How to Prepare Better if You Have to Retake the ERP Exam

It can happen to the best of ERP candidates: You received your results and the passing score for the ERP was missed by a hair. This is of course annoying, but please don’t despair. Luckily, you have a second chance to pass and brush up on the study material again to remember it even better for the future. After venting your initial frustration, make sure to get up on your feet again as quickly as possible and get into gear to prepare for retaking the exam. How should you approach this endeavour in the best way? This article highlights the three most important ideas and tips that I email to ERP candidates when they ask me this question.

  1. Focus more on your weak topics, but don’t forget about the topics that you passed. Look at your test scores and find the weaknesses in your exam preparation. Did you start too late? Did you underestimate certain topics? Did you approach certain topics in the wrong way (for example, focusing on qualitative problems, when the exam asked mainly quantitative problems)? But don’t get lost in this, you should know your way around the entire syllabus. I think it’s still much better to know the most salient pooints about each topic on the surface than being completely ignorant about some of the topics. it’s a question of finding the right balance, and making sure this matches with the time you have available for exam preparation.
  2. Focus only on the original ERP syllabus and prepare your own summaries. If you have not already done so, invest in the original ERP syllabus from GARP. There is really no way around this. It used to be possible to get the individual readings individual, but that time has gone. GARP has done a wonderful job at compiling a comprehensive body of knowledge that will cover broad areas of energy risk management. When you work through the syllabus, make it a habit to take notes and thereby make your own summaries of the learning material. It’s not a good idea to rely on third-party summaries alone or on those of previous exam candidates. This can be a helpful complement, but it should not be a substitute for making your own summaries.
  3. Solve as many practice questions and test exams as possible. Even though there are relatively few practice exams for the ERP available, you should make it a goal to get as much real-life exam experience as possible. The GARP sample questions are not good examples of the questions you will encounter in the real exam, so don’t rely on those alone. There are some practice exams from third-party providers available now, one of them being my own. I compiled these questions with the real exam in mind, and while they can’t be a prediction of what will be asked in the exam, they certainly paint a realistic picture of the timing necessary to get through all the questions and the level of complexity of the questions. Feel free to check it out if you have not already done so: ERP Practice Exam.

These are the main points that will prepare you optimally for the ERP exam in case you take it the first time or the second time around. If you take this advice seriously I am absolutely certain that you will improve your exam score dramatically, and with that your chance of passing the ERP exam. Please let me know how it goes with your ERP exam preparation, I always look forward to hearing from you. I wish you all the best in your exam preparation.

Should You Get The ERP (Energy Risk Professional)?

Should You Get The Energy Risk Professional (ERP)?

Should You Get The Energy Risk Professional (ERP)?This question comes up at least once a week: “Hi Alex, I am a [research economist/trader/risk manager/…] at [energy/power company] and wonder if the ERP is right for me for a career boost. I am currently also studying for an MBA at […]. What you would advise?”

It’s an important question, one that I also asked myself before I studied for the ERP. Here some pointers that may help you in your decision based on my own experience and discussions with other Energy Risk Professionals.

ERP vs. Bachelor’s

For starters, an important thing to understand is that the ERP is not a degree but a professional qualification. So unless you already possess a degree level education, you could not compare the ERP with a university degree or an MBA. Most corporate jobs nowadays necessitate a bachelor’s (BSc or BA) or a master’s (MSc or MA) degree in some form or another, so if you want to climb up the corporate level fast, you first will need at least a bachelor’s degree. This is also a prerequisite to register for the ERP but can be gotten around by means of at least four years of professional work experience.

If you already have a bachelor’s degree or are studying for one and you are working in the energy sector, I recommend you absolutely go for the ERP next to your work/studies. If you don’t have a bachelor’s but enough work experience, the ERP will still help you in your job, and a big plus is that you can do it next to your work at your own pace. It’s really more a matter of priorities, but in general, anyone working in the energy sector could profit from the Energy Risk Professional designation.

ERP vs. Energy MBA

Many business schools offer an MBA in international energy or something similar. An MBA in general is definitely more involved (and much more expensive) than the ERP, and again, the MBA is a degree, while the ERP is “only” a professional designation. An important distinction is that the ERP is geared towards risk management alone, while the MBA also includes management and an array of organizational skills such as marketing and sales.

The applications for an ERP are different from an MBA: The MBA candidate would want to work in an executive position as a director or CEO, while the ERP is geared towards risk management, and not leadership or team management. So if you know you want to work in risk management specifically, the ERP would be preferred, otherwise the MBA will give you a broader education for future career enhancement. If you can do both, that would be ideal in my opinion, but carefully weigh the cost and the benefits with what you really want to do (risk management vs. general management) first.

ERP vs. FRM/CFA/CAIA

GARP offers also the FRM (Financial Risk Manager), which often goes in line with the CFA (Chartered Financial Analyst) and the CAIA (Chartered Alternative Investment Analyst). CFA or CAIA charterholders often also have an FRM. The Energy Risk Professional is the newest of all these professional designations and the only one that really involves energy. Commodities are also part of the CFA and the CAIA curriculum, but only at the margin, while the ERP covers extensively options and financial instruments used for risk management in the energy and financial sector.

In my opinion, these designations are complimentary. So you should not sacrifice one for the other if you have already enrolled. For example, if you’re currently studying for CFA Level 2 but are interested in the ERP also, don’t give up on the CFA but try to do both! There are not many charterholders yet who have the ERP next to the CFA and/or the CAIA, so this may give you an edge. Just do a search on Linkedin for “CFA ERP”, you will be surprised!

Conclusion

As you can see, I would advise almost anyone working or interested in energy to go for the ERP. Why? Mostly, because while it is still relatively new the designation will definitely grow in acceptance and importance in the years to come. I wrote a separate blog post about Energy Risk Professional job prospects, feel free to check it out.

In a nutshell, getting a secondary or tertiary education is always an asset both for yourself and for your employer. If you’re constantly improving your skills you will be bound to send a positive signal to your employer when the time of promotions comes up, and you will possess important and necessary skills that have the potential to give you a career boost.

Natural Gas In A Nutshell

Natural gas is a fast growing form of energy with a rapidly developing competitive market. Natural gas is by no means a “green energy”, but also counts as petroleum (together with oil and bitumen). Gas exploration is a hot topic as it involves highly toxic substances and often renders whole regions uninhabitable. It is very important to understand natural gas, with its regulatory dynamics, benefits, and challenges. This article gives an overview about how it is produced, distributed, and sold. All of this is very important knowledge for every Energy Risk Professional.

Natural gas consists of hydrocarbon molecules from one to four carbon atoms in length, but mainly of the hydrocarbon methane (CH4),  which is the smallest occurring hydrocarbon molecule.

The typical composition varies from field to field. The English unit of volume measurement for natural gas is the cubic foot (cf). In the metric  system, cubic metres (m3) are used for volume of gas.

As with crude oil, there is sweet and sour natural gas. Sweet natural gas does not contain any hydrogen sulfide (H2S). Sour natural gas does contain hydrogen sulfide (H2S). Hydrogen sulfide (H2S) does not count as an inert (impurity in natural gas). It is lethal and very corrosive, and it must be removed from the natural gas before it can be delivered to a pipeline.

In the ground, natural gas is often dissolved in crude oil because of high pressure in reservoir. As the pressure of the reservoir increases with depth, the amount of natural gas dissolved in crude oil increases with depth also. When crude oil is lifted to the ground, the pressure is relieved and the natural gas (solution gas) bubbles out. Nonassociated natural gas is not in contact with oil in the subsurface. A  nonassociated gas well produces almost pure methane. Associated natural gas is in contact with oil, occurring in the free gas cap above  the oil and in solution with the crude oil. Associated gas contains butane, propane, and ethane next to methane.

The heat content of natural gas is measured in British thermal units, Btu. One Btu is about the heat given off by burning one wooden match. Btu values of pipeline natural gas range from 900 to 1,200 Btus per cubic foot (cf), while the most common heat content for pipeline natural gas is 1,000 Btu/cf. The heat content varies with the composition.

There are about 179 Tm3 proven reserves of natural gas available which equals about 65 years of production at the present rate. Ultimate  reserves are estimated at about 360 Tm3. Most proven reserves are located in the Middle East and in the former USSR, but the main  markets are in Europe and the United States.

Natural gas extraction by countries in cubic meters per year.

Natural gas reserves remote from markets are called “stranded reserves”. They were viewed as a nuisance in the past, but as options for monetizing some of these stranded reserves (sometimes discovered decades ago) increase, they are being increasingly developed.

The preferred way of transporting natural gas is the pipeline.

Because it is a gas, it is about five times as costly to transport as oil. Natural gas can also be transported in liquid form as liquefied natural gas (LNG) or compressed natural gas (CNG), but both are more costly as they involve further processing. Market centers (hubs) exist near the intersection of several pipelines and provide customers (shippers and marketers) with receipt/delivery access to two or more pipeline systems. The best known, but not the largest, market center in the United Stated and Canada is the Henry Hub located in Erath, Southern Louisiana.

If it is not immediately needed, natural gas is stored in caverns (usually washed salt domes), depleted oil or gas reservoirs, aquifiers (water-bearing rock formations), or steel tanks. Demand for gas fluctuates seasonally and intraday. Operating storage is used by pipeline companies to balance short-term demand swings. It takes four days for natural gas stored on the U.S. Gulf Coast to reach the Northeast of the United States. Seasonal storage is used to accommodate for seasonal swings. Pipeline companies or local distribution companies own seasonal storage. A characteristic of the natural gas market is the alternating injection season (around March) and withdrawal season (around November), which heavily impacts price volatility.

The natural gas market is becoming more and more deregulated, and therefore more competitive. The main regulating agency is FERC (the Federal Energy Regulatory Commission). FERC is an independent agency in the United States that regulates the interstate transmission of natural gas, oil, and electricity. FERC also regulates natural gas and hydropower projects. Since 1993, FERC orders have provided for open-access storage service, the separation of  purchase and transportation services by interstate pipelines (“unbundling”), and deregulation of interstate pipeline sales sources, with only the market constraining rates. All of these actions have made natural gas more competitive compared to oil.

The main acts governing the gas market are:

  1. National Energy Conservation Policy Act. Required utilities to encourage customers to conserve energy.
  2. Power Plant and Industrial Fuel Use Act. Required power plant users to convert to coal, whenever possible.
  3. Public Utility Regulatory Policies Act (PURPA). Federal standards for termination of service, spurred development of cogeneration project  (simultaneous production of electricity and heat, more efficient).
  4. Natural Gas Policy Act. Gradually phased out curtailment measures.
  5. Energy Tax Act. Established tax credits for low-emission dwelling and transportation.

The main advantages of natural gas is its abundance and therefore its low price. Many natural gas reserves are found in the United  States, and are therefore viewed as one of the answers to the dependence on foreign oil.

The main problems with natural gas are:

  • Low energy density. High pressure is required to increase gas density and raise its energy content per unit volume so that the gas can be transported economically.
  • Storage. Large quantities of natural gas cannot be stored easily above ground as oil and coal can.

Natural gas exploration is very controversial as it is very harmful for the local flora and fauna, especially the method of hydraulic fracturing (hydrofracking) involving toxic “frakcing fluids”. Burning gas also still produces CO2, and is by no means an answer to the dependence on fossil fuel and global warming. Natural gas as a form of energy is therefore still only a half-hearted substitute for oil, and it remains to be seen how the unsolved problems of discovering and producing natural gas will impact its future as a form of energy.

Required Readings for the Energy Risk Professional (ERP) Exam

The required readings for the ERP exam are directly available from GARP in printed or electronic form. The price tag is rather high though, so you may want to consider assembling the readings yourself, preferably from your university library, as they will be exactly the same. The books may also be available on Amazon, but the price including shipping to your country may again be quite high.

In either case, finding all the books is very cumbersome, so I went ahead and compiled a list of required readings that can be used to substitute or complement the GARP study package.

A word of warning: The required reading list for the ERP exam looks extremely daunting. In reality, you will only have to read 2-3 chapters from each book on average, so it pans out to about 2,000 pages in total. I think candidates will benefit immensely from organizing the reading material properly, which is the main reason I made the ViveraRISK ERP Concept Checkers available on this site.

Below you will find a list of all the books from the ERP Study Guide 2011 published by GARP that can be found on their website. Please verify that all the titles are complete, as I can not guarantee that I have not missed or misspelled one.

As always, please contact me with any questions. I wish you all the best for your ERP exam preparations!

Printed books that you may find in your library or on Amazon:

  • Charles F. Conaway. The Petroleum Industry: A Nontechnical Guide (Tulsa, OK: PennWell Books, 1999)
  • Institut Français du Petrolé Publications. Oil, Gas Exploration, and Production: Reserves, Costs, Contracts (Paris: Editions Technip, 2007)
  • Charlotte Wright & Rebecca Gallun. Fundamentals of Oil & Gas Accounting, 5th Edition (Tulsa, OK: PennWell, 2008)
  • Norman J. Hyne. Nontechnical Guide to Petroleum Geology, Exploration, Drilling, and Production, 2nd Edition (Tulsa, OK: PennWell Books, 2001)
  • Thomas O. Miesner and William L. Leffler. Oil and Gas Pipelines in Nontechnical Language (Tulsa, OK: PennWell Books, 2006)
  • Samuel Van Vactor. Introduction to the Global Oil and Gas Business (Tulsa, OK: PennWell Books, 2010)
  • James H. Gary, Glenn E. Handwerk and Mark. J Kaiser. Petroleum Refining: Technology and Economics, 5th Edition (New York: CRC Press, 2007)
  • Davis W. Edwards. Energy Trading and Investing (New York: McGraw-Hill, 2010)
  • Rebecca L. Busby. Natural Gas in Nontechnical Language (Tulsa, OK: PennWell Books, 1999)
  • Arthur J. Kidnay and William R. Parrish. Fundamentals of Natural Gas Processing (Boca Raton, FL: Taylor and Francis, 2006)
  • Frank Fabozzi (ed.): The Handbook of Commodity Investing (Hoboken, NJ: John Wiley & Sons, 2008)
  • Michael D. Tusiani and Gordon Shearer. LNG: A Nontechnical Guide (Tulsa, OK: PennWell Books, 1999)
  • Davis W. Edwards. Energy Trading and Investing (New York: McGraw-Hill, 2010)
  • Chris Harris. Electricity Markets: Pricing, Structures and Economics (West Sussex, England: John Wiley & Sons, 2006)
  • Sally Hunt. Making Competition Work in Electricity (New York: John Wiley & Sons, Inc., 2002)
  • Richard Baxter. Energy Storage: A Nontechnical Guide (Tulsa, OK: PennWell Books, 2006)
  • Roy L. Nersesian. Energy for the 21st Century: A Comprehensive Guide to Conventional and Alternative Sources (Armonk, NY: M.E. Sharpe, Inc., 2007)
  • Ann Chambers. Renewable Energy in Nontechnical Language (Tulsa, OK: PennWell Books, 2006)
  • Fisher Investments. Fisher Investments on Energy (Hoboken, NJ: John Wiley & Sons, 2009)
  • Tom James and Peter Fusaro. Energy and Emissions Markets: Collision or Convergence? (Singapore. John Wiley & Sons (Asia) Pte Ltd., 2006)
  • Frank Fabozzi (ed.): The Handbook of Commodity Investing (Hoboken, NJ: John Wiley & Sons, 2008)
  • Steven Errera and Stewart L. Brown. Fundamentals of Trading Energy Futures & Options, 2nd Edition (Tulsa, OK: PennWell Books, 2002)
  • Robert McDonald. Derivatives Markets (Boston: Addison-Wesley, 2003)
  • 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)
  • Vincent Kaminski (ed). Managing Energy Price Risk (London: Risk Books, 2004)
  • Alexander Eydeland and Krzysztof Wolyniec. Energy and Power Risk Management: New Developments in Modeling, Pricing, and Hedging (Hoboken, NJ: John Wiley & Sons, 2003)
  • Vincent Kaminski (ed). Energy Modeling: Advances in the Management of Uncertainty, 2nd Edition (Incisive Media Investments Limited, 2005)
  • Davis W. Edwards. Energy Trading and Investing (New York: McGraw-Hill, 2010)
  • Fletcher J. Sturm. Trading Natural Gas: A Nontechnical Guide (Tulsa, OK: PennWell Books, 1997)
  • Dragana Pilipovic. Energy Risk: Valuing and Managing Energy Derivatives, 2nd Edition (New York: McGraw-Hill, 2007)
  • Les Clewlow and Chris Strickland. Energy Derivatives: Pricing and Risk Management (London: Lacima Publications, 2000)
  • Helyette Geman (ed). Risk Management in Commodity Markets: From Shipping to Agriculturals and Energy (West Sussex, England: John Wiley & Sons, 2008)
  • Peter C. Beutel. Surviving Energy Prices (Tulsa, OK: PennWell Books, 2005)
  • John Wengler. Managing Energy Risk: A Nontechnical Guide to Markets and Trading (Tulsa, OK: PennWell Books, 2001)
  • Tom James and Peter Fusaro. Energy and Emissions Markets: Collision or Convergence? (Singapore. John Wiley & Sons (Asia) Pte Ltd., 2006)
  • Steve Leppard. Energy Risk Management: A Non-technical Introduction to Energy Derivatives (London: Risk Books, 2005)
  • Tom James. Energy Markets: Price Risk Management and Trading (Singapore: John Wiley & Sons, 2008)
  • Eduardo Canabarro and Darrell Duffie. ALM of Financial Institutions, ed. Leo Tilman (London: Euromoney, 2003)

Readings available online as downloads:

LNG In A Nutshell

LNG is short for liquid natural gas. The benefit of LNG is that it is an easily transportable and storable liquid that takes up only 1/600th of the original volume of natural gas in its gaseous state.

The LNG Industry is based largely on a series of virtually self-contained projects made up of interlinking chains of large-scale facilities that are bound together by complex, long-term contracts. The industry is subject to intense oversight by host governments and international organisations at every stage of the process. All the LNG facilities together make up the “LNG chain”, consisting of the following components:

  1. Natural gas production.
  2. Liquefaction. Turning the gas into liquid (LNG) by cooling it down to -163 degree Celsius.
  3. Shipping. Large scale vessels equipped with spherical tanks or membrane tanks.
  4. Regasification terminals. Heating up the LNG and turning it back into gas.
  5. Delivery by pipeline or truck.

Natural gas production will not be discussed here, as it is the same for natural gas, CNG, and LNG.

Liquefaction

The single largest investment in the chain is the liquefaction plant which removes impurities from the gas and cools it down to -163 degrees Celsius. Gas composition, quantity and location have important bearings on the design of the liquefaction plant, but at heart they are simply giant refrigerators. All LNG facilities generally require huge capital investments.

Shipping

Shipping has become the most competitive and therefore transparent part of the LNG chain. Fleet ownership structures are:

  1. Fleet is owned by an independent shipowner and chartered out to seller or buyer under a long-term lease contract.
  2. Fleet is owned directly by the LNG seller or his SPV (indirect ownership through a special purpose vehicle).
  3. Fleet is owned directly by the LNG buyer or his SPV.

Tanker ownership, management and control are often separated. Control is often through the buyer or the seller (disponent owner, or time-chartered owner) since the ship is not registered with the actual owner.

The phases of ship operation are:

  1. Cooldown prior to loading. Often through keeping some LNG in the tanks after discharge (LNG heel).
  2. Boil-off. Used to power the ship’s steam turbines or dual-fuel marine diesel engines. Even today, insulation of the tanks is not perfect, so boil-off is still between 0.1-0.25% of cargo per day.
  3. Cargo loading/discharge, taking each up to 14 hours.

LNG is sold in two ways;

  1. Free on board (FOB). The buyer is responsible for arranging the shipping and title to the cargo transfers on loading. Used when buyer controls shipping.
  2. Delivered ex-ship or CIF (cost, insurance, and freight). Seller arranges the shipping and the title is transferred at the destination or after loading.

Regasification terminals

Regasification terminals are where LNG cargoes are discharged, turned back into gas by heating through vaporizers, and odorized for security purposes. Regasification terminals are also called loading or receiving terminals, which are usually owned by the customer and operated on a proprietary basis. On occasion, there may be leases for third-party access. A terminal consists of:

  1. One or more berths with unloading arms.
  2. LNG storage tanks.
  3. Vaporization equipment to move the regasified LNG into pipelines.

More than 60% of total cost of an LNG receiving terminal is associated with the construction of the storage tanks, marine and off-loading facilities, and safety systems. The final construction cost is determined by the following cost drivers for receiving terminals are:

  1. Local geologic considerations and the need to tailor infrastructure to them.
  2. Cost of real estate. In Japan, facilities are built on made land, which is expensive.
  3. Site layout, regulatory, and safety considerations. Number and type of storage tanks can account for cost variances of up to five times.
  4. Local labour and construction cost.
  5. Vaporization technology. Open-rack or gas-fired.
  6. Use of local power supplies or development of dedicated power generation.
  7. Need for downstream facilities to tie into the pipeline grid, including pipelines and gas treatment and odorization plants.
  8. Marine environment. Berth location, distance to tanks, etc.
  9. Licensing and permitting activities needed to accommodate local residential or environmental concerns.
  10. Upgrading existing infrastructure, roads, etc.

History of LNG

In the early stages of the industry (1960’s), there were only a handful LNG players, known as “the club”, as capital costs were very high with uncertain prospects of ever being profitable. Even a successful LNG project was only marginally profitable then. Today, it is contended that natural gas will be the number one energy source by 2020, surpassing coal. The EIA predicts that the world gas consumption will increase by 70% between 2005 and 2025.

Energy Risk Professional Salary

A question I often hear is “How much can I expect to earn as an Energy Risk Professional?” Obviously, this largely depends on one’s education and experience. I went ahead and searched for ERP salaries on an entry level on simplyhired.com and payscale.com. Simplyhired lets you calculate average salaries for jobs posted on their site. An annual salary of $74,000 came out on average for energy risk professionals:

Payscale.com delivers a similar picture, an average of roughly $59,000:

Again, these numbers are calculated for entry level positions with minimal experience. GARP delivers data for more experienced risk managers:

You see, as in any job, compensation is largely dependent on education and experience. In my opinion, having the Energy Risk Professional certification (ERP) under your belt can only help you rise on the pay scale, especially, as the designation will gain popularity over the years. If you consider working in energy, it also makes sense to get an early start in the field, as your experience will accumulate over the years. For more info about this topic, please also read “What can the ERP do for my career”.

If you are currently looking for a job, please also visit the ERP Job Board. In either case, I wish you all the best for your ERP exam preparation!