2011%20erp%20study%20guide

2011 ERP®

ExaminationStudy GuideThe designation for risk professionals in the energy sector

2011 Energy Risk Professional (ERP®) Examination Study Guide

© 2011 Global Association of Risk Professionals. All rights reserved. 1

INTRODUCTION

The Study Guide sets forth primary and

secondary topics covering physical energy

assets, operations, and financial energy

markets; as well as the techniques used

to manage risk in each. New for 2011 is the

Current Issues in Energy Section. Recog-

nizing the dynamic nature of the energy

markets we added the current

issues section to familiarize

ERP candidates with new

developments and issues that

are likely to have a long-term

impact on the global energy

markets. The topics selected

in conjunction with the Energy

Oversight Committee (EOC)

reflect those that practicing

energy risk professionals

should master. All topics are reviewed

annually to ensure the ERP Examination

remains timely and relevant.

ERP Examination Approach

The ERP Examination is a comprehensive,

practice oriented examination. Candidates

are expected to understand both physical

and financial energy sectors, general and

specific risk management concepts and

approaches, and how they are applied in

the day-to-day activities of an energy risk

professional. One should note that it is very

rare that an energy risk professional will be

faced with an issue that can immediately be

slotted into one category; in the real world,

an energy risk professional must be able to

identify any number of risk-related issues

and be able to manage them effectively.

Readings

Questions for the ERP Examination are

derived from the readings listed under

each topic. These readings were selected

in consultation with the EOC to provide a

base of knowledge and practical applica-

tion of the major topics and concepts

outlined in the study guide. It is strongly

suggested that candidates review all read-

ings prior to sitting for the examination.

Candidates are expected to

understand both physical

and financial energy sectors,

general and specific risk

management concepts and

approaches, and how they

are applied in the day-to-day

activities of an energy risk

professional.

Test Weights and Question Allocation for the 2011 ERP Examination

Physical Energy Markets

Petroleum 15% 27 questions

Gas 10% 18 questions

Electricity Production and Distribution 10% 18 questions

Renewables and Carbon Emissions 5% 9 questions

Section Total 40% 72 questions

Financial Markets

Financial Products and Valuation 20% 36 questions

Modeling and Valuing Energy Transactions 15% 27 questions

Risk Management Techniques 15% 27 questions

Section Total 50% 90 questions

Current Issues in Energy 10% 18 questions

Exam Total 100% 180 questions

2 © 2011 Global Association of Risk Professionals. All rights reserved.


PHYSICAL ENERGY ASSETS—Exam Weight | 40%

• Petroleum

• Natural Gas

• Electricity

• Renewables and Carbon Emissions

NOTE: Many of the readings in the physical section cover physical risk management and mitigation techniques as part of daily

operation. Consequently there is no separate “risk management” section for physical energy assets.

Petroleum—27 Questions

1.1 Exploration and Production

1. Charles F. Conaway. The Petroleum Industry: A Nontechnical Guide (Tulsa, OK: PennWell Books, 1999).

• Chapter 2.......................Petroleum Origins and Accumulation

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

(Paris: Editions Technip, 2007).

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

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

PennWell, 2008).

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

1.2 Crude Oil

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

(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 1 ........................How Pipelines Differ

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

• Chapter 12 .....................Engineering and Design—Storage

3. Samuel Van Vactor. Introduction to the Global Oil and Gas Business (Tulsa, OK: PennWell Books, 2010).

• Chapter 3.......................Oil Pricing

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

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

Available online: http://www.purvingertz.com/userfiles/products/PurvinGertz_WTI_Benchmark_Study.pdf



1.3 Refined Petroleum Products

1. James H. Gary, Glenn E. Handwerk and Mark. J Kaiser. Petroleum Refining: Technology and Economics,

5th Edition (New York: CRC Press, 2007).

• Chapter 1 ........................Introduction (through section 1.8)

• Chapter 14.3..................Economics and Planning Applications

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

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

1.4 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

Natural Gas and LNG—18 Questions

2.1 Natural Gas

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

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

2. Rebecca L. Busby. Natural Gas in Nontechnical Language (Tulsa, OK: PennWell Books, 1999).

• Chapter 8.......................Regulatory History of the Gas Industry

3. Arthur J. Kidnay and William R. Parrish. Fundamentals of Natural Gas Processing (Boca Raton, FL: Taylor

and Francis, 2006).

• Chapter 12 .....................Transportation and Storage

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

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

2.2 LNG

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

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

2. Michael D. Tusiani and Gordon Shearer. LNG: A Nontechnical Guide (Tulsa, OK: PennWell Books, 1999).

• Chapter 1 ........................The Liquefied Natural Gas Industry

• Chapter 3.......................The LNG Chain: The Project Nature of the LNG Business

• Chapter 11 ......................The Economics of an LNG Project



Electricity Production and Distribution—18 Questions

3.1 Electric


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

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

Sons, 2006).

• Chapter 6.......................Power Capacity

• 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

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

4. Richard Baxter. Energy Storage: A Nontechnical Guide (Tulsa, OK: PennWell Books, 2006).

• Chapter 4.......................Applications

3.2 Coal

1. 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 2.......................The Coal Resource Base

3.3 Nuclear and Hydroelectric

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 8.......................Nuclear and Hydropower

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

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

Renewables and Carbon Emissions—9 Questions

4.1 Renewables

1. Fisher Investments. Fisher Investments on Energy (Hoboken, NJ: John Wiley & Sons, 2009).

• Chapter 6.......................Alternative Energy

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 3.......................Biomass

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

4.2 Carbon Finance and Emissions

1. Tom James and Peter Fusaro. Energy and Emissions Markets: Collision or Convergence? (Singapore. John Wiley

& Sons (Asia) Pte Ltd., 2006).

• Chapter 3.......................Green Trading Schemes

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

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



FINANCIAL MARKETS—Exam Weight | 50%

• Financial Products and Valuation

• Modeling and Valuing Energy Transactions

• Risk Management Techniques

Financial Products and Valuation—36 Questions

5.1 Commodity Forwards and 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 (Boston: Addison-Wesley, 2003).

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

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

• Chapter 5.......................Relationship Between Risk Premium and Convenience Yield Models

5.2 Energy Derivatives

1. 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 2.......................Energy Derivatives

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

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

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

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

3. Alexander Eydeland and Krzysztof Wolyniec. Energy and Power Risk Management: New Developments in

Modeling, Pricing, and Hedging (Hoboken, NJ: John Wiley & Sons, 2003).

• Chapter 8.......................Structured Products: Fuels and Other Commodities

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


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

• Chapter 7.......................Energy Options Strategies

5.3 Electricity Products

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

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


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

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

5.4 Natural Gas Products

1. Fletcher J. Sturm. Trading Natural Gas: A Nontechnical Guide (Tulsa, OK: PennWell Books, 1997).

• Chapter 4.......................Hedging and Trading Instruments



Modeling and Valuing Energy Transactions—27 Questions

6.1 Intro to Energy Modeling

1. Dragana Pilipovic. Energy Risk: Valuing and Managing Energy Derivatives, 2nd Edition (New York: McGraw-Hill, 2007).

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

• Chapter 3.......................Modeling Principles and Market Behavior

6.2 Essential Statistics


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

6.3 Spot Price Modeling


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

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

Publications, 2000).

• Chapter 6.......................Spot Price Models and Pricing Standard Instruments

6.4 Forward Price Modeling


• Chapter 6.......................The Forward Price Curve

• Chapter 7.......................Building Marked-to-Market Forward Price 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

6.5 Volatility Estimation



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


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

6.6 Modeling Energy Price Behavior

1. Alexander Eydeland and Krzysztof Wolyniec. Energy and Power Risk Management: New Developments in

Modeling, Pricing, and Hedging (Hoboken, NJ: John Wiley & Sons, 2003).

• Chapter 4.......................Reduced-form Processes

6.7 Modeling Electricity Price Behavior



• Chapter 4.......................Fundamental Market Models


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



Risk Management Techniques—27 Questions

7.1 Overview of Energy Risks

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

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

2. John Wengler. Managing Energy Risk: A Nontechnical Guide to Markets and Trading (Tulsa, OK: PennWell Books, 2001).

• Chapter 6.......................Energy Risk Boot Camp: “Must Know” Concepts for Managers and Directors

3. Tom James and Peter Fusaro. Energy and Emissions Markets: Collision or Convergence? (Singapore.

John Wiley & Sons (Asia) Pte Ltd., 2006).

• Chapter 10.....................What Risk? An Introduction to Managing Risk

4. Steve Leppard. Energy Risk Management: A Non-technical Introduction to Energy Derivatives (London: Risk Books, 2005).

• Chapter 8.......................Wider Risk Management Questions

7.2 Operational Risk

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

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

7.3 Risk Management Controls


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

2. Tom James and Peter Fusaro. Energy and Emissions Markets: Collision or Convergence? (Singapore.

John Wiley & Sons (Asia) Pte Ltd., 2006).

• Chapter 11 ......................Risk-Policy Guidelines

7.4 Value-at-Risk (VaR)



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

2. 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

7.5 Hedging Physical Assets


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

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

Risk Books, 2005).

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

7.6 Hedging Financial Assets


• Chapter 6.......................Options Trading and Hedging Application Strategies



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



7.7 Hedge Accounting


• Chapter 17 .....................Accounting for Energy Derivatives Trades

7.8 Managing Credit Risk



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


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

3. Vincent Kaminski (ed). Energy Modeling: Advances in the Management of Uncertainty (London: Risk Books, 2005).

• Chapter 12 .....................Credit Risk Management for the Energy Industry—Some Perspectives

4. Eduardo Canabarro and Darrell Duffie. ALM of Financial Institutions, ed. Leo Tilman (London: Euromoney, 2003).

• Chapter 9.......................Measuring and Marking Counterparty Risk

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 and technology breakthroughs. Global energy risk managers must remain abreast of these

developments to effectively manage risk in their businesses. With this goal in mind, GARP is introducing a new “Current Issues in

Energy” section for the 2011 ERP Examination. The “Current Issues” section is designed to familiarize ERP candidates with new devel-

opments 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 2011 ERP Examination include Dodd-Frank regulation and its potential impact on energy firms, an introduction to the

Smart Grid, analysis of the 2008 oil price shock and an overview of modern shale gas development. While three of the four topics

focus specifically on the United States, they address topics that will affect energy markets globally; ERP Candidates should consider

this impact when reviewing the material and preparing for the exam. Each reading is current as of November 15, 2010 and candidates

can expect to be tested on the information throughout 2011. Subsequent developments in these topics, or any new areas of focus, will

be captured on the 2012 ERP Examination.

Readings for Current Issues in Energy—18 Questions

1. Skadden, “Energy Derivatives Under the Dodd-Frank Act,” (July 2010).

Available online: http://www.skadden.com/Index.cfm?contentID=51&itemID=2171

2. Sidley Austin, “The Dodd-Frank Act’s Effect on Hedging Activities of Energy Companies and Large Energy Consumers”

Available online: http://www.sidley.com/SidleyUpdates/Detail.aspx?news=4622

3. US Department of Energy, “The Smart Grid: An Introduction”

Available online: http://www.oe.energy.gov/DocumentsandMedia/DOE_SG_Book_Single_Pages(1).pdf

4. Global Public Policy Institute, “The 2008 Oil Price Shock”

Available online: http://www.gppi.net/fileadmin/gppi/GPPiPP1_Oil_Prices_2009.pdf

5. ALL Consulting Report, “An Overview of Modern Shale Gas Development in the United States”

Available online: http://www.all-llc.com/publicdownloads/ALLShaleOverviewFINAL.pdf

2011 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 .............................Vice President and Chief Risk Officer, BlueStar Energy Services

Creating a culture of risk awareness.TM

Global Association ofRisk Professionals

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Minster House, 1st Floor42 Mincing LaneLondon EC3R 7AEUK+ 44 (0) 20 7397 9630

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© 2011 Global Association of Risk Professionals. All rights reserved. 12-10

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. 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 risk management viacomprehensive professional education and training for professionals of all levels. www.garp.org.

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