Professional Documents
Culture Documents
Erp Glossary
Erp Glossary
Erp Glossary
Glossary
American Style Option Bid/Ask
A Balancing
the requirement imposed by power grids or natural
American Style Option gas pipelines to ensure supply and demand be equal
an option which can be exercised at any time before over a certain period of time.
its expiry date. Barge
Ancillary Services Vessel carrying oil, usually on rivers, containing be-
any service required by a system operator to deliver tween 8,000 and 50,000 barrels.
electricity to the ultimate consumer. ancillary services Barrel (bbl)
can include regulation, spinning reserves, non-spinning a volumetric unit of measure for crude oil and petro-
reserves, and replacement reserves. leum products. one barrel is equal to 42 Us gallons.
Anthracite Coal Baseload
the highest rank of black coal with primary use in resi- the generation capacity that meets the minimum
dential and commercial heating. amount of demand throughout the entire 24 hour day
API (around-the-clock demand). Baseload power is gen-
american Petroleum institute. the aPi publishes weekly erally supplied from plants that cannot be ramped up/
information on U.s. petroleum stock gures, renery down as quickly as peaking generation plants. since
throughput, imports, exports, and stock levels. the aPi Baseload demand is generally predictable and steady,
also established the system for grading crude oils by its less expensive than peak power.
gravity (see API Gravity). Baseload Plant
API gravity a plant normally operated to take all or part of the
a scale expressing the gravity or density of liquid minimum continuous load of a system, and which con-
petroleum products, devised jointly by the american sequently produces electricity at an essentially con-
Petroleum institute and the national Bureau of stan- stant rate. a base load plant typically has relatively
dards. the higher the aPi gravity, the lighter the crude. high xed costs and low unit operating costs. tradi-
Arbitrage tionally, nuclear plants have been considered as base
the simultaneous purchase of a commodity/derivative load plants.
in one market and the sale of the same, or similar, com- Basis
modity/derivative in another market in order to exploit the price gap for the same physical commodity, but
price dierentials. in nancial markets, the practice of at two dierent geographic locations.
making a prot from temporary price dierentials Basis Swap
between two or more markets for the same asset. Basis swaps are used to hedge exposure to basis risks,
Asian Option (Average Price Option) such as locational risk or time exposure risk.
an option that is exercised against an average over a Bearish
period of time. the belief that the commodity price is going to fall.
At-The-Money Option (ATM) Bid
an option whose exercise price is equal, or close to, an indication of willingness to buy a specied amount
the current price in the underlying market. of a commodity at a specic price.
Bid/Ask
B a measure of market liquidity, also known as bid/oer.
the bid is the price level at which buyers are willing to
Backwardation buy, and the ask is the price level at which sellers are
a market where the price for nearby delivery is higher willing to sell. the tighter the spread, the higher the
than for further forward months. (the opposite of liquidity.
backwardation is contango).
-1-
Bituminous Coal CNG
-2-
Cogeneration Delta
Cogeneration Cushing
the production of both electricity and useful thermal Cushing, oklahoma. the delivery point for nyMEX
energy from the same energy source. natural gas Wti crude oil futures.
tends to be a favored fuel for combined-cycle cogen-
eration units, in which waste heat is converted to elec- D
tricity.
Combination Hedging Day-Ahead Market
a risk management strategy that uses a combination Forward markets where electricity quantities and
of hedges using dierent derivative instruments. market clearing prices are calculated individually for
Combined Cycle each hour of the day on the basis of participant bids
the combination of one or more gas turbine and for energy sales and purchases.
steam turbines in an electric generation plant. an elec- Day-Ahead Schedule
tric generating technology in which electricity is pro- a schedule prepared by a scheduling coordinator or
duced from otherwise lost waste heat exiting from one the independent system operator (iso) before the
or more gas (combustion) turbines. the heat is routed beginning of a trading day. this schedule indicates the
to a conventional boiler or to a heat recovery steam levels of generation and demand scheduled for each
generator for use by a steam turbine in the production settlement period that trading day.
of electricity. this process increases the eciency of Day Traders
the electric generating unit. a day trader establishes positions through buying and
Condensate selling commodities or nancial instruments several
Very high aPi crude oil, which in its natural state is in times during one trading day, without the intention of
gaseous form, but condenses to liquid upon production. carrying these positions over to subsequent trading
Congestion days. Most, if not all, of the positions established dur-
a condition that occurs when insucient transfer ing the trading day are closed out before the end of
capacity is available to implement all of the preferred the days trading.
schedules for electricity transmission simultaneously. Degree Days
Contango Degree days are measured as the number of degrees
Market situation where prices are higher for forward above or below a standardized temperature on any
delivery dates than for nearer delivery dates. (oppo- given day. in winter, traders track heating degree days
site of backwardation). week by week, or month by month, normally against a
Conway standard temperature of 65F, on the basis of how
Conway, kansas. the main propane trading hub in the many degrees of heat are required to bring the tem-
Midwest United states. perature up to 65F. in summer, the market tracks cool-
Cracking ing degree days, which are computed in the opposite
rening process to break large molecules into smaller manner. (See HDD, CDD.)
ones. Delivered Cost
Crack Spread the cost of fuel, including the invoice price of fuel,
the spread dierential which represents rening margins. transportation charges, taxes, commissions, insurance,
Credit Risk and expenses associated with leased or owned equip-
Credit risk is the risk of loss to a company due to non- ment used to transport the fuel.
payment of a bill or a loan, or to a nonperformance of Delta
a contract. When a company provides a service or the rate of change of the value of an option with
goods and expects payment later, the company respect to changes in the price of the underlying com-
assumes the credit risk of the counterparty not paying. modity.
-3-
Delta Hedging Exchange
-4-
Exchange-Traded Grid
-5-
HDD Kilowatt-Hour (KWh)
H IEA
international Energy agency
HDD Index Swap
Heating Degree Days. a measure of how cold a loca- in the natural gas market in north america, index swaps
tion is over a period of time relative to a base temper- are often used to hedge against location price risk (a
ature, most commonly specied as 65 degrees form of basis risk). the seller receives a xed, or other-
Fahrenheit. the measure is computed for each day by wise determined, price and pays the buyer the pub-
subtracting the average of the days high and low tem- lished index value for natural gas from a specied location.
peratures from the base temperature (65 degrees), Integrated Energy Company
with negative values set equal to zero. Each day's an integrated energy company operates in all areas of
heating degree days are summed to create a heating the energy value chain.
degree day measure for a specied reference period. Interruptible Gas
Heating degree days are used in energy analysis as an Gas sold to customers with a provision that permits
indicator of space heating energy requirements or use. curtailment or cessation of service at the discretion of
Heat Rate the supplier.
a measure of eciency of a power generating unit. In-The-Money Option
Heavy Crude Oil an option which has intrinsic value. a put option is
Has an aPi gravity of less than 28 degrees. the lower in-the-money when its strike price is above the value
the aPi gravity, the heavier the oil. of the underlying futures contract. a call option is in-
Hedge the-money when its strike price is below the value of
the reduction of risk by covering anticipated commit- the underlying futures contract.
ments in the future through a swap, future or option IOC
contract, as a means to protect energy traders from international oil Company.
unexpected or adverse price uctuations. IPP
Henry Hub independent power producerUnregulated power
the standard delivery point for the nyMEX natural gas generators which, unlike utilities, have no franchised
futures contract in the Us (pipeline hub located on the retail service territories. Even a plant built by an investor-
louisiana Gulf Coast) where a number of interstate owned utility to serve its native retail load is not an iPP.
and intrastate pipelines interconnect through a header its still a utility plant. also, utilities that form aliates
system operated by sabine Pipeline. and build outside of their territories can be iPPs.
Historic Volatility ISO
the change in the absolute value of a commodity or independent system operator. an independent, federally
instrument over a certain period, expressed as a per- regulated entity established to coordinate regional
centage of the lowest price recorded in that period. transmission in a non-discriminatory manner and ensure
Hub the safety and reliability of the electric system.
a geographic location where multiple participants
trade services. K
Hydropower Plant
a plant in which the turbine generators are driven by Kilowatt
falling water. one kilowatt equals 1,000 watts. abbreviates to kW.
Kilowatt-Hour (KWh)
I the basic unit for pricing electric energy, equal to one
kilowatt of power supplied continuously for one hour
ICE (or the amount of electricity needed to light ten 100-
the intercontinental Exchange. watt light bulbs for one hour). one kWh equals 1,000
watt-hours. one kWh = 3.306 cu ft of natural gas.
-6-
Landed Cost, Crude Oil Moving Average
L Long Position
When a trader buys a commodity, in the hope that its
Landed Cost, Crude Oil value will go up, he/she is said to be long.
the price of crude oil at the port of discharge, includ_
ing charges associated with purchasing, transporting, M
and insuring a cargo from the purchase point to the
port of discharge. the cost does not include charges Margins
incurred at the discharge port (e.g., import taris or a deposit paid on a futures transaction. initial margin
fees, wharfage charges, and demurrage). is paid, followed by top-ups as the position develops.
Lifting Margins are paid to the exchange.
the act of loading petroleum or petroleum products Marginal Cost Pricing
at a terminal or transfer point. a system of pricing designed to ignore all costs except
Light Crude Oil those associated with producing the next increment
Has an aPi gravity higher than 33 degrees. the higher of power generation. sometimes referred to as incre-
the aPi gravity, the lighter the crude oil. mental cost pricing.
Light Ends Mark-to-Market
Group of petroleum products with the lowest boiling to revalue futures/option positions using current mar-
temperatures, including gasolines and distillate fuels. ket prices to determine prot/loss compared to cur-
Lignite rent market prices. the prot/loss can then be paid,
a type of brown coal with low heating value primarily collected, or simply tracked daily.
used for electricity generation. Market Risk
Liquefaction Facilities the risk that the value of an assetcommodity, energy
Facilities where natural gas is cooled down under high source, or energydecreases.
pressure to create lnG. Megawatt (mw)
LLS a unit of electrical power equal to one million watts or
light louisiana sweet. a Us crude oil. one thousand kilowatts.
LMP Megawatt-Hour (MWh)
locational Marginal Pricing. a method of pricing the cost one million watt-hours of electricity. a unit of electri-
of congestion into electricity prices. lMP aims to encour- cal energy which equals one megawatt of power used
age the ecient use of the transmission system by assign- for one hour.
ing costs to users based on the way energy is delivered. Mineral Rights
LNG the ownership of the minerals beneath the earth's sur-
liqueed natural gas. natural gas converted to a liquid face with the right to remove them. Mineral rights may
state by pressure and severe cooling, and then be conveyed separately from surface rights.
returned to a gaseous state to be used as fuel. lnG is MMbtu
moved in tankers, not via pipelines. lnG is predomi- one million British thermal units.
nantly methane and articially liqueed; not to be MMcf
confused with nGls (natural gas liquids). one million cubic feet of natural gas.
Load Mont Belvieu
the amount of electricity delivered or required at any Mont Belvieu, texas. the main propane trading hub
specic point or points on a system. the load of an along the United states Gulf Coast.
electricity system is aected by many factors and Moving Average
changes on a daily, seasonal, and annual basis, typi- the mean of prices over a pre-dened period, for
cally following a pattern. system load is usually meas- instance, the previous ve days. the moving average
ured in megawatts (MW). for dierent time periods can be charted to generate
short- and medium-term buy/sell signals.
-7-
Naked Option PADD
N O
-8-
Peak Demand Regulatory Risk
-9-
Reverse Tolling Swap
- 10 -
Swaption Volatility
- 11 -
VPP WTI (West Texas Intermediate Crude Oil)
Sources:
1. Incisive Media. Commodity Risk Management and Trading Glossary, 2013.
2. Mercatus Energy Advisors. Energy Hedging & Risk Management Glossary, 2012.
3. North American Electric Reliability Corporation. Glossary of Terms Used in Reliability Standards, 2015.
4. PDC Energy. Glossary of Terms, 2015.
5. Standard & Poors. Volumetric Production Payment (VPP) Transactions.
6. US Energy Information Agency. EIA.gov/tools/glossary.
7. Vivek Chandra. GlossaryNatGas.info/glossary.
8. Wiley. Foundations of Energy Risk Management, 2009.
- 12 -
Creating a culture of
risk awareness
Global association of
risk Professionals
2nd Floor
Bengal Wing
9a Devonshire square
london, EC2M 4yn
U.k.
+ 44 (0) 20 7397 9630
www.garp.org
About GARP | The Global Association of Risk Professionals (GARP) is a not-for-prot global membership organization dedicated to
preparing professionals and organizations to make better informed risk decisions. Membership represents over 150,000 Members and
Aliates from banks, investment management rms, government agencies, academic institutions, and corporations from more than
195 countries and territories. GARP administers the Financial Risk Manager (FRM) and the Energy Risk Professional (ERP) Exams;
certications recognized by risk professionals worldwide. GARP also helps advance the role of risk management via comprehensive
professional education and training for professionals of all levels. www.garp.org.