Energy Derivatives

This two-day course offers a thorough introduction to the energy markets and their related derivatives. The course is designed for traders who are new to the energy markets or for back- and middle-office staff who want an overview of how energy derivatives work, how they are priced and an understanding of the energy markets that underlie them. The course covers the key areas of the energy derivatives market including oil, natural gas, and electricity, as well as the carbon market and emissions trading.

Energy Pricing & Derivatives

  • Types of energy and energy markets
  • Energy market drivers
  • Spot and forward pricing – Contango & Backwardation
  • The importance of forward curves
  • Limitations of forward pricing and the changing shape of the curve
  • Calculating the convenience price and yield

Energy Derivatives

  • Futures
  • Pricing of swaps
  • Take or pay contracts
  • Options
  • Option valuation using Black ’76
  • Energy exotics – Asian options, spread and swing, energy caps, floors and collars

Oil Markets & Derivatives

  • Introduction to oil: world reserves and production
  • Crude types: Sweet n’ sour, Heavy n’ light
  • Marker crudes and benchmark pricing: WTI; Brent – Dated Brent, Brent forwards; Dubai
  • Using CFD’s to hedge the basis
  • Differential swaps and spreads: pricing a differential swap
  • Crude oil fundamental drivers
  • The refining process and distillates markets
  • Refining netbacks
  • Pricing a Crack Spread
  • Crack curves and using Cracks as distillate stock level predicators

Natural Gas & Derivatives

  • Natural gas types
  • Gas market supply and demand, reserves and consumption
  • Gas market drivers
  • Gas transportation
  • The US gas market
  • Pipelines and hubs
  • Market Centre (Hub) services
  • Delivery basis
  • The UK & European gas markets
  • On-the-Day Commodity Market (OCM)
  • Gas storage and terminals
  • Liquefied Natural Gas (LNG)

Electricity Markets

  • Introduction to electricity
  • Electricity market structure
  • The electricity market: Nord Pool
  • The UK electricity market
  • Electricity price drivers
  • Electricity derivatives: forwards, swaps, spreads and options
  • Spark and Dark spreads
  • Calculating Spark and Dark spreads
  • The Adjusted (Clean) Spark spread
  • Guarantees of Origin (GoOs) and Renewable Energy Guarantees of Origin (REGOs)

Carbon & Emissions Markets

  • Greenhouses gases and the carbon markets
  • The EU Emissions Trading System: Phases I to IV
  • The Clean Development Mechanism
  • Voluntary schemes: The Climate Exchanges

Trading Carbon Emissions

  • EU-Allowances (EUA) and Certified Emissions Reductions (CER)
  • The shape of the EUA and CER curves
  • The EUA basis
  • EUR/CER spreads
  • Correlations with fuels
  • Emissions swaps