December 30, 2004
ENERGY TRADING: Gas, Power and Oil
January 18 – May 2, 2005
Mark Haedicke, J.D.
Class Time:6-9 pm
Room: 210 Melcher Hall
CONTACT INFORMATION:
Professor Mark Haedicke
Office room:Room 320 Melcher Hall
Office hours:By appointment
Office phone number:TBA
Email:
Course website:
COURSE MATERIALS:
1. Websites: See reading assignments below.
SUGGESTED RESOURCES:
1. Nontechnical Guide to Gas Trading, Fletch Sturm.
2. Gas Commodity Markets, Energy Law and Transactions, Mark Haedicke and Alan Aronowitz.
3. International Swaps and Derivatives Association Whitepaper: Restoring Confidence in the US Energy Trading Markets
COURSE OBJECTIVES:
The primary objectivesof the course are to (i) understand the components of a successful energy trading business,(ii) learn the basics of trading natural gas, power and oil, and (iii) study the management issues with respect to energy trading businesses. Specific topics to be covered include: forward price curves, developing and maintaining an energy trading book, futures trading, over-the-counter trading, energy trading contracts, contract negotiation, energy trading laws, and risk management for energy trading.
PROJECTS:
Forward Price Curve: Develop a forward price curve for gas, power or oil for calendar year 2005. Research available data in the marketplace re your selected commodity, such as futures prices, projected economic activity and weather forecasts. The project should consist of (i) a graph of your forward price curve with price of the commodity on one axis and time on the other and (ii) a one page description of the data that you researched and considered in building your forward price curve. The project is due at the start of the 3rd class and you should be prepared to present your project.
Energy Trading Book: You will start with $100,000 in capital and you will trade energy futures during the course – with at least one trade a week. You will keep track of your positions and your profits and losses on an excel spreadsheet. You must comply with all margining rules, but ignore expenses. Each week we will spend some time reviewing what happened in the energy markets during the past week. This project will be turned in on the second to last class.
Paper on Energy Trading Correlation: Correlations between energy commodities are important since it may be necessary to “put on a dirty hedge.” Pick two energy commodities and write a paper not longer than two pages in length, which (i) describes numerically the current correlation between the prices of the two commodities and (ii) whether or not you expect that correlation to change in the future.
EVALUATIONS:
The final grade will be determined as follows:
Class Participation 20% 100 points
Forward Price Curve 10% 50 points
Energy Trading Book 20% 100 points
Midterm Exam 20% 100 points
Paper on Energy Product Correlation 10% 50 points
Final Exam 20% 100 points
Total 100% 500 points
The midterm and final exams questions will be structured as: true/false, short answer, and essay.
SCHEDULE:
Class 1 (Jan 18): Deregulation of Energy andOverview of Energy Trading. Start reviewing trading terms in the glossary at and definitions at
Class 2 (Jan 25): Fundamentals of Energy Trading. What drives energy prices? Weather (see , supply (production), demand (economy), OPEC, storage (eia website), transportation and transmission issues. Review Energy Information Administration website for gas, power and oil at
Class 3 (Feb 1): Gas Markets – Financial:Review the New York Mercantile Exchange website ( and specifically the NYMEX gas and options contracts. Also, review website for Man Financial at a broker for trading energy futures.
Class 4 (Feb 8): Gas Markets – OTC: Overview of the key gas trading points and various developing gas trading strategies for managing gas energy price risk.Turn in forward price curve assignment.
Class 5 (Feb 15): Power Markets– Financial: Review the NYMEX website ( and specifically the NYMEX power contract.
Class 6 (Feb 22): Power Markets – OTC: Overview of key power trading points and specifically PJM. Review PJM website at and specifically the Financial Transmission Rights traded on PJM.
Class 7 (Mar 1): Oil Markets -- Financial. Review the NYMEX website ( and specifically the NYMEX oil contract. Review key international markets, exchanges and pricing points.
Class 8 ( Mar 22): Oil Markets – OTC: Overview of the key oil trading points and various developing oil trading strategies for managing oil price risk. Review OTC oil trading contract forms to be provided.
Class 9 (Mar 29): Mid-term exam
Class 10 (Apr 5): Energy Trading Contracts: Read 1992 ISDA Master Agreement at EEI Master Power Purchase & Sale Agreement at NAESB Contract for Sale of Natural Gas at and WSPP Power contract at Review the contracts for the key concepts therein.
Class 11 (Apr 12): ISDA Shootout Negotiation Exercise and Presentation of Results. Read 1992 ISDA Master, 1992 ISDA Schedule and 1994 ISDA Credit Support Annex in preparation for an ISDA negotiation.
Class 12 (Apr 19): Energy Trading: Regulation of an Industry in Crisis. Review and and be prepared in the class discussion to present at least two actions taken by the regulators – Commodity Futures Trading Commission and the Federal Energy Regulatory Commission to address the crisis in energy trading.
Class 13 (Apr 26): Risk Management: Read Chief Credit Risk Officers websiteat be prepared to discuss the issues re codes of conduct and controls for management of price and credit risk.
Class 14 (May 2): Review and Exam
EVALUATIONS
There is a policy that requires all instructors to be evaluated bytheir students. The results of these evaluations are important to provide feedback to instructors on how their performance can be improved. In addition, these evaluations are carefully considered in promotion, salary adjustment, and other important decisions. I openly encourage students to provide feedback through the evaluation process.
DISCLAIMER
I reserve the right to cancel, change, modify, rearrange or otherwise divert from this syllabus, to make changes as I deem appropriate, or to change, without notice, any of the information, or requirements if I deem such change to be appropriate, in the best interest of the class as a whole, or when necessary due to unforeseen circumstances.
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