2016 Erp Studyguide Finalv3

2016 ERP Exam
Study Guide
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THE ENERGY RISK PROFESSIONAL (ERP) EXAMINATION
The 2016 ERP Exam has been redesigned to better

accommodate the needs of candidates who strive to
achieve the designation. The volume and diversity
of content necessary to comprehensively assess
knowledge of the energy markets has grown in recent
years, making it increasingly challenging for many
candidates to prepare for a single 8-hour exam.
Beginning in 2016, we are introducing a new 2-part
exam structure that provides candidates the flexibility to
complete the ERP in one or two separate exam cycles.
The 2-part ERP Exam is designed to assess
knowledge of the physical energy commodity and
electricity markets, trading and structuring of
financial energy contracts, and the tools required to
identify, measure, and manage risk across the energy
value chain.
The ERP curriculum is guided by GARPs Energy
Oversight Committee (EOC) comprised of senior
practitioners and academics with diverse backgrounds
from across the energy industry.
2016 Energy Risk Professional (ERP) Exam Study Guide
2016 ERP STUDY GUIDE

The 2016 ERP Study Guide summarizes the core concepts and readings required
to prepare for the ERP Part I and Part II Exams, respectively. Current topics and
readings have been selected by the EOC to ensure the exam curriculum remains
timely and relevant for energy industry professionals. Several core concepts
are linked to online sources that are available for download directly from the
GARP website. Each online reading will be annotated with an asterisk (*) on the
following pages.
Returning 2015 ERP candidates should download and review the 2016 ERP
Study Guide Changes document before they begin to prepare for the 2016
examinations. The Study Guide Changes document summarizes new readings,
updated editions, and deleted readings relative to the 2015 curriculum.
2016 ERP EXAM LEARNING OBJECTIVES

All 2016 ERP candidates should download and review the ERP Exam Learning
Objectives Document for each reading. The Learning Objectives highlight detailed
knowledge points that candidates are expected to understand and apply from
each reading. Exam questions are developed from and directly linked to a specific
Learning Objective.
EXAM STRUCTURE
The distribution of questions for each section of the 2016 ERP Exams is
summarized below. The weights were chosen in conjunction with the EOC to create
a balanced curriculum that reflects the relative importance of topics and functions
across the energy value chain.
The ERP Part I exam is a 4-hour exam consisting of 80 multiple choice

questions drawn from the following physical energy market topics:
Introduction to Energy Commodities and Risk Management
Crude Oil Markets and Refined Products
Natural Gas and Coal Markets
Electricity Markets and Renewable Generation
10%
35%
25%
30%
8 questions
28 questions
20 questions
24 questions
ERP Exam Part I Total
100%
80 questions
The ERP Exam Part II is a 4-hour exam consisting of 60 multiple choice

questions drawn from the following financial energy market and risk
management topics:
Price Formation in Energy Markets
Financial Energy Products
Risk Management Tools
15%
25%
60%
9 questions
15 questions
36 questions
ERP Exam Part II Total
100%
60 questions
2016 Global Association of Risk Professionals. All rights reserved.
) Exam Study Guide
ERP Exam Part I

Introduction to Energy Commodities
and Risk Management
Part I Exam Weight | 10%
Introduction to Energy Commodities and Risk Management
Linking Physical and Financial Energy Markets
Forward contracts and carry
Market liquidity
Risk Management Overview
The risk management process
Basic types of risk
Readings for Introduction to Energy Commodities and Risk Management | 8 Questions

1.
Glen Swindle. Valuation and Risk Management in Energy Markets. (New York: Cambridge University
Press, 2014).
Chapter 1
Context
Chapter 2
Forwards and Carry
Chapter 3
Macro Perspective
2. Michel Crouhy, Dan Galai and Robert Mark. The Essentials of Risk Management, 2nd Edition. (McGraw
Hill Education, 2014).

Chapter 1
Risk Management: A Helicopter View
Appendix 1.1
Typology of Risk Exposures
*An asterisk (*) before a reading title indicates that the reading is freely available on the GARP website.
4
Crude Oil Markets and Refined Products

Exploration, Production, and Project Development
Proved, possible and probable reserves
Barrel of Oil Equivalent
Contractual and concessionary systems
Production sharing agreements
Lease provisions including royalty payments
Economic valuation of oil/gas projects
Upstream economics, including: wellhead price, break-even price
and tax allocations
Partnership arrangements and the allocation of working interests
Real Options valuation analysis
Petroleum Refining
Refinery complexity
Refining margins and price formation
Crack spread
Specifications and requirements
Finished products and pricing
Renewable Identification Numbers (RINs)
Global Benchmarks and Price Formation
Grades of crude oil
Brent, WTI, Dubai-Oman
Oil trading related to benchmark pricing
Crude Oil Transportation and Storage
Pipeline, seaborne, and rail economics
Worldscale and Incoterms
Creating and regulating a safety culture
Unconventional Oil
Unconventional resources defined
Conventional vs. unconventional project economics
Readings for Crude Oil Markets and Refined Products | 28 Questions

1.
Andrew Inkpen and Michael H. Moffett. The Global Oil and Gas Industry: Management, Strategy and
Finance. (Tulsa, Oklahoma: PennWell Books, 2011).

Chapter 3
Access, Leasing, and Exploration
Chapter 4
Developing Oil and Gas Projects
Chapter 5
Production of Oil and Gas Products
Chapter 6
Fiscal Regimes
Chapter 10
The Market for Crude Oil
Chapter 12
Refining
2. *An Introduction to Petroleum Refining and the Production of Ultra Low Sulfur Gasoline and Diesel
Fuel. The International Council on Clean Transportation. MathPro (Oct 2011).

3. *What Drives US Gasoline Prices? US Energy Information Administration (Oct 2014) (Pages 1-20 only).
4. *Michael D. Plante and Mine Yucel. Renewable Fuel Standards Hit the Blend Wall. Federal Reserve
Bank of Dallas Economic Letter (March 2014).
5. Charlotte Wright & Rebecca Gallun. Fundamentals of Oil & Gas Accounting, 5th Edition. (Tulsa,
Oklahoma: PennWell, 2008).

Chapter 15
Accounting for International Petroleum Operations
6. Betty J. Simkins and Russell E. Simkins, eds. Energy Finance and Economics: Analysis and Valuation,
Risk Management, and the Future of Energy. (Hoboken, New Jersey: John Wiley & Sons, 2013).

Chapter 11
Real Options and Applications in the Energy Industry
7. Vincent Kaminski. Energy Markets. (London, UK: Risk Books, 2012).

Chapter 16
Oil Transportation and Storage
Chapter 17
Oil Pricing
8. *Guide to the Incoterms 2010 Rules & Reference Chart. International Chamber of Commerce (2010).
9. *Transporting Crude Oil by Rail in Canada. Canadian Association of Petroleum Producers (March 2014).
10. *Moving Energy Safely: A Study of the Safe Transport of Hydrocarbons by Pipelines, Tankers and
Railcars in Canada. Canadian Senate Committee on Energy, the Environment and Natural Resources
(Aug 2013).
11. *Deborah Gordon. Understanding Unconventional Oil. The Carnegie Papers (May 2012).
6
Natural Gas and Coal Markets

Physical Properties
Types of gas
Units of measurement and heat content
Contractual terms contained in a gas sales agreement
Transportation and Storage
Pipeline and storage economics
Global Natural Gas Markets and Price Dynamics
Hub pricing and basis markets
LNG regasification, transportation, and market dynamics
Oil indexation
Impact of US shale gas revolution on global markets
Natural Gas Liquids (NGLs) and Condensates
Global Coal Markets and Price Formation
Physical properties
Global benchmarks, contract specifications and trading
Fundamentals of global coal markets
Readings for Natural Gas and Coal Markets | 20 Questions

1.
Vivek Chandra. Fundamentals of Natural Gas: An International Perspective. (Tulsa, Oklahoma: PennWell
Books, 2006).

Chapter 4
Contracts and Project Development (Gas Sales and Transportation

Contracts sections only)
2. Vincent Kaminski. Energy Markets. (2012).

Chapter 10
Natural Gas Transportation and Storage
Chapter 26
Coal Markets
3. *Gas Storage Industry Primer. Niska (April 2010).

4. *International Gas Union. Wholesale Gas Price Formation: A Global View of Price Drivers and Regional
Trends (June 2011). Sections 1 to 5, and 8 to 10 only.

5. Andrew Inkpen and Michael H. Moffett. The Global Oil and Gas Industry: Management, Strategy and
Finance (2011).

Chapter 9
Liquefied Natural Gas
6. *International Energy Agency. Developing a Natural Gas Trading Hub in Asia: Obstacles and Challenges
(2013).
7. *Bassam Fattouh, Howard V. Rogers, and Peter Stewart. The US Shale Gas Revolution and its Impact on
Qatars Position in Gas Markets. Columbia Center on Global Energy Policy (March 2015).
8. *Oxford Energy: US NGL Production and Steam Cracker Substitution (Sept 2014).
9. *Jesse Thompson. Producers, Refiners View Strategies to Trim Texas Glut of Ultralight Condensate Oil.
Federal Reserve Bank of Dallas (Q4 2014).
10. *Richard K. Morse and Gang He. The Worlds Great Coal Arbitrage: Chinas Coal Import Behavior and
Implications for the Global Coal Market (Aug 2010).
8
Electricity Markets and

Renewable Generation
Economics of Electricity Markets
Baseload, mid-merit, and peak generation
Consumer demand Value of Lost Load (VOLL)
Load management
Investing in generation
Global Market Design
ISOs, RTOs and power pools
Day-Ahead and Real-Time markets
Energy-only vs. capacity markets
Transmission and Distribution
Mechanics
Congestion, losses, and pricing
Analytical Tools and Structured Solutions for Electricity Markets
Heat rate
Spark spreads
Generation stack
Ancillary services
Capacity payments
Financial Transmission Rights (FTRs)
Tolling agreements
Renewable Generation and Integration
Wind and solar economics
Grid integration
Emissions
Emissions reduction programs and regulation
Readings for Electricity Markets and Renewable Generation | 24 Questions

1.
Daniel Kirschen and Goran Strbac. Fundamentals of Power System Economics (West Sussex, UK: John
Wiley & Sons, 2004).

Chapter 3
Chapter 4
Chapter 6
Transmission
Chapter 7
Investing in Generation
Markets for Electrical Energy

Participating in Markets for Electrical Energy (Sections 4 to

4.3.1.14 only)
2. Vincent Kaminski. Energy Markets (2012).

Chapter 22
Analytical Tools
Chapter 23
Electricity Market Transactions
3. *Kenneth Skinner. Heat Rates, Spark Spreads and the Economics of Tolling Agreements (Dec 2010).
4. *Market Evolution: Wholesale Electricity Market Design for 21st Century Power Systems (Oct 2013).
Sections 1 - 4 only.
5. Kathleen Spees, Samuel A. Newell, and Johannes P. Pfeifenberger. Capacity Markets Lessons Learned
from the First Decade. Economics of Energy & Environmental Policy, 2013, Volume 2, Number 2.
6. *Federal Energy Regulatory Commission: Operator Initiated Commitments in RTO and ISO Markets
(Dec 2014).
7. Rebecca Busby. Wind Power: The Industry Grows Up. (Tulsa, Oklahoma: PennWell Books, 2012).

Chapter 6
Wind Farms: Developing and Operating Wind Power Plants
8. *MIT Interdisciplinary Study. The Future of Solar Energy (2015).

Chapter 1
Introduction and Overview
Chapter 4
Solar PV Installations
Chapter 8
Integration of Solar Generation in Wholesale Electricity Markets
9. *Jurgen Weiss and Bruce Tsuchida. Integrating Renewable Energy into the Electricity Grid. Advanced
Energy Economy Institute (June 2015).
10. Andrea Roncoroni, Gianluca Fusai, Mark Cummins, eds. Handbook of Multi-Commodity Markets and
Products: Structuring, Trading and Risk Management. (West Sussex, UK: John Wiley & Sons, 2015).

Chapter 5
Emissions Markets and Products
10
gy Risk Pr
tudy Guide
Price Formation in Energy Markets

Part II Exam Weight | 15%
Statistics and Probability
Random variables and probability distributions
Expected value, mean, variance, and standard deviation
Skew and kurtosis
Joint and marginal probability distributions
Covariance and correlation
Minimum variance hedging
Technical Properties of Energy Price Formation
Geometric Brownian Motion
Mean reversion
Spikes and seasonality
Volatility
Fundamental Characteristics of Commodity Price Formation
Macroeconomic factors
Short-run price drivers
Long-run price drivers
11
Readings for Price Formation in Energy Markets | 9 Questions

1.
Michael Miller. Mathematics and Statistics for Financial Risk Management, 2nd Edition. (Hoboken, NJ:
John Wiley and Sons, 2014).

Chapter 2
Probabilities
Chapter 3
Basic Statistics (Averages - Kurtosis only)
Chapter 4
Distributions (Parametric - Students t Distribution only)
2. Les Clewlow and Chris Strickland. Energy Derivatives: Pricing and Risk Management.
(Lacima Publications, 2000).

Chapter 2
Understanding and Analyzing Spot Prices
Chapter 3
Volatility Estimation in Energy Markets
3. *Hillard Huntington, Saud M. Al-Fattah, Zhuo Huang, Michael Gucwa, and Ali Nouri. Oil Price Drivers
and Movements: The Challenge for Future Research. (2012 Rev. 2013).
12
Financial Energy Products

Forwards and Futures
Market mechanics
Storage costs
Arbitrage theory
Valuation and hedging
Backwardation and contango
Energy Commodity Swaps
Basis swaps
Swing swaps
Fixed-floating, floating-floating, and index swaps
Exchange for physicals (EFP)
Options and Option Strategies
Market mechanics
Plain-vanilla options
Spreads, straddles, collars, caps and floors
Hedging using options
Swing options and Volumetric Production Payments (VPPs)
Weather derivatives, CDDs and HDDs
Global Regulation of Financially Traded Energy Products
13
Readings for Financial Energy Products | 15 Questions

1.
Robert McDonald. Derivatives Markets, 3rd Edition. (Pearson: 2013).

Chapter 4
Introduction to Risk Management
Chapter 6
Commodity Forwards and Futures
(Sections 6.1 to 6.3, and 6.6 to 6.8 only)
2. *International Energy Agency. The Mechanics of the Derivatives Markets: What They Are and How They
Function (April 2011).

3. Vincent Kaminski. Energy Markets (2012).

Chapter 4
Energy Markets: The Instruments
Chapter 11
US Natural Gas Markets
Chapter 18
Transactions in the Oil Markets
4. *Gordon Goodman. Swaps: Dodd-Frank Memories (July 2013).

5. *Gordon Goodman. Dodd-Franks Impact on Financial Entities, Financial Activities and Treasury
Affiliates (Oct 2013).

6. *Financial Conduct Authority: Regulating the Commodity Markets: A Guide to the Role of the FCA
(Feb 2014).
14
Risk Management Tools

Creating an Energy Risk Management Framework
Model control framework and validation of pricing inputs.
Quantifying Market Risk
Options and derivative risks
Value at Risk (VaR): calculations, applications, and limitations
Historical and implied volatility, variance, skew and smile
Modeling processes (EWMA, GARCH, etc.)
Stress testing
Liquidity risk and Liquidity Adjusted VaR
Credit Risk and Assessment
Credit ratings, scoring and risk modeling
Oil and gas lending structure and collateral valuation
Counterparty Credit Exposures, Pricing, Mitigation and Documentation
Settlement and replacement risk
Potential future exposure
Netting agreements
Collateralization
Credit Valuation Adjustment (CVA)
ISDA Master and Credit Support Annex
Central counterparty clearing
Expected loss, loss given default, and probability of default
Country Risk Determinants, Measures, and Implications
Sovereign risks, ratings, and assessment
Political, economic, social, and security risks
Enterprise Risk Management
Determining and communicating risk appetite and risk tolerance
Risk identification, assessment and mitigation process
15
Integrating risk into strategic decisions

Quantitative and Qualitative Risk Measures
Key Risk Indicators (KRIs)
Key Performance Indicators (KPIs)
Business Ethics and the GARP Code of Conduct
16
Readings for Risk Management Tools | 36 Questions

1.
Glen Swindle. Valuation and Risk Management in Energy Markets. (New York: Cambridge University
Press, 2014.)

Chapter 16
Control, Risk Metrics and Credit
2. John C. Hull. Risk Management and Financial Institutions. (Hoboken: John Wiley & Sons, 2015).

Chapter 8
How Traders Manage Risk
Chapter 10
Volatility
Chapter 12
Value at Risk and Expected Shortfall
Chapter 24
Liquidity Risk
3. Les Clewlow and Chris Strickland. Energy Derivatives: Pricing and Risk Management
(Lacima Publications, 2000).

Chapter 10
Value-at-Risk
4. Kevin Dowd. Measuring Market Risk, Second Edition. (West Sussex, UK: John Wiley & Sons, 2005).

Chapter 13
Stress Testing
5. Markus Burger, Bernhard Graeber, and Gero Schindlmayr. Managing Energy Risk: An Integrated View on
Power and Other Energy Markets (Hoboken, NJ: John Wiley & Sons, 2007).

Chapter 3.4
Risk Management (Credit Risk section only)
6. Jon Gregory. Counterparty Credit Risk and Credit Value Adjustment: A Continuing Challenge for Global
Financial Markets. (West Sussex, UK: John Wiley & Sons, 2012).

Chapter 3
Defining Counterparty Credit Risk
Chapter 4
Netting, Compression, Resets and Termination Features
Chapter 5
Collateral
Chapter 7.
Central Counterparties
Chapter 8
Credit Exposure
Chapter 12
Credit Valuation Adjustment (Section 12.1 only)
7. Allan Malz. Financial Risk Management: Models, History, and Institutions. (Hoboken, NJ: John Wiley &
Sons, 2011).

Chapter 6
Credit and Counterparty Risk
8. *Aswath Damodaran. Country Risk Determinants, Measures and Implications 2015 Edition (July 2015)
(Pages 1 - 39 only).
17
9.
*Luke Patey. Kenya: An African Oil Upstart in Transition. Oxford Energy (Oct 2014).
10. *Oil and Gas Production Lending. Office of the Comptroller of the Currency (March 2016).
11. *Larry Rittenberg and Frank Martens. Enterprise Risk Management Understanding and
Communicating Risk Appetite. COSO (January 2012).

12. John Fraser and Betty Simkins. Enterprise Risk Management: Todays Leading Research and Best
Practices for Tomorrows Executives. (Hoboken: John Wiley & Sons, 2010).
Chapter 8
Identifying and Communicating Key Risk Indicators
Chapter 16
Operational Risk Management
13. *Global Association of Risk Professionals (GARP). Code of Conduct.
18
2016 ERP Oversight Committee

Richard Apostolik
Global Association of Risk Professionals
Dr. Lawrence Austen
Trafigura
Ben Baglin, ERP
EDF Trading
Gordon E. Goodman
NRG Energy
Dr. Vince Kaminski
Rice University
Glenn Labhart, EOC Chair
Labhart Risk Advisors
Alessandro Mauro
Litasco SA
Mark D. May
Phillips 66
Dr. John Parsons
Massachusetts Institute of Technology
Michael Sell
Jonathan C. Stein
Hess Corporation
Andrew Sunderman
Direct Energy
Dr. Chris Strickland
Lacima Group
Dr. Glen Swindle
Scoville Risk Partners
Gary Taylor
British Petroleum
19
Creating a culture of risk awareness

111 Town Square Place
14th Floor
Jersey City, New Jersey 07310
U.S.A.
+ 1 201.719.7210
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Bengal Wing
9A Devonshire Square
London, EC2M 4YN
U.K.
+ 44 (0) 20 7397 9630
www.garp.org
About GARP | The Global Association of Risk Professionals (GARP) is a not-for-profit global membership organization dedicated to
preparing professionals and organizations to make better informed risk decisions. Membership represents over 150,000 risk management 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 risk management via comprehensive professional education and training for professionals of all levels.

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2016 ERP Exam

The globally rec

THE ENERGY RISK PROFESSIONAL (ERP) EXAMINATION

The 2016 ERP Exam has been redesigned to better

2016 Energy Risk Professional (ERP) Exam Study Guide