Pre-conference seminar 2, May 16, 2011

FOUNDATIONS OF ENERGY FINANCE TO COMMERCIAL ENERGY END-USERS

Ehud I. Ronn, Professor of Finance, UNIVERSITY OF TEXAS AT AUSTIN

9.00 The Current State of the Equity and Commodity Markets -- The "Message from Markets"

• The Informational Content of Equity, Credit and Commodity Financial Markets
• Measuring Nervousness/Uncertainty in the Equity and Commodity Markets
• The Crude-Oil Markets
o Level and Slope of Crude-Oil Futures Markets
o Impact of Economic/Financial/Geopolitical Events on Implied Volatilities in the Crude-Oil Market
• The 2008 Financial Crisis in the Crude-Oil Commodity Markets
• Impact of Seasonality on Global NatGas Markets
• Future Inflation Rates
o Quantifying Future Inflation Rates
o Energy Prices and Inflationary Pressures
• The Refining Spread and Retail Gasoline Prices
• The Global Coal Markets

10.30 Coffee break

10.45 Optimizing Energy Risk Exposure at the Corporate Level - Part I

• End-User Energy Risk-Management
• The Trade-off between Risk and Return in Energy Risk Management
• Measuring Price- and Quantity-Risk Exposure at the Corporate Level
• Hedging Corporate-Level Price- and Quantity-Risks using Linear (Futures/Swaps) and Non-linear (Option) Instruments
• Using Mean-Variance Optimization to Design an Optimal Energy Risk Program
• Case Study I: Major NG Producer
• Presenting the Trade-offs of an Optimal Corporate Risk Strategy to Decision-makers
• Case Studies II and III: Electric Utility and Refiner

12.15 Lunch

13.30 Optimizing Energy Risk Exposure at the Corporate Level - Part II

• Using the Richness of Energy Markets' Derivative Structures
• Case Study IV: Major European Airline

14.00 Volatility and Correlation in Commodity Markets

• Modeling the term structure of volatility
• Implied vs. historical volatilities
• Recognizing the volatility skew
• Modeling correlation coefficients in energy markets
• Basic Commodity Option Properties

15.15 Coffee break

15.30 Energy Assets as Real Options -- Power Plants as Spread Options

• Applying options theory to valuation of power plants: Valuation of spread options
• Alternatively valuing a power plant as a strip of monthly and daily options
• Valuation of Spread Options and their Application to Power Plant Valuation
• Hedging the Value of Power Plants
o Understanding the Hedge Ratios Implied in Power Plant Valuation
o How, and Whether, to Monetize the Value of a Power Plant by Hedging
• Extending the Spread-Option Model to Account for:
o O&M Fixed Costs
o Dual-Fuel Capability Options
• Start-up and Cool-down periods

17.00 End of Seminar