Energy Trading and Investing: Trading, Risk Management and Structuring
Deals in the Energy Market [Hardcover]
ByDavis Edwards, McGraw-Hill Professional 2010.
This book by Davis Edwards should really be called Energy Trading
and Investing in North America, since it is heavily focused on the United
States. Even so, it is a useful book for those seeking an introduction to this
complex subject. It is written not to frighten off the aspiring trainee market
analyst, energy lawyer or energy journalist. Energy Trading and Investing is
written in plain jargon free English and without the use of complex mathematics
one usually associates with such books.
The books author is MD of Australia’s Macquarie Group, and
has been responsible for many years for managing the credit risks of its North
American investments. It is designed for those readers who need a clear basic understanding
of the principles of energy trading and investment.
This book is divided into several sections. In the first, it
provides an overview of the energy markets, detailing the main elements,
players and structures. For instance explaining the reasons why power station
operators will switch on or off their power plant in response to changes in
market prices. This section provided a useful explanation about how traders can
buy cheap surplus electricity in the Pacific Northwest and export it to energy
hungry consumers in southern California at a higher price.
In the second section, there is an in-depth descriptions of
all the major energy commodities such as coal, including an explanation about
the merits of different types of coal together with its operating constraints, costs
and pollution implications. It is clear despite this book being published in
2010, many of its assumptions appear dated and focused on the United States. Since
the author is very pessimistic about increases in new oil output and oil
refinery capacity. although construction in new oil refinery capacity has
remained static in the United States, elsewhere in the world including the
Middle East, South Asia and Far East the been a building boom in new refineries.
In addition, energy companies all over the world are launching new rigs able to
explore and produce oil and gas from more distant from the shore in deeper
water like off Shell's new Perdido Spar which is 200 miles off the Texas coast.
However, the third section provides a financially orientated
discussion about how chemistry, physics, accounting, and option trading affect current
and future pricing. The explanation about statistics I found interesting as it
explained how traders use statistics to understand trends in the market.
In the fourth section, there are primers on load forecasting,
tolling agreements, natural gas storage. It was interesting to understand how
the market price for power can change due to seasonal and hourly variations in
temperature. For example, when a jump in temperatures, causes a jump in demand
for electricity to power air-conditioning, which results in market prices for electricity
to jump, resulting in more power stations, offering to sell power at higher
prices.
In the last section, the book provides a clear practical
introduction to risk management. For the first time I found a clear explanation
of what such traders like Nick Leeson who brought down Barrings Bank were up to
in his market dealings.
Overall, a useful training manual and guidebook, for those
who need to quickly understand and comprehend the complexities of Energy
Trading and Investing.
For more energy book reviews see http://www.oxfordprospect.co.uk/Oxford-Books.htmlTo buyEnergy Trading and Investing: Trading, Risk Management and Structuring Deals in the Energy Market
