2012 Erp Study Guide

2012 ERP®

ExaminationStudy GuideThe designation for risk professionals in the energy sector

2012 Energy Risk Professional (ERP®) Examination Study Guide

© 2012 Global Association of Risk Professionals. All rights reserved. 3

INTRODUCTION

The ERP Examination is a compre-

hensive, practice-oriented assessment

that spans both the physical and

financial energy markets. Candidates

are expected to demonstrate an

understanding of fundamental con-

cepts associated with five broad

areas of study:

• Exploration, production, distribution,

storage and trading of physical

hydrocarbon resources; electric

power generation and renewable

energy sources; current trends in

the carbon market and emissions

trading

• Trading, structuring, hedging and

valuation of energy based financial

instruments, including exchange

traded contracts, over-the-counter

derivatives and other structured

products

• Fundamental principles for model-

ing, including characteristics that

differentiate physical energy com-

modity markets from traditional

financial markets, and the impli-

cations of these differences for

modeling energy price behavior

• Techniques for evaluating, man-

aging and reporting risk

• Current issues affecting the energy

markets

2012 ERP Curriculum and Core

Readings

The 2012 ERP Study Guide sets forth

primary and secondary topics cover-

ing physical energy assets, operations,

and financial energy markets; as well

as the techniques used to manage

risk across the entire energy value

chain. Recognizing the dynamic

nature of the industry, we have added

a number of new readings for 2012

that are designed to enhance a candi-

date’s knowledge and ensure that the

ERP Examination remains both timely

and relevant. A number of the new

readings are from online sources.

This was necessitated by the fact that

energy risk management is an evolv-

ing field with specialized topics that

are not always captured in traditional

textbooks. All topics and readings

were selected in conjunction with

the Energy Oversight Committee

(EOC), and reflect the fundamental

knowledge and tools necessary for

professionals that manage risk in the

energy industry.

Exam Preparation

Questions for the ERP Examination

are derived from the readings associ-

ated with the topics below. To assist

candidates in their preparation for

the exam, we have separately pub-

lished the 2012 Applying Instructional

Material Statements (AIMs) and the

Study Strategies Guide. It is strongly

suggested that candidates review

all current readings in conjunction

with the 2012 AIMs and Study Strate-

gies Guide prior to sitting for the

examination.

Test Weights and Question Allocation for the 2012 ERP Examination

Physical Energy Markets

• Hydrocarbon Resources 25% 40 questions

• Electricity Production and Distribution 10% 16 questions

• Renewable Energy Sources and Carbon Emissions 10% 16 questions

Section Total 45% 72 questions

Financial Energy Markets

• Financial Products and Valuation 20% 32 questions

• Modeling Energy Price Behavior 10% 16 questions

• Risk Evaluation and Management 15% 24 questions

Section Total 45% 72 questions

Current Issues in Energy 10% 16 questions

Exam Total 100% 160 questions

4 © 2012 Global Association of Risk Professionals. All rights reserved.


HYDROCARBON RESOURCES—Exam Weight | 25%

• Exploration and Production

• Crude Oil and Refining

• Synthetics

• Natural Gas, LNG and Shale Gas

• Coal

Hydrocarbon Resources—40 Questions

1.1 Exploration and Production

1. Institut Français du Petrolé Publications. Oil, Gas Exploration, and Production: Reserves, Costs, Contracts

(Paris: Editions Technip, 2007).

• Chapter 3.......................Hydrocarbon Reserves

2. Charlotte Wright & Rebecca Gallun. Fundamentals of Oil & Gas Accounting, 5th Edition (Tulsa, OK:

PennWell, 2008).

• Chapter 1 ........................Upstream Oil & Gas Operations

• Chapter 15 .....................Accounting for International Petroleum Operations

1.2 Crude Oil and Refining

1. Norman J. Hyne. Nontechnical Guide to Petroleum Geology, Exploration, Drilling, and Production, 2nd Edition

(Tulsa, OK: PennWell Books, 2001).

• Chapter 1 ........................Nature of Gas and Oil

(only sections titled: “Petroleum, Chemical Composition, and Crude Oil”)

2. Thomas O. Miesner and William L. Leffler. Oil and Gas Pipelines in Nontechnical Language (Tulsa, OK: PennWell

Books, 2006).

• Chapter 10.....................Investment Decisions

• Chapter 12 .....................Engineering and Design

3. Purvin & Gertz, Inc. The Role of WTI as a Crude Oil Benchmark.

Available online: http://www.purvingertz.com/content/articles/PurvinGertz_WTI_Benchmark_Study.pdf

• Section Three...............The Role of WTI

4. William L. Leffler. Petroleum Refining in Nontechnical Language, 3rd Edition (Tulsa, OK: PennWell, 2000).

• Chapter 20....................Simple and Complex Refineries

5. Bunkerworld. D2 and No.2 Diesel Fuel: An Introduction

Available online: http://www.foundersllc.com/introduction-to-D2.pdf



1.3 Synthetics

1. Michael Toman, Aimee E. Curtright, David S. Ortiz, Joel Darmstadter, Brian Shannon. Unconventional Fossil-

Based Fuels: Economic and Environmental Trade-Offs. (Santa Monica, CA: Rand, 2008).

Available online: http://www.rand.org/pubs/technical_reports/2008/RAND_TR580.pdf

• Chapter 4.......................Oil Sands and Synthetic Crude Oil

2. James T. Bartis, Frank A. Camm and David S. Ortiz. Producing Liquid Fuels from Coal: Prospects and Policy

Issues (Santa Monica, CA: Rand, 2008).

Available online: http://www.rand.org/pubs/monographs/MG754

• Chapter 3.......................Coal-to-Liquids Technologies

• Chapter 6.......................Critical Policy Issues for Coal-to-Liquids Development

1.4 Natural Gas, LNG and Shale Gas

1. Davis W. Edwards. Energy Trading and Investing (New York: McGraw-Hill, 2010).

• Chapter 2.1.....................Natural Gas

2. Vivek Chandra. Fundamentals of Natural Gas: An International Perspective (Tulsa, OK: PennWell Books, 2006).

• Chapter 1 ........................The Basics

• Chapter 2.......................Transport and Storage

• Chapter 3.......................Gas Usage

• Chapter 4.......................Contracts and Project Development

3. Frank Fabozzi (ed.): The Handbook of Commodity Investing (Hoboken, NJ: John Wiley & Sons, 2008).

• Chapter 36 ....................The Natural Gas Market in the United Kingdom

4. Department of Energy Publication: Liquefied Natural Gas: Understanding the Basic Facts.

Available online: http://fossil.energy.gov/programs/oilgas/publications/lng/LNG_primerupd.pdf

5. PriceWaterhouseCoopers: Today’s LNG Market Dynamics.

Available online: http://www.pwc.com.au/industry/energy-resources/assets/Todays-LNG-market-dynamics-May10.pdf

6. Kenneth Medlock. Impact of Shale Gas Development on Global Gas Markets (Wiley Periodicals, Inc., 2011).

Available online: http://www.rice.edu/energy/publications/docs/EF-pub-MedlockWileyShaleGas-042011.pdf

1.5 Coal

1. James Speight. Handbook of Coal Analysis (Wiley-Interscience, 2005).

• Chapter 1 ........................Coal Analysis

• Chapter 2.......................Sampling and Sample Preparation



ELECTRICITY—Exam Weight | 10%

• Electricity Generation

• Hydroelectric and Nuclear Power

• Fundamentals of Electricity Distribution and Trading

• Load Forecasting

Electricity Generation, Distribution and Trading—16 Questions

2.1 Electricity Generation


• Chapter 2.2 ...................Electricity

2. Chris Harris. Electricity Markets: Pricing, Structures and Economics (West Sussex, England:

John Wiley & Sons, 2006).

• Chapter 7.......................Location

3. Sally Hunt. Making Competition Work in Electricity (New York: John Wiley & Sons, Inc., 2002).

• Chapter 2.......................The Essential Aspects of Electricity

2.2 Hydroelectric and Nuclear Power

1. Ann Chambers. Renewable Energy in Nontechnical Language (Tulsa, OK: PennWell Books, 2006).

• Chapter 6.......................Hydroelectric

2. Roy L. Nersesian. Energy for the 21st Century: A Comprehensive Guide to Conventional and Alternative Sources

(Armonk, NY: M.E. Sharpe, Inc., 2007).

• Chapter 8.......................Nuclear and Hydropower

3. David Schlissel and Bruce Biewald. Nuclear Power Plant Construction Costs (Synapse Energy Economics, Inc.).

Available online: http://www.synapse-energy.com/Downloads/SynapsePaper.2008-07.0.Nuclear-Plant-

Construction-Costs.A0022.pdf

4. Peter Coy. The Prospect for Safe Nuclear (Bloomberg Businessweek, March 24, 2011).

2.3 Fundamentals of Electricity Distribution and Trading

1. Sally Hunt. Making Competition Work in Electricity (New York: John Wiley & Sons, Inc., 2002).

• Chapter 7.......................Trading Arrangements

• Chapter 8.......................Details of the Integrated Trading Model


• Chapter 4.3 ...................Tolling Agreements

• Chapter 4.4...................Wheeling Power



2.4 Load Forecasting


• Chapter 4.1 ....................Spatial Load Forecasting

RENEWABLE ENERGY—Exam Weight | 10%

• Economics, Financing and Investment in Renewable Energy

• Sustainable Energy and Biofuels

• Current Trends in the Carbon Market

• Emissions Trading Models in the European Union

Renewables, Trends in the Carbon Market and Emissions Trading—16 Questions

3.1 Economics and Financing of Global Investment in Renewable Energy

1. Geoffrey Heal. The Economics of Renewable Energy.

2. Chris Grobey, John Pierce, Michael Faber and Greg Broome. Project Finance Primer for Renewable Energy

and Clean Tech Projects.

Available online: http://www.wsgr.com/PDFSearch/ctp_guide.pdf

3. Bloomberg New Energy Finance. Global Trends in Renewable Energy Investment.

Available online: http://www.bnef.com/WhitePapers/download/50

3.2 Sustainable Energy and Biofuels

1. Roy L. Nersesian. Energy for the 21st Century: A Comprehensive Guide to Conventional and Alternative Sources

(Armonk, NY: M.E. Sharpe, Inc., 2007).

• Chapter 9.......................Sustainable Energy

2. Govinda Timilsina and Ashish Shrestha. Biofuels: Markets, Targets and Impacts (The World Bank, July 2010).

Available online: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1645735

• Sections 1 through 5

3.3 Current Trends in the Carbon Market

1. State and Trends of the Carbon Market (The World Bank, 2011).

Available online: http://siteresources.worldbank.org/INTCARBONFINANCE/Resources/StateAndTrend_LowRes.pdf

• Section 2........................Domestic Policy Developments—A Story of Fragmentation

• Section 3........................How Market Participants Transact—Risk and Regulation

• Section 4........................Carbon and Climate Finance



3.4 Emissions Trading Models in the European Union

1. Frank Fabozzi (ed.): The Handbook of Commodity Investing (Hoboken, NJ: John Wiley & Sons, 2008).

• Chapter 37.....................Emissions Trading in the European Union

FINANCIAL PRODUCTS—Exam Weight | 20%

• Forward Contracts and Exchange Traded Futures

• Energy Swaps

• Energy Options

• Exotic Options

• Option Valuation and Risk Management

• Real Option Valuation

• Speculation and Spread Trading in Energy Commodities

• Hedging Energy Commodity Risks

• Weather Derivatives

Financial Products, Trading, Hedging and Valuation—32 Questions

4.1 Forward Contracts and Exchange Traded Futures

1. Steven Errera and Stewart L. Brown. Fundamentals of Trading Energy Futures & Options, 2nd Edition


• Chapter 3.......................Behavior of Commodity Futures Prices

2. Robert McDonald. Derivatives Markets, 2nd Edition (Boston: Pearson Education, Inc., 2006).

• Chapter 6.......................Commodity Forwards and Futures

4.2 Energy Swaps

1. Vincent Kaminski (ed). Managing Energy Price Risk (London: Risk Books, 2004).

• Chapter 1 ........................Energy Swaps

4.3 Energy Options


• Chapter 2.......................Energy Options

4.4 Exotic Options


• Chapter 3.......................Energy Exotic Options



4.5 Option Valuation and Risk Management

1. Dragana Pilipovic. Energy Risk: Valuing and Managing Energy Derivatives, 2nd Edition (New York:

McGraw Hill, 2007).

• Chapter 9.......................Overview of Option Pricing for Energies

• Chapter 10.....................Option Valuation

2. Les Clewlow and Chris Strickland. Energy Derivatives: Pricing and Risk Management (London: Lacima

Publications, 2000).

• Chapter 9.......................Risk Management of Energy Derivatives

4.6 Real Option Valuation

1. Alexander Triantis. Handbook of Modern Finance (New York: Research Institute of America, 2003).

Available online: http://www.rhsmith.umd.edu/faculty/atriantis/PDF/Real%20Options_Handbook%20of%20Modern

%20Finance.pdf

• Chapter 7...........................Real Option Valuation

2. William Bailey, Benoit Couet, Ashish Bhandari, Soussan Faiz, Sunaram Srinivasan and Helen Weeds. Unlocking the

Value of Real Options (Oilfield Review Winter 2003/2004).

Available online: http://sundysrinivasan.com/Links/Articles/w03.pdf

4.7 Speculation and Spread Trading in Energy Commodities

1. Steven Errera and Stewart L. Brown. Fundamentals of Trading Energy Futures & Options, 2nd Edition


• Chapter 4 ..........................Speculation and Spread Trading

4.8 Hedging Energy Commodity Risks

1. Peter C. Beutel. Surviving Energy Prices (Tulsa, OK: PennWell Books, 2005).

• Chapter 3...........................Different Kinds of Risk

2. Tom James. Energy Markets: Price Risk Management and Trading (Singapore: John Wiley & Sons, 2008).

• Chapter 13.........................Energy-Market Hedging Scenarios

3. Steve Leppard. Energy Risk Management: A Non-technical Introduction to Energy Derivatives (London:

Risk Books, 2005).

• Chapter 4 ..........................Physical Transactions and Basic Hedging Instruments

4.9 Weather Derivatives

1. Geoffrey Considine, Ph.D. Introduction to Weather Derivatives.

Available online: http://www.imf.org/external/pubs/ft/weo/2011/01/pdf/c3.pdf

2. Kevin Baumert and Mindy Selman. Data Note: Heating and Cooling Degree Days. (World Resources Institute, 2003).

Available online: http://cait.wri.org/downloads/DN-HCDD.pdf



MODELING ENERGY PRICES—Exam Weight | 10%

• Introduction to Energy Modeling

• Data Analysis and Essential Statistics

• Spot Price Behavior

• Forward Curve Modeling

• Estimating Price Volatility

Modeling Techniques for Energy Commodities—16 Questions

5.1 Introduction to Energy Modeling


McGraw Hill, 2007).

• Chapter 2.......................What Makes Energies So Different?

5.2 Data Analysis and Essential Statistics


McGraw Hill, 2007).

• Chapter 4.......................Essential Statistical Tools

5.3 Spot Price Behavior



• Chapter 2.......................Understanding and Analyzing Spot Prices


McGraw Hill, 2007).

• Chapter 5.......................Spot Price Behavior

5.4 Forward Curve Modeling



• Chapter 4.......................Energy Forward Curves

• Chapter 8.......................Forward Model Curves

2. Helyette Geman (ed). Risk Management in Commodity Markets: From Shipping to Agriculturals and Energy

(West Sussex, England: John Wiley & Sons, 2008).

• Chapter 2.......................Forward Curve Modeling in Commodity Markets



5.5 Estimating Price Volatility



• Chapter 3.......................Volatility Estimation in Energy Markets


McGraw Hill, 2007).

• Chapter 8.......................Volatilities

RISK MANAGEMENT FUNDAMENTALS—Exam Weight | 15%

• Value-at-Risk (VaR) and Stress Testing

• Credit and Counterparty Risk Management

• Enterprise Risk Management

• Case Studies in Risk Management Failure

Risk Management Fundamentals—24 Questions

6.1 Value-at-Risk (VaR) and Stress Testing



• Chapter 10.....................Value-at-Risk

2. Markus Burger, Bernhard Graeber, and Gero Schindlmayr. Managing Energy Risk: An Integrated View on Power

and Other Energy Markets (West Sussex, England: John Wiley & Sons, 2007).

• Chapter 6.2 ...................Value-at-Risk and Further Risk Measures

3. Alessandro Mauro. “Price Risk Management in the Energy Industry: The Value at Risk Approach,” Proceedings

of the XXII Annual International Conference of the International Association for Energy Economics

(June 9-12, 1999).

Available online: http://ssrn.com/abstract=1020917

4. Jose Ramon Aragones, Carlos Blanco, and Kevin Dowd. Incorporating Stress Tests Into Market Risk Modeling.

Available online: http://www.gravitascapital.com/Research/Risk/Stress%20Testing%20in%20Risk%20

Modelling%20-%20a%20paper.pdf



6.2 Credit and Counterparty Risk Management


• Chapter 16 .....................A Practical Guide to Credit Control and Risk-Mitigation Methods

2. Markus Burger, Bernhard Graeber, and Gero Schindlmayr. Managing Energy Risk: An Integrated View on Power

and Other Energy Markets (West Sussex, England: John Wiley & Sons, 2007).

• Chapter 6.3 ...................Risk Management (Credit Risk)

3. Jon Gregory. Counterparty Credit Risk (West Sussex, England: John Wiley & Sons, 2010).

• Chapter 2.......................Defining Counterparty Credit Risk

• Chapter 3.......................Mitigating Counterparty Credit Risk

4. Craig Pirrong. The Economics of Central Counterparty Clearing: Theory and Practice. (ISDA Working Paper).

Available online: http://www2.isda.org/functional-areas/research/discussion-papers

6.3 Enterprise Risk Management

1. Casualty Actuarial Society, Enterprise Risk Management Committee. Overview of Enterprise Risk Management.

Available online: http://www.casact.org/research/erm/overview.pdf


• Chapter 10.....................Management Controls

• Chapter 15 .....................Operational Risk and its Management

6.4 Case Studies in Risk Management Failure

1. Ludwig Chincarini. The Amaranth Debacle: A Failure of Risk Measures or a Failure of Risk Management?


2. Connecticut Law Review. Risk Management and Corporate Governance: The Case of Enron.




CURRENT ISSUES IN ENERGY—Exam Weight | 10%

NOTE ON THE CURRENT ISSUES IN ENERGY SECTION: GARP recognizes that energy markets are dynamic and are often affected

by regulation, newly discovered reserves, technological breakthroughs and current supply and demand trends. Global energy risk

managers must remain abreast of these developments to effectively manage risk in their businesses. The “Current Issues” section is

designed to familiarize ERP candidates with new developments and issues that are likely to have a long-term impact on the global

energy markets. Topics included in the “Current Issues” section of the 2012 ERP Examination include how Chinese coal imports impact

the global market, the effect of CFTC position limit rules and new proposed European financial regulations on the commodity markets,

risk management lessons learned from the BP Deepwater Horizon spill, and how oil scarcity could impact future markets. The infor-

mation contained within each reading is current as of November 15, 2011 and candidates can expect to be tested on these readings

throughout 2012. Subsequent developments in these topics, or any new areas of focus, will be captured on the 2013 ERP Examination.

Readings for Current Issues in Energy—16 Questions

1. NERA Economic Consulting. “Lessons from the BP Deepwater Horizon Oil Spill” (September 2010).

Available online: http://www.argonbridge.com/e_library/file_show.php?id=585&PHPSESSID=d2d06ae8cf26a16b

6764d506b0761703

2. Skadden, Arps, Slate, Meagher & Flom LLP and Affiliates. “CFTC Adopts Final Position Limit Rules at October 18

Open Meeting.”

Available online: https://www.skadden.com/Index.cfm?contentID=51&itemID=2558

3. Mark A. Cohen, Madeline Gottlieb, Joshua Linn, and Nathan Richardson. “Deepwater Drilling: Law, Policy and

Economics of Firm Organization and Safety.”

Available online: http://www.rff.org/rff/documents/rff-dp-10-65.pdf

4. Richard Morse and Gang He. “The World's Greatest Coal Arbitrage: China's Coal Import Behavior and Implications

for the Global Coal Market.”


5. Ivan Diaz-Rainey, Mathias Siems and John Ashton. “The Financial Regulation of European Wholesale Energy and

Environmental Markets.”


6. International Monetary Fund. “Oil Scarcity, Growth and Global Imbalances.”

Available online: http://www.imf.org/external/pubs/ft/weo/2011/01/pdf/c3.pdf



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2012 Energy Oversight Committee (EOC) Members

Ken Abbott ..................................Managing Director, Morgan Stanley & Company

Richard Apostolik .....................President and CEO, Global Association of Risk Professionals

Mark Galicia .................................Commercial Manager, BP North America, Inc.

Gordon E. Goodman ................Trading Control Officer, Occidental Petroleum Corporation

James Brown...............................Managing Director, Morgan Stanley & Company

Mark Jenner .................................Director, Credit Risk, BG Group

Jeff Jewell ....................................Chief Risk Officer, DTE Energy

Glenn Labhart, EOC Chair .....Partner, Labhart Risk Advisors, Inc.

Spyros Maragos ............................VP, Refined Products Analytics, Louis Dreyfus Energy Services, LP

Alessandro Mauro .....................Director of Risk Management, Litasco SA

Mark D. May ......................................Manager, Regional Risk Supply & Trading, Americas, ConocoPhillips

Jeff Parke .....................................Senior Director, Risk Management, Koch Industries, Inc.

Jonathan C. Stein ......................Chief Risk Officer, Vice President, Hess Corporation

Andrew D. Sunderman ............Managing Director, JP Morgan

Glen Swindle ...............................Managing Director, Energy Trade & Marketing, Credit Suisse

John Wengler .............................Director of Market Risk Controls, Hess Corporation

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© 2012 Global Association of Risk Professionals. All rights reserved. 12-11

About GARP | The Global Association of Risk Professionals (GARP) is a not-for-profit global membership organization dedicated topreparing professionals and organizations to make better informed risk decisions. Membership represents over 150,000 risk manage-ment practitioners and researchers from banks, investment management firms, government agencies, academic institutions, and corporations from more than 195 countries and territories. GARP administers the Financial Risk Manager (FRM®) and the Energy Risk Professional (ERP®) Exams; certifications recognized by risk professionals worldwide. GARP also helps advance the role of riskmanagement via comprehensive professional education and training for professionals of all levels. www.garp.org.

2012 Erp Study Guide

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