This proven program is for energy and electric power professionals who are looking for a comprehensive and clearly explained understanding of natural gas, oil and electricity financial instruments, the markets they trade in, and how these powerful tools can be used to manage risk and structure profitable transactions.
What You Will Learn
- How to use futures contracts, options, swaps, trigger deals, ''The Master Energy Hedging Equation''
and other techniques to create customized risk management solutions to
protect your company from natural gas, oil and electricity price risk,
basis & LMP risk, delivery risk and volumetric (intermittency) risk.
physical and cash settled futures contracts, over-the-counter energy
swaps and physical forward contracts are traded and the purposes served
by these markets.
- How the ICE and CME-NYMEX futures exchanges
and electronic marketplaces function, and what the differences are
between ICE OTC, ICE Futures, CME Globex, CME Clearport Services and The
- How ''cash margining'' is done with a futures exchange, its cash management impact and the role of the Clearinghouse.
- What the differences are between a futures commission merchant (''FCM''), over-the-counter broker, trader, market-maker, power marketer and wholesale energy merchant.
- What basis risk is, and how basis, spread, LMP and delivery risks can blow up your energy and electricity hedges.
- Why Trigger Deals are so popular, and what the difference is between the financial and physical basis (''fin'' and ''phys'').
to structure profitable energy, electric power, and petroleum
transactions without exposure to price risk; and how to financially turn
one commodity into another.
- How to make money by buying
valuable energy options from your customers and suppliers, and how your
company may be missing a significant financial opportunity.
- Why ''extendible'' deals can be profitable, and how energy trading floors ''trade around assets.''
- What the terms ''Contango'' and ''Backwardation'' mean.
You Will Also Learn
The Master Energy Trading Equation is, and why trading energy and
electricity is different from the trading financial products and other
- The many different types of energy and electricity
trading, why traders specialize, and the different ways energy traders
can get an ''edge'' on the competition.
- What the rationale,
concepts and mechanics are for basis trading, spread trading, trading
around assets and structured transactions.
- The fundamentals of
energy and electricity options, the implications of high energy price
volatility, and why merchant energy and electric power assets are
valuable Call options.
- How to hedge energy and electricity price
risk with CME-NYMEX options contracts, cash settled OTC options and
physical peaking options; and how to create price caps, price floors and
''no cost'' collars.
- How to calculate annualized volatility,
the fundamentals of pricing options and why the Black and Black-Scholes
models need to be modified to price energy and electricity options.
- The put-call option parity equation, synthetic option positions and how to delta hedge.
- What Tolling Deals, Asset Optionality, and the petroleum industry's ''Carry Trade'' are, and how they work.
a merchant fossil fuel generating plant is a call option on the spot
spark spread, and you will learn a simple rule that will optimize your
daily decisions on whether to use or idle an electric generator, storage
facility or transportation asset.
- How heat-rate-linked power
transactions can effectively convert natural gas futures, options, and
swaps into electric power financial instruments which can then be used
to manage electricity risks or structure profitable transactions
(optional additional class material offered at 4:30 pm on Day 1).
Who Should Attend this SeminarAmong those who will benefit from
this seminar include energy and electric power executives; attorneys;
government regulators; traders & trading support staff; marketing,
sales, purchasing & risk management personnel; accountants &
auditors; plant operators; engineers; and corporate planners. Types of
companies that typically attend this program include energy producers
and marketers; utilities; banks & financial houses; industrial
companies; accounting, consulting & law firms; municipal utilities;
government regulators and electric generators.
Prerequisites and Advance Preparation
This fundamental level group live seminar has no prerequisites. No advance preparation is required before the seminar.
Basic level. This fundamental course begins with basic material and then proceeds to the intermediate level.
Each Class is Limited to First 20 Registrants
Your InstructorJohn Adamiak
John Adamiak is President and Founder of PGS Energy Training and an expert in energy derivatives and electric power markets. Mr. Adamiak is a well-known and highly effective seminar presenter who has over 20 years experience in the natural gas and electric power industries. His background includes 15 years as a seminar instructor, 9 years of energy transaction experience, and 6 years of strategic planning and venture capital activities. John's academic background includes an M.B.A. degree from Carnegie Mellon University.
Seminar AgendaDAY ONE
of the three different energy & electric power forward markets,
terminology, the purposes served by these markets, price & spread
hedgers and the basics of energy and electricity physical transactions.
differences between futures commission merchants (''FCM''),
over-the-counter brokers, traders, market-makers, and energy/power
- The four different methods used to manage energy and
electricity price, basis, spread, delivery, operational, and volumetric
- The dangers of liquidity risk, and when it can blow up a company.
physically-settled energy futures contracts are; why only 1% of
physical energy futures go to physical delivery and what the difference
is between a physically-settled energy future contract and a physical
- How the CME and ICE futures exchanges are structured and the role of the CME and Ice Clear Clearinghouses.
- How physically-settled and cash-settled energy futures contracts trade electronically on CME Globex and ICE Futures.
broker account maintenance, margin deposit, cash management and
''funding risk'' issues associated with clearing a financial or physical
energy transaction through the CME, Ice Clear or Nodal Exchange
- How buyers and sellers hedge
natural gas, crude oil, heating oil and gasoline price risk with CME
physically-settled futures contracts.
- The ''political'' risks of hedging and the factors that can weaken the effectiveness of a futures hedge.
- How ''Active Hedging'', ''Dynamic Hedging'' and ''Hedgulation'' can hurt your company's hedging program.
- What the difference is between the locational ''basis'' and a locational price spread.
- The five different ways the term ''basis'' is used in the energy markets.
- How the ''Master Energy Hedging Equation'' is defined, and what its implications are.
- What basis risk is, and how it can destroy your futures hedges.
- Two examples of natural gas ''basis blowout'' and how it relates to LMP spread risk in ISO electricity markets.
difference between a commodity swap, contract-for-differences
(''CFD''), cash-settled futures contract and cash-settled swap futures
- The definition and use of common energy/electricity
cash-settled financial instruments including fixed-for-floating,
penultimate, exchange-indexed, basis, index, swing, dart, outright swap
and cash-settled futures products.
- How buyers and sellers use
cash-settled futures contracts and swaps to hedge natural gas, oil and
electricity price, basis, spread, and LMP risk.
- How buyers and
sellers can use cash-settled financial instruments to turn natural gas
into virtual oil or virtual electricity (And vice-versa); Day Ahead LMP
into Real Time LMP (And vice-versa); An average of daily prices into a
fixed or monthly index price; and many other forms of ''slicing &
- An overview of how the ''ICE OTC'' energy & electricity trading platform works.
- What the differences are between ICE OTC, ICE Futures, CME Globex, CME Clearport Services CME Direct and The Nodal Exchange.
to find the four different Master Sales & Purchase Agreement
templates which contain the standard industry bilateral contract
language for physical & financial natural gas and electric power
- How basis & spread swaps work; and how these swaps relate to cash-settled futures contracts.
- The difference between the financial and physical locational basis (''fin'' and phys'').
- What a ''trigger deal'' is, and why it is economically and politically efficient.
- Why so many energy industry buyers and sellers outsource the execution of their hedges and risk management solutions.
the ''Master Energy Hedging Equation'' is a simple and powerful way to
quickly understand many different types of energy transactions and to
quickly convert one form of transaction into another.
- How the ''Master Energy Hedging Equation'' underlies the structure of a firm's energy trading books.
- The basics of the ''Value-at-Risk'' (''VaR'') calculation, and why to be careful.
- Additional Electricity Material ( Optional Session at 4:30 pm).
heat-rate-linked power transactions can convert natural gas futures,
options, and swaps into electric power financial instruments which can
then be used to hedge electricity risks or to structure profitable power
- ''Puts'', ''Calls'', extrinsic value and other energy option terminology and concepts.
- The difference between exchange-traded, over-the-counter and physical energy/electricity options.
- What American, European and Asian style options are.
- Why one should rarely exercise an option before its expiration date.
reversion & price jumps--Why the Black and Black-Scholes option
pricing models may not accurately price energy and electricity options.
- The services often used to price energy options.
- The methodology used to calculate ''annualized volatility'' for the energy markets.
- The important implications of high energy price volatility
- Why trading energy and electricity is different from the trading equities, bonds and other commodities.
- The many different types of energy and electricity trading.
- Why traders specialize, and the different ways energy traders can get an ''edge'' on the competition.
the many types of energy & electricity trading can be summarized by
one simple three dimensional graph and ''The Master Energy Trading
- Why many traders trade the 'basis'' or price spreads, and how it works.
- Why merchant energy and electric power assets are valuable Call options on spreads.
- What asset ''optionality'' means.
- What the terms ''Contango'' and ''Backwardation'' mean, and how the energy ''carry trade'' works.
- Why having ownership or contractual control of physical energy assets gives a significant advantage to a trading company.
- What ''trading around assets'' means
- Why a merchant fossil fuel generating plant is a call option on the spot spark spread.
simple rule that will optimize your daily decisions on whether to use
or idle a merchant electric generator, storage facility or
- What a ''tolling deal'' is.
- What ''structured transactions'' are, and why they can be a ''win/win'' for all parties involved.
energy and power marketers make money by buying valuable energy options
from their customers and suppliers, and how your company may be missing
a significant financial opportunity.
- What ''extendible'' deals are, and why they are so profitable for energy marketing companies.
- SNACK AT 11:30 will be provided (no lunch).
- How to create price caps, price floors and ''no cost'' collars with energy options.
- What the option ''Greeks'' are, and the basic concept of delta hedging.
- The basics of the valuable put-call option parity equation,.
- Four common ''synthetic option'' positions, and why it is valuable to know them.
Hotel and Seminar Information
This two-day seminar will be held at the hotel listed below. The seminar will start promptly at 8:00 AM and will finish at 5:00 PM on the first day. On the second day, the seminar will resume at 8:00 AM and will finish at 3:00 PM.
The program includes continental breakfast, lunch and coffee breaks on
the first day and a continental breakfast and coffee breaks on the
second day. Attendees also receive a professionally produced seminar
manual that can serve as a valuable office reference. Dress is casual
for all seminars
Hotel Indigo Houston at the Galleria
5160 Hidalgo Street
Houston, TX 77056
Telephone: (713) 621-8988View Seminar Location Website
Because of the diversity of hotels found in the area, we will not be holding a block of sleeping rooms with one particular hotel.