR.
• Define and summarize the process of market coupling.
Chapter 9. Emissions Markets

• Describe harmful impacts to the environment that can result from power generation, and compare classes
of harmful emissions.
• Compare systems to price pollution from power generators, including emissions charges and emissions
markets (including cap-and-trade systems).
• Describe the impact of imposing a price on emissions on different types of power generators and on the
merit order.
• Apply the carbon emissions factor and calculate the marginal cost and profitability of a power generator
when emissions are priced.
• Describe and calculate the clean spark spread and the clean dark spread.
• Explain factors and emissions market elements that can impact the price of carbon allowances in a
cap-and-trade system.
• Explain policies and market structures designed to encourage production from non-carbon emitting generators.

2. Rafal Weron, Modeling and Forecasting Electricity Loads and Prices. (Hoboken, NJ: John Wiley &
ERP EXAM PART I
Sons, 2006).
Chapter 1. Complex Electricity Markets
• Compare and contrast the operating characteristics of power pools and power exchanges, particularly the
methodology used to establish a market clearing price in each.
• Define and explain the following electricity market terms: nodal, zonal, spot price, and balancing market.
• Differentiate between the types of products and contract types used when buying electricity as a commodity.
• Explain how prices are set in the UK electricity market, including the use of a CFD as a risk management tool.
• Explain how prices are set within the Nord Pool and the two-sided auction; calculate a clearing price from a
given set of inputs.
• Describe energy-only markets; understand the role of price spikes in energy-only markets.
• Identify the market design weaknesses that led to historical price spikes in the California electricity market.
3. Kenneth Skinner, Heat Rates, Spark Spreads and the Economics of Tolling Agreements. (December 2010).*
• Explain the economic rationale for entering into tolling agreements; identify the risks associated with such
transactions and associated key terms.
• Define heat rates and spark spreads; explain how the concepts of intrinsic and extrinsic value are applied in
tolling agreements.
• Distinguish between operating, economic, and market-implied heat rates.
• Calculate a breakeven fuel cost for a given power purchase price.
4. Quadrennial Technology Review 2015. Chapter 4: Technology Assessments – Solar Power Technologies.
(US Department of Energy, 2015).*
• Describe the key trends and objectives associated with solar technology development.
• Describe the typical cost structure of PV solar installations and summarize trends in global solar installations
and system costs over time.
• Compare and contrast PV and CSP technologies.
5. Rebecca Busby, Wind Power: The Industry Grows Up. (Tulsa, OK: PennWell Books, 2012).
Chapter 6. Wind Farms: Developing and Operating Wind Power Plants
• Identify and explain the key considerations and challenges associated with the development of a wind farm,
including site development, grid interconnection, and energy sales agreements and financing.
• Evaluate key factors that influence power production from a wind installation, including design class,
availability, and the capacity factor.
• Describe how government incentives, including production tax credits, renewable energy credits, and feed-in
tariffs affect the economics of wind and solar projects.
• Identify the economic and operational risks that are typically associated with development of a wind farm.
• Explain the monitoring process for wind power generation system performance and how unplanned
maintenance and operating shutdowns can be minimized.

6. International Renewable Energy Agency (IRENA), Renewable Energy Integration in Power Grids.
ERP EXAM PART I
(April 2015).*
• Explain how an increasing proportion of renewable power capacity on a power grid can impact the system’s
operation, reliability, transmission, and distribution.
• Describe the challenges and technological solutions associated with the integration of variable renewable
generation into a power grid.
• Identify global trends in renewable energy capacity and integration; explain how different countries have
addressed challenges related to variable energy integration.
7. The World Bank, Financing Renewable Energy: Options for Developing Financing Instruments Using Public
Funds. (April 2015).*
• Explain risks and challenges to the financing of renewable energy projects.
• Compare different financial instruments that can be used to finance renewable energy projects and describe
their advantages and disadvantages.
• Explain how different financial intermediaries can be used to provide funds to renewable project companies,
and describe the associated risks of using each type of intermediary.
8. KU Leuven Energy Institute, The Current Electricity Market Design in Europe. (2015).*
• Describe the key features of the Belgian energy-only electricity market, including the forward and future
market, the day-ahead market, the intraday market and the balancing market.
• Explain methods for the procurement and activation of reserves and the settlement of imbalances.
9. KU Leuven Energy Institute, Capacity Mechanisms. (2013).*

• Compare capacity markets to energy-only markets and explain how capacity mechanisms address the
challenges associated with energy-only markets.
• Explain the advantages and disadvantages of capacity payments.
• Describe the advantages and disadvantages of various quantity-based capacity mechanisms.
10. KU Leuven Energy Institute, Negative Electricity Market Prices. (2014).*

• Explain how negative electricity prices can arise in day-ahead, intraday, and balancing markets.
• Describe the impact of renewable generation on electricity prices and the potential for negative electricity prices.
• Identify potential solutions that can reduce the frequency of negative electricity prices.
11. KU Leuven Energy Institute, Storage Technologies for the Power System. (2014).*
• Describe the primary drivers behind the adaptation of storage technologies.
• Compare different electricity storage technologies and assess the viability of each.
12. KU Leuven Energy Institute, Cross-Border Electricity Trading: Towards Flow-Based Market Coupling.
(2015).*
• Understand how electricity is traded on a cross-border basis.
• Differentiate between the available transfer capacity and the flow-based approach used to determine cross-
border trading volumes, and describe advantages and disadvantages of each approach.
• Understand how market coupling impacts electricity markets, including typical implementation challenges.

13. German Federal Ministry for the Environment, Emissions Trading Basic Principles and Experiences in
ERP EXAM PART I
Europe and Germany (November 2016).*

• Explain the mechanics of an ETS and describe potential benefits of implementing an ETS.
• Summarize key considerations to be made when implementing an ETS, including setting the cap, determining
scope and coverage, determining the allocation of allowances, and monitoring, verifying, and enforcing
the ETS.
• Compare flexibility provisions and market stability measures that can be included in an ETS.
• Describe the structure of an emissions trading market, including the roles of different participants.
14. World Economic Forum, The Future of Electricity New Technologies Transforming the Grid Edge (March
2017).*
• Describe the opportunities provided by the increasing adoption of electric vehicles and digital smart grid
technologies, and challenges to more widespread adoption of these technologies.
• Compare distributed generation, distributed storage, energy efficiency, and demand response; describe
their impact of each technology on electricity demand, and explain challenges to their implementation.
• Explain and assess market design structures designed to encourage the integration of distributed
energy resources.
• Explain challenges in developing policies, necessary infrastructure, and customer business models to support
distributed generation and digital energy technologies.

ERP EXAM
PART II

2019 Energy Risk Professional (ERP®) Learning Objectives Exam Part II
ERP Exam Part II

ERP EXAM PART II
The four-hour ERP Exam Part II consists of 60 multiple choice questions. The exam structure has been designed in
conjunction with the EOC to assess learning outcomes associated with financial energy products; probability, statistics,
data analysis and energy price modeling; and the identification, measurement, and management of energy-related
market, counterparty credit, and operational risks, based on the following topics and weights:
Measure and Model Market Risk 30% 18 questions

Measure and Model Credit/Liquidity Risk 30% 18 questions
Apply Financial Energy Products to Manage Risk 25% 15 questions
Risk Governance, ERM, and Capital Planning 15% 9 questions
ERP Exam Part II Total 100% 60 questions

Measure and Model Market Risk

PART II EXAM WEIGHT | 30%

MEASURE AND MODEL MARKET RISK INCLUDE THE FOLLOWING:
• Value-at-Risk (VaR) and other risk measures

• Liquidity risk and liquidity-adjusted VaR
• Expected shortfall
• Risk metrics associated with option contracts (“Greeks”)
• Delta-gamma hedging
• 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
• Forecasting electricity demand
• Model risk management

READINGS FOR MEASURE AND MODEL MARKET RISK | 18 QUESTIONS

ERP EXAM PART II
1. Michael Miller, Mathematics and Statistics for Financial Risk Management, 2nd Edition. (Hoboken, NJ: John
Wiley & Sons, Inc., 2013).
Chapter 2. Probabilities
• Differentiate between continuous and discrete random variables.
• Distinguish between the probability density function, the cumulative distribution function, and the inverse
cumulative distribution function.
• Calculate the probability of an event given a discrete probability function.
• Differentiate between independent and mutually exclusive events.
• Calculate joint probability using a probability matrix.
• Define and differentiate between conditional and unconditional probabilities; calculate the conditional
probability using assumptions for a given scenario.
Chapter 3. Basic Statistics (Averages through Kurtosis sections only)

• Apply and interpret the mean, standard deviation, expected value, and variance of a random variable.
• Calculate and interpret the covariance and correlation between two random variables.
• Calculate the mean and variance for a set of variables.
• Define and interpret the minimum variance hedge ratio.
• Describe the four central moments of a statistical variable or distribution: mean, variance, skew, and kurtosis.
• Interpret the skew and kurtosis of a statistical distribution.
Chapter 4. Distributions (Parametric through Student’s t-distribution sections only)

• Identify the distinguishing characteristics of parametric and nonparametric distributions.
• Differentiate between the following distributions: uniform, Bernoulli, Binomial, Poisson, normal, standardized
normal, lognormal, chi-squared, and student’s t-distribution.
• Describe the properties of independent and identically distributed (i.i.d.) random variables.
• Describe and apply the Central Limit Theorem.
Chapter 10. Linear Regression Analysis

• Identify the distinguishing characteristics of a univariate regression model and the assumptions underlying
the model.
• Estimate the parameters of a univariate regression model and the coefficient of determination.
• Identify the additional distinguishing characteristics of a multivariate regression model and the assumptions
underlying the model.
• Estimate the parameters of a multivariate regression model, the coefficient of determination, and the F-test.
• Interpret and apply the parameters of a regression-based factor analysis and stress test.

2. John C. Hull, Risk Management and Financial Institutions, 5th Edition. (Hoboken, NJ: John Wiley & Sons,
ERP EXAM PART II
2015).
Chapter 8. How Traders Manage Risk
• Understand the market risk (Greeks) associated with linear and nonlinear financial products.
• Define delta hedging and explain its application in the immunization of market risk associated with linear and
nonlinear financial products.
• Construct a delta hedge for an option contract or portfolio of options; assess and rebalance a delta hedge for
a given set of price changes.
• Define gamma and explain the relationship between delta and gamma.
• Construct a gamma hedge; calculate the quantity of options necessary to make a portfolio gamma-neutral
and structure a delta-gamma hedge using a combination of options and the underlying asset.
• Define vega and construct a vega-neutral position; calculate the quantity of options necessary to make a
portfolio vega-neutral.
• Define theta and rho as they relate to individual options and option portfolios.
• Understand how dynamic hedging of delta, gamma, vega, theta, and rho is typically done in practice.
• Explain how an exotic option can be hedged and how scenario analysis can supplement monitoring Greek risks.
Chapter 10. Volatility

• Calculate the volatility of an asset return over various time periods.
• Distinguish the difference between volatility and implied volatility; define implied volatility and its importance
in option pricing.
• Interpret and apply the power law.
• Interpret and apply the EWMA and the GARCH (1,1) model to forecast volatility; assess the strength of the
aforementioned models.
• Define and interpret the volatility term structure.
Chapter 12. Value-at-Risk and Expected Shortfall

• Understand the parameters for a VaR calculation; identify the strengths and weaknesses of using VaR;
calculate VaR for a single position or a portfolio using different time horizons and confidence levels.
• Calculate the expected shortfall and differentiate between expected shortfall and VaR.
• Summarize the four conditions required for a risk measure to be coherent; explain why VaR is not a coherent
risk measure.
• Estimate the marginal VaR, component VaR, and incremental VaR for a given position in a portfolio or for a
potential addition to a portfolio.
• Understand the process of backtesting VaR and interpret results from backtesting a VaR model, including the
identification of exceptions and bunching.
Chapter 24. Liquidity Risk

• Describe market liquidity and identify factors that impact the liquidity of an asset and its liquidity trading risk.
• Understand how market liquidity can be measured using spreads; calculate the liquidation cost and liquidity
adjusted VaR of a position.
• Explain liquidity funding risk and identify and compare sources of liquidity for a financial institution.
• Identify factors that cause feedback loops in financial markets and explain how feedback loops can amplify
price dislocations and impact market liquidity.
• Understand how changes in leverage, investor sentiment, reserve requirements, regulation, and modeling
practices can impact market liquidity.

Chapter 25. Model Risk Management

ERP EXAM PART II
• Explain best practices for managing model risk in the development, calibration, and validation of a model, and
when using models provided by third-party vendors.
• Explain how model risk and poor risk governance contributed to the large financial losses in the London
Whale scenario and at Kiddler Peabody.
• Describe examples of financial assumptions and model building practices that can introduce model risk.
• Explain how model risk can arise when using the Black-Scholes model to value options and when models are
used for hedging purposes.
3. Les Clewlow and Chris Strickland, Energy Derivatives: Pricing and Risk Management. (Sydney, AUS: Lacima
Publications, 2000).
Chapter 2. Understanding and Analyzing Spot Prices
• Identify and describe characteristics associated with energy spot price behavior, including mean reversion,
jumps, and seasonality.
• Explain the weaknesses associated with using a Geometric Brownian Motion process to model energy prices.
• Modify assumptions used in the Black-Scholes Merton model to replicate the behavior of energy commodity
spot prices.
Chapter 3. Volatility Estimation in Energy Markets (Sections 3.1 and 3.2 only)
• Summarize the practical challenges of modeling energy price behavior.
• Estimate volatility for a set of price return data; scale volatility for a specific time horizon, and understand the
volatility term structure.
• Understand how implied volatility is derived, interpret a volatility smile and understand how it relates to
implied volatility.
Chapter 10. Value-at-Risk

• Describe limitations in applying VaR as a risk management tool for energy assets.
• Differentiate between the simple moving average and EWMA methods for calculating historical volatility.
• Understand how the decay factor affects output from an EWMA model; explain considerations for selecting
the decay factor.
• Calculate VaR for a two-security energy portfolio given the correlation coefficient between assets;
understand the relationship between correlation and VaR.
• Differentiate between delta VaR, delta-gamma VaR, historical simulations, and Monte Carlo simulations.
• Understand the methodologies for backtesting VaR.
4. Rafal Weron, Modeling and Forecasting Electricity Loads and Prices. (Hoboken, NJ: John Wiley & Sons,
2006).
Chapter 2. Stylized Facts of Electricity Loads and Prices (Sections 2.1-2.4 and 2.7 only)
• Explain why price spikes occur in electricity markets and describe their characteristics.
• Identify seasonal patterns in electricity prices and explain modeling approaches to test a series of price
returns for seasonal behavior.
• Explain methods to remove or decompose seasonal trends from a data series.

Chapter 3. Modeling and Forecasting Electricity Loads

ERP EXAM PART II
• Identify and describe factors that impact load patterns and that are used to create load forecasting models;
differentiate between statistical methods utilized in short-term load forecasting; explain how load forecasts
are applied.
• Compare, contrast, and apply the autoregressive, the moving average, and the autoregressive moving average
(ARMA) models.
• Explain how a time series analysis can be applied to forecast trends in market data.
• Describe time series analysis and the steps used to identify and apply a time series model, including
estimating model parameters, determining goodness of fit, and performing diagnostic tests to determine if a
model is appropriate.

Measure and Model Credit/Liquidity Risk


MEASURE AND MODEL CREDIT/LIQUIDITY RISK INCLUDE THE FOLLOWING:
LIQUIDITY RISK
• Liquidity risk management
• Liquidity stress testing
• Contingency funding planning
CREDIT AND COUNTERPARTY RISK

• Credit risk measurement
• Credit ratings and scoring
• Counterparty risk measurement and management
• Expected loss, loss given default, and probability of default
• Collateralization and netting agreements
• ISDA Master and Credit Support Annex
• Credit exposure metrics and exposure profiles
• Credit valuation adjustment (CVA)
• Country and sovereign risk metrics and management
• Political, economic, social, and security risks
• Financial market indicators

READINGS FOR MEASURE AND MODEL CREDIT/LIQUIDITY RISK | 18 QUESTIONS

ERP EXAM PART II
1. Jon Gregory, The xVA Challenge: Counterparty Credit Risk, Funding, Collateral and Capital, 3rd Edition.
(Hoboken, NJ: John Wiley & Sons, 2015).
Chapter 4. Counterparty Risk (Sections 4.1 to 4.3 only)
• Differentiate between counterparty risk and lending risk, and identify situations where counterparty risk
can arise.
• Differentiate between settlement risk and pre-settlement risk.
• Define credit exposure, credit migration, recovery, mark-to-market, replacement cost, default probability, loss
given default, and the recovery rate.
• Identify and describe the different tools available to manage or mitigate counterparty risk.
• Compare the use of CVA and credit limits in managing and quantifying counterparty risk.
Chapter 5. Netting, Close-Out, and Related Aspects

• Describe and apply netting and close-out procedures—including multilateral netting—to reduce counterparty
credit exposures.
• Explain the purpose of an ISDA master agreement and identify standard terms found in an ISDA agreement.
• Describe the mechanics of termination provisions and explain their advantages and disadvantages.
Chapter 6. Collateral (Sections 6.1 to 6.6 only)

• Define collateralization and explain the mechanics of the collateralization process.
• Identify standard terms found in a CSA and collateralization agreement, and differentiate between a two-way
and one-way CSA.
• Define and apply margin call frequency, initial and variation margin, thresholds, minimum transfer amounts,
rounding, haircuts, re-hypothecation, and segregation of collateral.
• Explain how market risk, operational risk, and liquidity risk—including funding liquidity risk—can arise
through collateralization.
Chapter 7. Credit Exposure and Funding (Sections 7.1 to 7.4 only)

• Describe and interpret frequently used metrics to quantify credit exposure, including expected future value,
expected exposure, potential future exposure, expected positive exposure, negative exposure, maximum
exposure, and effective expected positive exposure.
• Explain how counterparty credit exposures arise, and compare credit exposure to VaR; identify typical credit
exposure profiles for swaps, options, and credit derivatives.
• Explain how payment frequencies and exercise dates affect the exposure profile of various securities.
• Identify factors that impact the credit exposure profile, and summarize the impact of netting, collateral, and
correlation on exposure profiles.
Chapter 14. Credit Value Adjustment (Sections 14.1 to 14.2.8 only)

• Apply and calculate CVA, including the process for estimating the CVA as an annual spread.
Chapter 17. Wrong-Way Risk (sections 17.1 to 17.2.4 only)

• Compare wrong-way risk with right-way risk.
• Describe situations where wrong-way risk can arise and explain challenges in modeling wrong-way risk.

Markus Burger, Bernhard Graeber, and Gero Schindlmayr, Managing Energy Risk: An Integrated View on
ERP EXAM PART II
Power and Other Energy Markets, 2nd Edition. (Hoboken, NJ: John Wiley & Sons, 2014).
Chapter 3. Risk Management (Section 3.4 Credit Risk only)
• Differentiate between settlement risk and replacement risk, calculate settlement and replacement risk for an
energy commodity transaction based on a given a set of assumptions.
• Understand and interpret external credit ratings, rating migration, default probabilities, internal ratings, and
credit risk models.
• Identify common quantitative internal rating factors; explain their application and how they differ from
external credit ratings.
• Explain the important credit risk measures used to quantify credit risk, including risk-at-default, expected loss,
potential exposure, and credit VaR; perform a simple calculation of each measure given a set of market inputs.
• Understand and apply expected loss, loss given default, probability of default, potential exposure, and
expected return for a credit risk exposure.
• Understand and apply credit exposure, credit migration, recovery, mark-to-market, replacement cost, default
probability, loss given default, and the recovery rate.
• Understand the methods used to reduce credit risk in energy transactions.
3. Aswath Damodaran, Country Risk Determinants, Measures and Implications – 2018 Edition. (July 2018).
(pages 1 to 39 only).*
• Identify sources of country risk; understand how the economic life cycle, political climate, legal system, and
economic structure of a country can affect its risk exposure.
• Compare instances of sovereign default in both foreign currency debt and local currency debt, and explain
common causes of sovereign defaults.
• Identify factors that influence the level of sovereign default risk; explain and assess how rating agencies
measure sovereign default risks.
• Understand the consequences of sovereign default.
• Describe the advantages and disadvantages of using the sovereign default spread as a predictor of defaults.
4. Shyam Venkat and Stephen Baird, Liquidity Risk Management – A Practitioner’s Perspective. (Hoboken,
NJ: John Wiley & Sons, 2016).
Chapter 3. Liquidity Stress Testing
• Differentiate between types of liquidity, including funding, operational, strategic, contingent, and restricted
liquidity.
• Explain how a liquidity stress testing model is built, including the development of scenarios.
• Understand how changes in different assumptions can impact the result of a liquidity stress test model.
• Understand how metrics from a liquidity stress test should be reported and integrated into results from other
risk models.
• Describe best practices for the governance and control of stress testing frameworks.
Chapter 7. Contingency Funding Planning

• Understand why a firm would implement a contingency funding plan and the design elements required to
create an effective contingency funding plan.
• Identify examples of contingent actions a firm can take, challenges in performing these actions, and potential
consequences of taking contingent actions.
• Explain how a contingency funding plan should be monitored and escalated, including the use of early
warning indicators and liquidity health measures.

Apply Financial Energy Products

to Manage Risk

APPLY FINANCIAL ENERGY PRODUCTS TO MANAGE RISK INCLUDE THE FOLLOWING:
• Hedging mechanics and cash flows

• Energy derivative contracts
• Forwards and futures
• Swaps
• Options and real options
• Structure and operation of OTC and exchange markets
• Central clearing
• Physical energy commodity markets
• Pricing benchmarks
• Fundamental price drivers
• Time spreads
• Basis markets and hedging locational basis risk
• Physically-versus financially-settled transactions

READINGS FOR APPLY FINANCIAL ENERGY PRODUCTS

ERP EXAM PART II
TO MANAGE RISK | 15 QUESTIONS
1. Jon Gregory, Central Counterparties. (West Sussex, UK: John Wiley & Sons, 2014).
Chapter 2. Exchanges, OTC Derivatives, DPCs and SPVs (Sections 2.1 and 2.2 only)
• Describe the functions of exchanges and explain how an exchange can be used to mitigate risk.
• Compare methods used for the clearing of contracts such as clearings rings and complete clearing; explain
the counterparty risk associated with each method of clearing.
• Compare exchange-traded and OTC markets and explain their uses.
• Identify risks associated with OTC markets and explain how these risks might be mitigated.
Chapter 3. Basic Principles of Central Clearing

• Explain the mechanics of a CCP and how a CCP clears financial transactions; describe the effect a CCP has on
risk allocation and its potential impact on systemic risk.
• Explain the concepts of novation, netting, and multilateral offset, and compare their use to a bilateral market.
• Differentiate between initial and variation margin; identify general factors used by a CCP to calculate the
initial margin requirement for a cleared transaction; explain how margin can mitigate risk.
• Describe advantages and disadvantages of central clearing of OTC derivatives.
• Assess the impact of central clearing on the broader financial markets.
2. Robert McDonald, Derivatives Markets, 3rd Edition. (Upper Saddle River, NJ: Pearson Education, Inc., 2013).
Chapter 4. Introduction to Risk Management
• Compare and contrast the use of forward contracts and option strategies to hedge risk exposures; describe
and calculate the payoff function and cash flows for each strategy.
• Explain why firms manage risk and engage in hedging transactions.
• Identify scenarios in which hedging activity adds value to a firm, or when a firm may choose not to hedge a
risk exposure.
• Describe the mechanics and payoff profiles of call and put options; identify when an option contract is in-, at-,
or out-of-the-money.
• Explain how collar strategies are used to hedge market risk, including zero-cost and pay-later strategies.
• Explain how firms apply cross-hedging strategies to aggregate risk, reduce risk, and create value.
• Describe how the price correlation between two assets affects the optimal hedge amount in a cross-
hedging strategy.
Chapter 6. Commodity Forwards and Futures (Sections 6.1 to 6.3 and 6.6 to 6.8 only)
• Describe forward and futures contacts, including their economics and how they are used to hedge market risk or
an obligation to buy or sell a commodity; explain the basic equilibrium formula for pricing commodity forwards.
• Explain the relationship between spot, forward, and futures prices, and identify challenges related to price
formation of energy futures.
• Describe and compute no arbitrage pricing, with and without storage, for forward and futures positions.
• Describe basis risk and how it can be created when hedging the price risk on a commodity exposure.
• Differentiate between a strip hedge and a stack hedge and explain the market conditions that favor
implementing one versus the other.
• Provide examples of cross-hedging, such as assessing the process of hedging jet fuel with crude oil and using
weather derivatives.
• Calculate CDDs and HDDs; understand how CDDs and HDDs are applied in transactions to hedge weather-
related risk.
• Construct a synthetic commodity position, and use it to explain the relationship between the forward price and
the expected future spot price.

3. Vincent Kaminski, Energy Markets (London, UK: Risk Books, 2013).

ERP EXAM PART II
Chapter 11. US Natural Gas Markets

• Describe characteristics of the US natural gas market, interpret the shape of and relationship between
elasticity of supply and demand curves, and identify market factors that explain these characteristics.
• Explain the market mechanism that maintains balance between supply and demand in the short-term natural
gas market.
• Explain how physical basis transactions affect natural gas price formation and price reporting.
• Describe how regional natural gas price indices are developed and reported.
• Structure and apply a fixed-for-floating, a floating-for-floating, and a natural gas basis swap; calculate a swap
settlement for each.
• Describe EFP transactions and their practical application.
• Explain VPPs and identify the related risks borne by buyers and sellers.
• Explain how natural gas processing plants can mitigate market risk through contracts that include fixed-fee,
percentage of proceeds, percentage of index, and keep-whole provisions.
• Identify, describe, and compare the mechanics and application of structuring solutions for mitigating
volumetric risk, swing options, swaps with embedded call options, and weather derivatives.
Chapter 18. Transactions in the Oil Markets

• Describe the mechanics and risks of a collar strategy, including costless collars, extendable collars, three-way
collars, and four-way collars; assess the economics of a collar strategy.
• Construct and interpret a crack spread and identify potential challenges that refineries face in using crack
spreads, including basis risk, volumetric risk, and refinery configuration risk.
• Explain the mechanics and application of a participating swap used to hedge a crude oil position.
• Identify and understand the application of available indices and derivative contracts typically used by
shipping companies to monitor and mitigate freight risk; apply a forward freight agreement.
4. Betty J. Simkins and Russell E. Simkins, eds, Energy Finance and Economics: Analysis and Valuation, Risk
Management, and the Future of Energy. (Hoboken, NJ: John Wiley & Sons, 2013).
Chapter 11. Real Options and Applications in the Energy Industry
• Define and apply the concepts of real options, including their practical application and valuation.
• Describe different types of real options, e.g., option to expand, option to exercise, and identify the
circumstances in which each may be applied.
5. S. Mohamed Dafir and Vishnun N. Gajjala, Fuel Hedging and Risk Management. (Hoboken, NJ: John
Wiley & Sons, 2016).
Chapter 2. Major Energy Consumers and the Rationale for Fuel Hedging
• Describe the risks facing major fuel-consuming industries such as airlines, shipping, oil refining, and power
generating industries.
• Explain the potential benefits of hedging and identify how to minimize risk by structuring a hedge given a set
of market assumptions.
• Classify energy market participants based on their economic motivations and exposure to commodity prices;
determine how each would be categorized as a hedger, speculator, or arbitrageur.
• Outline the stages involved in a typical physical spot transaction and explain the risks at each stage.
• Understand the payoff profiles of call and put options; differentiate between American, European, and
Asian options.

Chapter 4. Shipping and Airlines – Basics for Fuel Hedging

ERP EXAM PART II
• Describe the relationship between spot and forward prices for commodities.
• Explain the fundamental characteristics and drivers of volatility in energy commodities.
• Describe the mechanics and payoff profiles of call and put options; identify when an option contract is in-, at-,
or out-of-the-money.
• Explain put-call parity and the principal of no arbitrage.
• Discuss and apply an option-based hedging strategy for an end-user.
• Differentiate between historical and implied volatility and explain the Black-Scholes option pricing model
for commodities.
• Interpret the metrics (i.e., the “Greeks”) used to measure the sensitivity of option prices to changes in the
underlying spot price, volatility, interest rates, and time to maturity.
• Explain the application of and calculate the payout on the following types of options: American, European,
Asian, and call/put spread, collar, calendar spread, straddles, strangles, and butterflies.
• Discuss the underlying assumptions used in the Black-Scholes option pricing formula.
6. Richard Lassander and Glen Swindle, Natural Gas Trading in North America. (Princeton, NJ: Scoville Risk
Partners, 2018).
Chapter 6. Price Level Trading
• Explain typical trading activity in Natural Gas futures market, the effect benchmarks have on trading activity,
and how the spot price is determined.
• Explain the typical market conditions that lead to contango and backwardation and incentives for market
participants when the futures curve posseses the aforementioned shapes.
• Explain the conventions and elements associated with the execution of a swap contract.
• Explain the mechanics of a forward (and futures) transaction’s embedded risks, purpose (role) of the
exchange; and the terminology used to describe types of contracts.
• Define and explain the risk profile of the swap contracts including LD3, Gas Delivery Swing, and
penultimate swaps.
Chapter 7. Time Spreads

• Explain the conventions and risk associated with trading time spreads and stack and roll hedges.
• Explain the relationship between inventory and the cost of carry, and the metrics that govern the relationship;
explain park and loan strategy.
• Describe the various type of time spreads, including bull and bear spreads, seasonal spreads, and
calendar spreads.
Chapter 8. Basis Markets (pages 176-196)

• Explain the mechanics of hedging locational price risk via a physical and financial fixed price hedge.
• Decompose the locational hedge into the Benchmark and Basis risk components.

7. Glen Swindle, Valuation and Risk Management in Energy Markets. (Cambridge University Press, 2014).
ERP EXAM PART II
Chapter 2. Forwards and Carry

• Define carry markets and calculate the forward price of a commodity with storage costs.
• Compare the characteristics of physically-delivered vs. financially-settled transactions.
• Explain the mechanics of an EFP transaction.
• Explain the dynamics of NYMEX WTI futures contract expiration.
• Explain how forward price curves are derived; differentiate between contango and backwardation.
• Explain the structure and economics of transactions used to store physical commodities, including a park and
loan storage transaction.
• Define convenience yield and describe how it can be used to explain contango in a forward price curve.
• Define and apply standard terms found in financial energy contracts, including lot, open interest, and EFP.
• Identify and apply common abbreviations found in energy futures contracts.

Risk Governance, ERM, and Capital Planning


RISK GOVERNANCE, ERM, AND CAPITAL PLANNING INCLUDE THE FOLLOWING:
• Economic capital frameworks and capital allocation

• Risk-adjusted return on capital (RAROC)
• ERM frameworks and risk governance
• Risk assessment and management tools
• Risk appetite and risk tolerance
• Strategic risk management
• Management and governance of emerging risks
• Case studies in ERM implementation
• Control and validation
• Cybersecurity
• Financial statement analysis
• Decision analysis and decision quality
• GARP Code of Conduct

READINGS FOR RISK GOVERNANCE, ERM, AND CAPITAL PLANNING | 9 QUESTIONS

ERP EXAM PART II
1. James Lam, Implementing Enterprise Risk Management – From Methods to Applications. (Hoboken, NJ:
John Wiley & Sons, 2017).
Chapter 7. The ERM Framework
• Explain the rationale for developing an ERM framework and describe elements of an ERM framework.
• Compare the 2004 COSO framework, the Australia-NZ ERM framework, and the Continuous ERM model and
describe characteristics of each framework.
• Describe recommended practices for the development and governance of an ERM framework.
Chapter 12. Risk Appetite Statement

• Compare and apply the following elements of a risk appetite framework: risk appetite, risk tolerance, risk
capacity, risk profile, and risk-adjusted return.
• Describe process steps and best practices in the development of a risk appetite statement (RAS).
• Describe the roles and responsibilities of different business units in the development, implementation, and
monitoring of a risk appetite framework.
• Provide examples of metrics to be included in a risk appetite framework and explain best practices for
communicating and reporting a RAS to different business functions.
Chapter 13. Risk Control Self-Assessments

• Explain the objective and phases of a RCSA process; understand the best practices for conducting a RCSA.
• Describe common shortfalls that may occur during a RCSA and identify solutions for overcoming
those challenges.
Chapter 15. Strategic Risk Management

• Define strategic risk and explain how strategic risk can arise when making strategic decisions.
• Compare the use of RAROC and economic capital in measuring strategic risk.
• Describe elements of the strategic risk management process and apply the risk-based pricing approach to
manage strategic risk.
Chapter 17. Integration of KPIs and KRIs

• Compare KPIs and KRIs and explain how to develop an effective set of KPIs and KRIs.
• Describe best practices for the effective implementation of a KPI and KRI program.
2. Glen Swindle, Valuation and Risk Management in Energy Markets. (Cambridge, UK: Cambridge University
Press, 2014).
Chapter 16. Control, Risk Metrics and Credit
• Describe the typical model control framework, the process for validating pricing inputs, and the role of
consensus service providers.
• Identify standard risk metrics, and explain methods of modeling risk metrics for liquid assets, illiquid basis
positions, and seasonality in price returns.
• Understand how seasonality poses a challenge for firms which trade in multiple asset classes.
• Understand how credit risk is typically managed in energy portfolios and the role of the CVA desk.
• Explain the use of credit default swaps in hedging credit risk; compare right-way risk with wrong-way risk.

3. Michel Crouhy, Dan Galai, and Robert Mark, The Essentials of Risk Management, 2nd Edition. (New York, NY:
ERP EXAM PART II
McGraw-Hill, 2014).
Chapter 17. Risk Capital Attribution and Risk-Adjusted Performance Measurement
• Define, compare, and contrast risk capital, economic capital, and regulatory capital, and explain methods and
motivations for using economic capital approaches to allocate risk capital.
• Understand the RAROC methodology and its use in capital budgeting; use RAROC to compare the
performance of different business units.
• Explain the challenges that can arise when using RAROC for performance measurement, including choosing a
time horizon, measuring default probability, and choosing a confidence level.
• Calculate the hurdle rate for a project and use this benchmark to determine the viability of a project.
• Calculate various risk-adjusted performance measures, including RAROC, return on capital, and economic
value added; compute the adjusted RAROC for a project to determine its viability.
4. World Energy Council, World Energy Perspectives: The Road to Resilience 2016 - Managing Cyber Risks.
(World Energy Council, 2016).*
• Define cyber risks, their components, and potential impact cyber risks can cause.
• Identify how energy organizations can build resilience to cyber risks.
• Describe how organizations serving the energy industry can contribute to mitigating cyber risks.
5. John Fraser, Betty Simkins, and Kristina Narvaez, Implementing Enterprise Risk Management: Case Studies
and Best Practices. (Hoboken, NJ: John Wiley & Sons, 2015).
Chapter 4. Value and Risk: Enterprise Risk Management at Statoil
• Describe how senior management can support the implementation of ERM across a firm.
• Identify the primary objectives of Statoil’s ERM framework and describe challenges in its implementation.
• Understand how firms can optimize total risk in a given scenario.
• Identify and describe key risk metrics and performance indicators typically used to measure and quantify risk.
• Apply lessons learned from the Statoil ERM case study to a given scenario.
Chapter 20. Implementing Risk Management within Middle Eastern Oil and Gas Companies
• Describe cultural and operational challenges associated with implementing a sustainable ERM program using
the MECO case as an example.
• Identify and describe key metrics used to consolidate, measure, and prioritize business line and corporate-
level risks.
• Apply lessons learned from the MECO ERM case study to a given scenario.
6. Betty Simkins, and Russell Simkins, eds, Energy Finance and Economics. (Hoboken, NJ: John Wiley &
Sons, 2013).
Chapter 9.Financial Statement Analysis for Oil and Gas Companies
• Understand the relationship between commonly used financial statements including the balance sheet,
income statement, statement of cash flows, and statement of retained earnings.
• Describe the process of competitive benchmarking and use this process to compare an energy company’s
financial ratios against those of similar competitors.
• Define and calculate free cash flow and operating cash flow.
• Calculate and interpret common metrics used to assess liquidity, debt coverage, profitability, and return
on equity.
• Calculate and interpret common metrics used to assess the value of hydrocarbon assets, reserves, and the
efficiency of exploration and production activity.

7. International Risk Governance Council (IRGC), IRGC Guidelines for Emerging Risk Governance. (2015).*
ERP EXAM PART II
• Describe characteristics of emerging risks and compare emerging risks with familiar risks.
• Describe best practices for the government and management of emerging risk exposures.
• Explain methods of developing scenarios to assess potential emerging risk exposures.
• Compare the different approaches a firm can use to manage an emerging risk exposure and explain how a
firm should decide which strategy to use to manage that risk.
8. SPE International, SPE Technical Report: Guidance for Decision Quality for Multicompany Upstream
Projects. (2016).*
• Describe and apply tools and metrics used in the decision quality (DQ) process.
• Explain the process of decision framing and describe best practices in the process of framing and
sequencing decisions.
• Explain how a firm can generate alternatives to a decision under consideration and how to group these
alternatives into strategies.
• Describe best practices in communicating information needed to make a decision, including the
communication of uncertainties, ensuring reliability, and identifying and avoiding potential biases.
• Explain methods a firm can use to understand the consequences and trade-offs in making a potential decision.
• Describe how a firm can ensure that the decision analysis is logical; apply techniques used in facilitating
decisions and committing a decision to action.
• Explain best practices and challenges in implementing a decision quality program.
9. Global Association of Risk Professionals (GARP), Code of Conduct.*

• Explain the responsibility of each GARP member to maintain professional integrity and ethical conduct, avoid
conflicts of interest, maintain confidentiality when required, and adhere to generally accepted best practices
in risk management.
• Identify potential violations of the Code of Conduct and describe the potential consequences of violating the
GARP Code of Conduct.

2019 Energy Oversight Committee

Richard Apostolik...............................................................................................Global Association of Risk Professionals
Ben Baglin, ERP.................................................................................................EDF Trading
Stuart Chaplin.....................................................................................................Shell Trading and Supply
Dr. Vince Kaminski............................................................................................Rice University
Glenn Labhart, EOC Chair..............................................................................Labhart Risk Advisors
Alessandro Mauro.............................................................................................MKS (Switzerland) SA
Peter O’Neill......................................................................................................Archer Daniels Midland
Dr. John Parsons................................................................................................Massachusetts Institute of Technology
Laurent Pommier, ERP....................................................................................PSE&G
Michael Sell.......................................................................................................Global Association of Risk Professionals
Jonathan C. Stein..............................................................................................Hess Corporation
Dr. Chris Strickland...........................................................................................Lacima Group
Dr. Glen Swindle.................................................................................................Scoville Risk Partners
Gary Taylor........................................................................................................British Petroleum

Creating a culture of risk awareness ®
garp.org
About GARP | The Global Association of Risk Professionals (GARP) is a non-partisan,
not-for-profit membership organization serving the risk management industry.
Founded in 1996, GARP advances the profession through education, research and
promotion of best practices through the GARP Risk Institute, GARP Benchmarking
Initiative and an array of informational and certification programs. GARP has
200,000 members in more than 190 countries and territories, and has certified more
than 50,000 professionals.
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22209 USA Beijing 100033 P.R. China © 2019 Global Association of Risk Professionals
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ENERGY RISK PROFESSIONAL

2019 Energy Risk Professional (ERP®)

© 2018 Global Association of Risk Professionals garp.org/erp 1

COMMONLY-USED ABBREVIATIONS AND ACRONYMS

• Bbl: Barrel of ____________ • KPI: Key performance indicators

© 2018 Global Association of Risk Professionals garp.org/erp 2

© 2018 Global Association of Risk Professionals garp.org/erp 3

ERP Exam Part I

Crude Oil Markets and Refined Products 30% 24 questions

ERP Exam Part I Total 100% 80 questions

© 2018 Global Association of Risk Professionals garp.org/erp 4

Crude Oil Markets and Refined Products

THE BROAD AREAS OF KNOWLEDGE COVERED IN READINGS RELATED TO

• Physical properties of crude oil

© 2018 Global Association of Risk Professionals garp.org/erp 5

READINGS FOR CRUDE OIL MARKETS AND REFINED PRODUCTS | 24 QUESTIONS

Chapter 4. Developing Oil and Gas Projects

Chapter 5. Production of Oil and Gas Products

© 2018 Global Association of Risk Professionals garp.org/erp 6

Chapter 10. The Market for Crude Oil

Chapter 12. Refining

*This reading is freely available on the GARP website.

© 2018 Global Association of Risk Professionals garp.org/erp 7

Chapter 17. Reserve Valuation

Chapter 18. Accounting for International Petroleum Operations

4. Vincent Kaminski, Energy Markets. (London, UK: Risk Books, 2012).

Chapter 17. Oil Pricing

© 2018 Global Association of Risk Professionals garp.org/erp 8

5. Owain Johnson, The Price Reporters. (London, UK: Routledge, 2018).

Chapter 3. How Price Benchmarks Work

Chapter 11. PRA Pricing Methodologies

Chapter 12. Market-on-Close

Chapter 15. PRA and European Regulation

*This reading is freely available on the GARP website.

© 2018 Global Association of Risk Professionals garp.org/erp 9

Group, December 2001).*

*This reading is freely available on the GARP website.

© 2018 Global Association of Risk Professionals garp.org/erp 10

Natural Gas and Coal Markets

THE BROAD AREAS OF KNOWLEDGE COVERED IN READINGS RELATED TO

© 2018 Global Association of Risk Professionals garp.org/erp 11

READINGS FOR NATURAL GAS AND COAL MARKETS | 20 QUESTIONS

Chapter 4. Supply and Demand

*This reading is freely available on the GARP website.

© 2018 Global Association of Risk Professionals garp.org/erp 12

Chapter 5. Storage and Transport

Chapter 8. Basis Markets (pages 158-176 only)

Chapter 8. NGL Markets - Petrochemicals

© 2018 Global Association of Risk Professionals garp.org/erp 13

Chapter 9. NGL Markets - Fuels

Chapter 2. The Dynamics Between Oil-Indexed and Spot Prices

Appendix. Key Terms of Long-Term Oil-Indexed Take-or-Pay Contracts

*This reading is freely available on the GARP website.

© 2018 Global Association of Risk Professionals garp.org/erp 14

Chapter 2. The Role of Gas Storage

*This reading is freely available on the GARP website.

© 2018 Global Association of Risk Professionals garp.org/erp 15

LNG Market Fundamentals

THE BROAD AREAS OF KNOWLEDGE COVERED IN READINGS RELATED TO

© 2018 Global Association of Risk Professionals garp.org/erp 16

READINGS FOR LNG MARKET FUNDAMENTALS | 8 QUESTIONS

Chapter 13. Upstream Gas Supply Agreements

Chapter 14. LNG Sale and Purchase Agreements