2019 Erp Pe P1

ENERGY RISK PROFESSIONAL
2019
ERP ®
Practice Exam Part I
Updated 02/05/19
ERP® Practice Exam Part I

The ERP Exam is a practice‐oriented examination. Exam questions reflect recommended core readings and
“real‐world” scenarios. The successful candidate demonstrates an understanding of inherent risks across
varied energy markets, as well as tools and best business practices used to manage these risks.

A comprehensive examination, the ERP Exam tests an energy risk professional on a number of risk
management concepts and approaches. The breadth of topics covered reflect a truly dynamic and
evolving energy industry. An effective risk manager in the energy sector identifies physical and financial
risks, along with appropriate mitigation options.

The 2019 ERP Part I and Part II Practice Exams aid candidates in their preparation for the May 2019 Exam
and November 2019 Exam. These Practice Exams are based on a sample of questions from past ERP Exams
and are suggestive of questions on the 2019 ERP Exam.

The Practice Exams are a useful study tool. Completing the Practice Exams results in an assessment of the
candidate’s exam readiness. By design, the practice exams align with the ERP exam length and curriculum:
Part I Part II
Length
ERP Exam ERP Practice Exam ERP Exam ERP Practice Exam
80 questions 60 questions
Physical Energy Commodity and Electricity Markets Financial Energy Products and Risk Management
Curriculum
Crude Oil Markets & Refined Products Measure & Model Market Risk
Natural Gas & Coal Markets Measure & Model Credit/Liquidity Risk
LNG Market Fundamentals Apply Finance Energy Products to Manage Risk
Electricity Markets (includes renewables Generation) Risk Governance, ERM, and Capital Planning

The 2019 ERP Practice Exams may not cover all topics included in the 2019 ERP Exam, as any test samples
from the universe of testable possible knowledge points. Questions selected for the practice exams reflect
core reading material assigned for 2019. In addition, practice questions represent the style of question
preferred by the ERP Energy Oversight Committee (EOC).
For a complete list of current topics, core readings, and key learning objectives, candidates must refer to
the 2019 ERP Exam Study Guide and 2019 ERP Learning Objectives. Both are available at www.garp.org.
The EOC endorses core readings to assist candidates in their review of the subjects covered by the exam.
Questions for the ERP Exam are derived from the core readings. Candidates who include these readings in
their study plan enjoy a higher rate of success on the ERP Exam.

© 2019 Global Association of Risk Professionals. All rights reserved. It is illegal to reproduce this material
in any format without prior written approval of GARP, Global Association of Risk Professionals, Inc. 1


Suggested Use of Practice Exams

1. Plan a date and time to take the practice exam

 Set dates appropriately, consider your target exam day date
 Allow yourself sufficient study and review time before taking the practice exam

2. Simulate the exam day environment as closely as possible
 Take the practice exam(s) in a quiet place, free from interruption
 Limit yourself to the practice exam, candidate answer sheet, calculator, and pencils available
 Minimize possible distractions from other people, cell phones, televisions, etc.
 Put away any study materials before beginning the practice exam
 Keep track of your time while taking the exam. The actual ERP Exam Part I and ERP Exam Part II are
four (4) hours each. Allocate four (4) hours to complete the ERP Part I Practice Exam and four (4)
hours to complete the ERP Part II Practice Exam
 Follow the ERP calculator policy. The only calculators authorized for use on the ERP Exam in 2019
are listed below:
o Texas Instruments BA II Plus (including the BA II Plus Professional)
o Hewlett Packard 12C (including the HP 12C Platinum and the Anniversary Edition)
o Hewlett Packard 10B II
o Hewlett Packard 10B II+
o Hewlett Packard 20B
There are no exceptions to this policy. You will not be allowed into the exam room with a personal
calculator other than those listed above

3. Calculate your score(s) and adjust your study plan accordingly

 After completing the practice exam, calculate your score. Check your answer sheet against the
practice exam answer key included in this document
 Use the practice exam answers and explanations to better understand your correct and incorrect
answers
 Identify topics where you require additional review. Consult the core readings referenced with each
question to prepare for the exam
 Remember, the pass/fail status for the actual exam is based on the distribution of scores from all
candidates. Only use your practice exam scores to gauge your own progress and level of
preparedness


Common Abbreviations and Acronyms

• Bbl: Barrel of _________ • JCC: Japan customs cleared (oil price)
• BOE: Barrel of oil equivalent • KPI: Key performance indicators
• BTU: British Thermal Unit • KRI: Key risk indicators
• CCP: Central counterparty • kW: Kilowatt
• CDD: Cooling degree days • kWh: kilowatt‐hour
• Cf: Cubic feet • LMP: Locational marginal pricing
• CFD: Contract for Differences • LNG: Liquefied natural gas
• CFR: Cost and freight • LSE: Load serving entity
• CIF: Cargo, insurance, and freight • Mcf: Million cubic feet
• CIP: Cargo and insurance paid • MMBtu: Million British thermal units
• CPT: Carriage paid to all transport • MT: Metric ton
• CRO: Chief Risk Officer • MtM: Mark‐to‐market
• CSA: Credit Support Annex • MW: Megawatt
• CVA: Credit value adjustment • MWh: Megawatt‐hour
• DA: Day‐ahead • NGL: Natural gas liquid
• DAP: Delivered at place • NOC: National oil company
• DAT: Delivered at terminal • NPV: Net present value
• DDP: Delivered duty paid • NYMEX: New York Mercantile Exchange
• DES: Delivered ex ship • OPEC: Organization of the Petroleum
• EFP: Exchange for physicals Exporting Countries
• EIA: (US) Energy Information Agency • OTC: Over‐the‐counter
• ERM: Enterprise risk management • PFE: Potential future exposure
• ETS: Emissions trading system • PPA: Power purchase agreement
• EWMA: Exponentially weighted moving • PSA: Production sharing agreement
average • PTR: Physical transmission right
• EXW: Ex‐works • PV: Photovoltaic installation (solar)
• FAS: Free alongside ship • PSC: Production services contract
• FOB: Free on board • RAROC: Risk‐adjusted return on capital
• FTR: Financial transmission right • RBOB: Reformulated gasoline blendstock
• GARCH: Generalized auto‐regressive for oxygen blending
conditional heteroskedasticity • RCSA: Risk control self‐assessment
• HDD: Heating degree days • RTO: Regional Transmission
• ICE: Intercontinental Exchange Organization
• IEA: International Energy Agency • SMP: System marginal price
• IOC: Independent oil company • ULSD: Ultra‐low sulfur diesel
• IRR: Internal rate of return • VaR: Value‐at‐risk
• ISDA: International Swaps and • VOLL: Value of lost load
Derivatives Association • VPP: Volumetric production payment
• ISO: Independent System Operator • WACC: Weighted average cost of capital
• WTI: West Texas intermediate crude oil



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2019 ERP Practice Exam, Part I – Candidate Answer Sheet

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1. An analyst for an energy market regulator is asked to prepare a presentation about the viability of
different storage technologies. Which of the following statements correctly describes an advantage and a
disadvantage of a specific storage technology that could be included in the analyst’s presentation?
a. Flywheels can be used to provide power on short notice, but they have a high energy loss rate.
b. Lithium-ion batteries are cheaper to deploy than other battery storage technologies, but they have
limited storage capacity of less than an hour.
c. Power-to-gas installations have high roundtrip efficiency compared to other storage technologies, but
they are expensive to deploy.
d. Pumped hydro facilities can efficiently address transmission constraints in urban areas during peak
hours, but they are less efficient than other types of storage.
2. Company Z holds the rights to an oil field with an estimated 1.25 billion barrels of oil-in-place (OIP). In its
annual report to shareholders, Company Z reports the field as having proved reserves of 160 million
barrels. Which of the following statements best describes proved reserves?
a. The volume oil already physically extracted from the field.

b. The volume of oil identified within the field under active exploration and development.
c. The volume of OIP assigned to subcontractors for development through lease agreements.
d. The volume of oil identified within the field with a high probability of being commercially viable.
3. The following data is available for a series of natural gas-fired generators connected to a power grid:
 Grid load: 560,000 MWh

 Average market clearing price: USD 41.55/MWh
 Natural gas price (daily average): USD 3.16/MMBtu
Given these factors, what is the implied market heat rate (in MMBtu/MWh) for the power grid?
a. 4.27
b. 13.15
c. 13.48
d. 16.64


4. A market analyst reviews the following specifications of a tolling agreement:
 Term: 9 months
 Capacity: 200 MW
 Heat Rate: 7,900 Btu/kWh
 Fuel: Natural Gas
 Tolling Fee: USD 4.10/MWh
 Capacity Payment: USD 6.30/kW per month
*Assume there are no startup/shutdown costs.
What maximum volume of natural gas (in MMBtu) will the analyst determine is required each month to
operate the plant, assuming the plant is expected to generate power during all peak hours each month
(320 hours) and the tolling agreement counterparty has agreed to purchase electricity for USD
44.60/MWh?
a. 140,800
b. 505,600
c. 576,000
d. 3,629,000
5. An analyst at a petroleum company observes the following operational parameters for a producing
oil well:
 Lease operating expense (LOE) per month: USD 11,500

 Working interest: 60%
 Net revenue interest (NRI): 40%
 Tax rate: 11%
Which of the following amounts represents the required monthly production volume the analyst will
designate as the break-even volume for the well, assuming an average monthly price of USD 61.40/bbl is
used for the break-even calculation?
a. 112
b. 187
c. 281
d. 316

6. An LNG regasification terminal enters into a long-term supply contract with a natural gas supplier. LNG
shipments from the terminal are indexed against the Brent oil futures contract and must meet a specific
BTU content. Testing on a sample from the most recent LNG delivery indicates it has a BTU content
lower than the level specified in the contract. How will the regasification terminal most likely deal with this
off-spec LNG cargo?
a. The regasification terminal will reject the LNG delivery.

b. The seller will provide a make-good cargo to the terminal of on-spec LNG at their cost.
c. The seller will financially compensate the terminal for the additional processing required in
regasification.
d. The regasification terminal will accept delivery and sell the LNG cargo at a premium because of its
higher heating value.
7. Which of the following sequences correctly ranks the slate of refined products typically produced from a
barrel of oil (from lightest to heaviest)?
a. Asphalt – Gasoline – Diesel – LPG – Kerosene

b. Diesel – Gasoline – Kerosene – Asphalt - LPG
c. Kerosene – LPG – Gasoline – Asphalt – Diesel
d. LPG – Gasoline – Kerosene – Diesel – Asphalt
8. Which of the amounts below indicate the optimum number of price spikes that a gas turbine plant
operator in an “energy-only” power market would like to see per year to incentivize investment the
power grid?
a. 0
b. 1-3
c. 3-6
d. 6-10


9. Petroleum Company X agrees with a host country to operate a new oil field under a concessionary
agreement. Operating data for the first year of production at the field is shown below:
 Gross revenue (in USD): 12,400,000

 Income tax rate: 16%
 Royalty rate: 20%
 Severance taxes: 5.5%
 E&P costs (in USD): 9,750,000
 Annual production costs (in USD): 1,600,000
If exploration and drilling costs are pro-rated over the first 6 years of the agreement, which of the following
amounts (in USD) represents the approximate net earnings realized by Company X during the first year
of production?
a. -375,000
b. 5,051,000
c. 6,149,000
d. 7,874,000
10. Company X, an energy trading firm, agrees to supply a counterparty in the Netherlands. After signing a
contract with the counterparty, Company X contacts the Title Transfer Facility (TTF) in the Netherlands.
Company X will use the TTF to complete which of the following actions related to this contract?
a. Purchase a volume of physical natural gas on the spot market.

b. Clear an imported cargo of LNG through customs.
c. Inject gasoline from a storage facility into a pipeline network for final delivery.
d. Settle an hourly power generation contract with the Nord Pool system operator.
11. Gas Company Z is negotiating a long-term, fixed-rate supply contract with a utility company in Asia for
shipments of LNG. Company Z wants to protect itself from economic loss if the utility refuses to take
delivery of a specified volume of LNG. Which of the following clauses should Company Z include in the
supply contract to protect against this loss?
a. Credit support annex

b. Force majeure clause
c. Take-or-pay provision
d. Quick sale provision with liquidated damages

12. An offshore, untapped natural gas field extends across the territorial waters of two neighboring countries.
National policy in both countries is to begin production of the field and to maximize its future commercial
viability. Because the two countries have a history of tense relations, both governments want to minimize
the risk of a conflict over mineral rights. Based on historical precedents, which of the following strategies
would be the most successful model for the two countries to follow to achieve this goal?
a. Agree to a joint, pro-rata ownership of mineral rights under the United Nations Law of the Sea
Doctrine.
b. Claim independent drilling rights and designate a third-party arbitrator to settle any potential future
production disputes.
c. Establish a joint development zone that defines the shared area of the reserve before either country
begins exploitation.
d. Organize a sliding scale production arrangement that allocates the total projected volume of gas
recoverable from the field on a pro-rata basis.
13. The Asia-Pacific gas market is transitioning from an oil indexation system to a gas-on-gas pricing system
that relies on spot LNG cargos for reference pricing. What is the most likely effect this development will
have on the Asia-Pacific natural gas market?
a. Diminished influence by individual market participants

b. Constrained liquidity
c. Lower price volatility
d. Sustained backwardation
14. A long-term tolling agreement exists between a power marketer and a gas-fired power generation plant.
To hedge against a possible financial loss, the power marketer goes short on the spark spread. By taking
this position, which of the following price movements is the power marketer expecting?
a. The electricity price increases while natural gas price stays constant.
b. The electricity price decreases while the natural gas price increases.
c. The electricity price increases while the natural gas price decreases.
d. The electricity price stays constant while the natural gas price decreases.


Questions 15 - 16 use the information below:
Consider the hypothetical three-bus power grid illustrated below. The amount of power supplied and
consumed, along with the marginal price of power generated at each node, is shown on the grid.
15. The maximum generation capacity at each node is 500 MW and the system operator (SO) reports that a
200 MW transmission constraint currently exists between nodes A and B. What is the minimum capacity
that the transmission line from node B to node C must have if the SO wants to keep the generator at node
C in reserve and not dispatching power to the grid?
a. 150 MW
b. 250 MW
c. 300 MW
d. 400 MW
16. If the SO finds that there are no transmission constraint issues on the network, what will be the price for
electricity (in USD/MWh) at node C?
a. 34
b. 37
c. 40
d. 42

17. A European power generator needs to store surplus output from its portfolio of seven wind farms, each
with capacity of between 200 MW to 300 MW, and three solar farms each with capacity of about 100 MW.
The power generator evaluates the feasibility of four storage technologies: flywheel, power to gas,
battery, and pumped hydro; against the following criteria for each:
 Maturity
 Life cycle
 Potential size
 Cost per KWh
 Capacity (meeting 1/3 of portfolio’s potential output is required)
Based on these criteria and assuming the required resources are available to deploy each technology,
which storage technology best suits its needs?
a. Flywheel
b. Power to gas
c. Battery energy storage system
d. Pumped hydro
18. AAA Petroleum signs a long-term LNG charterparty agreement with YTZ Shipping for the use of an LNG
tanker owned by YTZ. The agreement includes a duty to maintain clause. Which of the actions below
will be required by the duty to maintain clause?
a. AAA will be required to pay all costs related to the operation of the tanker.
b. AAA will be responsible for maintaining the tanker in a seaworthy and cargo-worthy condition at all
times.
c. YTZ will be required to pay all costs related to the operation of the tanker.
d. YTZ will be responsible for maintaining the tanker in a seaworthy and cargo-worthy condition at all
times.


19. A power marketer holds a long-term tolling agreement with a gas-fired power plant. The marketer also
has long-term supply contract with a residential utility company. The marketer models power prices for the
upcoming 8-hour period and finds that the spark spread for the power plant is negative. Which of the
actions below is the best one for the power marketer to follow, given this forecast?
a. Buy and store natural gas to take advantage of the low gas prices indicated by the negative spark
spread
b. Idle the plant, sell the unused natural gas and buy power needed to fulfill the supply contract on the
spot market
c. Operate at a loss as necessary to fulfill the long-term supply contract
d. Run the plant at full capacity and sell excess power not required by the utility on the spot market for a
profit
20. A crude oil trader sells a cargo of crude oil from a producer in Saudi Arabia to a refinery in India. Terms of
the contract specify that the trader will arrange for shipment via seaborn tanker and delivery of the oil to
the refinery. The trader has access to the following financial and shipping information:
 Crude oil price (in USD/bbl): 62.30

 Worldscale base rate (USD/MT): 15.2
 Vessel size (DWT): 600,000
 Charter rate for this route: WS112
 Interest rate (1-yr LIBOR + 3 points): 4.94%
 Port and fuel costs (in USD): 1,200,000
 Voyage time (days): 21
What approximate daily hire rate (in USD) will the owner of the tanker earn for the crude oil shipment?
a. 377,000
b. 429,000
c. 458,000
d. 1,432,000

21. The management team at EFG Power analyzes the economic performance of a 400 MW coal-fired
generator owned by the company. The team has access to the following economic data for the
past week:
 Average market price for electricity (USD/MWh): 48.60

 Average price for coal at the production site (USD/ton): 32.50
 Coal transportation cost to the power plant (USD/ton):m 14.30
 Heat rate of plant (MMBtu/MWh): 11.6
 Heat content of coal (MMBtu/ton): 21.6
Given these factors, what is the dark spread for the plant?
a. 23.47
b. 34.48
c. 44.57
d. 47.19
22. An upstream company produces gas at USD 3.00/MMBtu. It liquefies the gas and transports the LNG to a
gas marketer in Europe under a long-term gas sales agreement (GSA). The LNG is transported by tanker
with DES delivery terms. The price paid by the gas marketer is indexed to 10% of the front-month Brent
contract price. Other factors include:
 Amount of feed gas lost in the liquefaction process: 15%

 Round-trip LNG tanker journey duration: 20 days
 LNG tanker operational costs: USD 1.00/MMBtu
 LNG tanker boil-off rate: 0.15%/day
If the front-month Brent contract closing price is USD 70.00/bbl, what is the margin earned by the
upstream company under the terms of the GSA (in USD/MMBtu)?
a. 2.15
b. 2.36
c. 2.47
d. 2.91


A renewable analyst at a utility company is assessing the operating economics of four different wind farms
that could potentially supply the utility’s service area. The operating characteristics for each installation
are summarized in the table below:
Nameplate
Wind farm capacity (MW) Capacity factor
A 275 0.25
B 210 0.32
C 180 0.38
D 145 0.46
23. What is the total annual output (in MWh) for wind farm B, assuming there are 8,760 hours in a year?
a. 383,250
b. 588,600
c. 610,400
d. 876,000
24. Which wind farm should the analyst prioritize for additional evaluation, if the highest expected output is
the most important decision criterion?
a. A
b. B
c. C
d. D

25. A natural gas trader typically trades contracts at the WaHa hub in Texas. The trader wants to replicate an
index position to hedge against locational basis risk. Entering into which of the following positions will
allow the trader to replicate an index position?
a. Enter into two NYMEX futures contract positions with different maturities
b. Enter into two WaHa basis OTC positions with different maturities
c. Enter simultaneously into a NYMEX futures contract position and a basis position.
d. Enter simultaneously into a basis position and a swap position.
26. A public utility is located in a humid and urbanizing region of the US with a mild, temperate climate.
Senior managers at the utility are considering two options for a 500 MW renewable installation: either a
photovoltaic (PV) or concentrating solar power (CSP) installation. Which system is the utility most likely
to choose and for what primary reason?
a. CSP, because it has a higher maximum theoretical efficiency

b. CSP, because it is significantly cheaper to install for large-scale installations
c. PV, because of the characteristics of available solar energy at the site
d. PV, because it is able to store solar energy for use during peak hours
27. The national power grids of two adjoining countries are interconnected by a set of transmission lines that
cross the national border. In this arrangement, which of the following statements best describes
congestion surplus?
a. The premium paid by consumers above the price paid to generators.

b. The volume of excess power required to meet constraints on the grid.
c. The difference between the constrained price and the unconstrained price.
d. The amount of local capacity that exceeds the amount of interconnector capacity currently available.


28. An analyst at a utility company is comparing load profile characteristics for three types of consumers.
A typical demand profile for each is described below:
 Residential: A home residence with a swimming pool.

 Street Lighting: An account that represents all street light consumption for a small city.
 Aluminum Producer: A large producer that operates the same around the clock.
The following chart depicts the normalized load duration curves (LDC) for each consumer account:
Which of the following is the proper match of the normalized LDCs with the appropriate consumer?
a. Load A – aluminum producer, Load B – residential, Load C - street lighting

b. Load A – residential home, Load B – street lighting, Load C - aluminum producer
c. Load A – street lighting, Load B – aluminum producer, Load C - residential home
d. Load A – residential home, Load B – aluminum producer, Load C - street lighting

29. A consortium has approached an investment bank about backing a wind farm project. The consortium
has data on several possible wind farm locations and proposed installations. Which of the following
factors would the investment bank find most favorable for investment?
a. A projected 10-year operating life

b. A projected capacity factor of 35%
c. A projected availability factor of 70%
d. A projected average wind speed of 5 m/s (10 mph)
30. An E&P company enters into a concessionary agreement with a national government to develop a
newly-discovered oil field. The costs associated with the first two years of the project are shown in the
table below:
Realized Projected Difference

(USD) (USD) (USD)
Land surveys 1,950,000 1,800,000 150,000
Geological testing 3,800,000 3,300,000 500,000
Drilling 9,900,000 8,500,000 1,400,000
Equipment 13,400,000 14,100,000 -700,000
Total 29,050,000 27,700,000 1,350,000
At the end of the second year, exploration activities lead the E&P company to conclude the field is not
commercially viable. Under the terms typically found in a concessionary agreement, which of the
following amounts (in USD) represents the financial loss realized by the company on this project?
a. 0
b. 1,350,000
c. 27,700,000
d. 29,050,000


31. A refinery typically estimates its price exposures using a 5:3:2 crack spread. The refinery’s risk
management team has access to the following April 2019 NYMEX futures data:
 WTI futures price: USD 63.50/bbl

 Refining margin: USD 8.45/bbl
 Ultra Low Sulfur Diesel (ULSD) futures price: USD 2.12/gal
Which of the following amounts (in USD/gal) represents the April 2019 RBOB futures contract price,
assuming the crack spread is based on two barrels of RBOB?
a. 0.74
b. 1.39
c. 1.44
d. 2.16
32. Company A operates within a government-run mandatory cap-and-trade greenhouse gas reduction
system, which does not include a banking provision. Near the end of the year, company A has unused
emissions credits. What action is company A most likely to take at the end of the year?
a. Offer to sell unused emission credits to third parties.

b. Use the prior year’s total market emissions trading volume as a benchmark for adjusting its current
annual operating emission reduction targets.
c. Apply unused emission credits in the current year to reduce the emissions volume cap applied
against its operating activity in subsequent years.
d. Exchange unused carbon credits each year with the federal government in return for feed-in tariffs
and other economic incentives to add renewable generating capacity.
33. A crude oil blend XYZ has an API of 34.7° and a sulfur content of 0.88%. A crude oil trader wants to use
the NYMEX WTI futures contract as a price benchmark for XYZ. The NYMEX WTI contract calls for
crude oil with an API between 37° and 42° with a maximum sulfur content of 0.42%. How should the
trader price XYZ relative to the current NYMEX WTI contract?
a. At parity
b. At a premium
c. At a discount
d. WTI cannot be used as a benchmark because XYZ blend differs to much in specifications from WTI.

34. The operators at Refinery X want to increase the octane levels of their gasoline. Which of the following
feedstocks will they most likely blend into the gasoline produced at the refinery to achieve this goal?
a. Alkylate
b. Distillate
c. Benzene
d. Polypropylene
35. A utility company in Japan signs an LNG sale and purchase agreement (SPA) with an export terminal,
located on the US Gulf Coast, to receive 10 million MMBtu of natural gas for one-year. The SPA includes
the following terms:
 LNG price = (Liquefaction cost) + (115% of Henry Hub)

 Liquefaction charges: USD 2.80/MMBtu
 Henry Hub reference gas price: USD 3.65/MMBtu
 Shipping cost (FOB): USD 5.70/MMBtu
 Cargo loading charges: USD 1.10/MMBtu
 Voyage duration (USGC to Japan): 22 days
Calculate the utility company’s all-in cost (in USD/MMBtu) to acquire the natural gas supply.
a. 8.10
b. 8.36
c. 11.00
d. 13.80
36. An energy trader completes a deal to purchase gasoline. By nominating a volume of gasoline, the trader
is causing which of the following actions to take place?
a. Purchase of an RBOB futures contract on an exchange.

b. Withdrawal of a volume of physical gasoline from a storage facility.
c. Reservation of space on a pipeline for the physical shipment of gasoline.
d. Request for bids from counterparties for an OTC contract to hedge the original transaction.


37. An oil well with in an associated petroleum field produces 3,500 cf of natural gas for each barrel of oil
produced. Oil company A buys an 80% working and net revenue interest in the well, under the following
economic conditions:
 Current price of crude oil (USD/bbl): 61.50

 Current price of natural gas (USD/Mcf): 3.95
 Lease operating costs (USD/month): 110,000
Given these factors, what is the minimum level of crude oil production at the well (in bbl/month) for oil
company A to break-even?
a. 680
b. 850
c. 1,248
d. 1,641
38. An analyst at a petroleum company is studying the use of a reserve-based loan (RBL) as a way to raise
capital needed to develop a new oil field. Which of the statements below correctly describes a feature of
an RBL?
a. A decline in the borrowing base of an RBL typically coincides with reduced funding needs of
the borrower.
b. In an RBL, the borrower’s operating cash flow is typically restricted to pay only senior creditors.
c. RBLs typically have a longer cash conversion cycle compared to asset-based loans.
d. Traditional RBLs are typically secured by a first-priority lien against relatively illiquid assets.
39. A governmental public fund is dedicated to developing renewable energy projects with a goal of delivering
the greatest amount of private financing while using the least amount of public money as possible. Which
financial instrument can help the fund achieve this goal with the highest leverage?
a. Equity for solar projects that have a PPA offtake counterparty with a high credit rating
b. Grants for geothermal projects in economically underdeveloped areas
c. Resource insurance for wind projects to protect against underproduction due to still periods
d. Senior debt for technologically proven concentrated solar power systems

40. Gas company A sells natural gas to utility company B under the following terms:
 Volume: 800,000 MMBtu

 Price (in USD/MMBtu): 3.65
Company A schedules to transport the gas to the utility via a pipeline network that has a fuel operating
requirement of 2.8% of the total delivery volume. How will the fuel requirement to ship the natural gas be
accounted for in the economics of the transaction?
a. A surcharge of USD 0.102/MMBtu on the purchase price.

b. A flat tolling charge of USD 0.365/MMBtu for pipeline access.
c. A reduction of 44,800 MMBtu on the total volume delivered.
d. A fuel consumption fee of USD 81,760 for the total volume shipped.
41. The physical specifications for four crude oil samples (A, B, C, and D) are summarized in the table below:
A B C D
Diesel index 28 36 41 27
Sulfur 0.13% 0.22% 0.37% 0.45%
Freeze point 18º C -72º C 10º C -44º C
K Factor 11.7 12.0 12.1 11.8
API gravity 18.8º 33.0º 26.9º 15.5º
Viscosity @ 50º C 1.62 5.17 13.42 1.64
Viscosity @ 100º C 2.16 1.93 3.92 1.97
Based on the data provided, which of the following lists correctly ranks the crude oil samples from highest
to lowest in terms of their efficiency and economic value of their conversion into gasoline?
a. B, C, A, D
b. D, A, B, C
c. A, D, B, C
d. C, B, A, D


42. Consider the operating characteristics for a power generation plant outlined below:
 Plant type: combined-cycle gas turbine

 Nameplate capacity: 350 MW
 Plant heat rate: 7,100 Btu/kWh
 Current price of natural gas: USD 3.03/MMBtu
 Current price of electricity: USD 48.70/MWh
Assuming the plant operates at full capacity, what is the spark spread (in USD/MWh)?
a. -27.17
b. -21.51
c. 27.17
d. 42.67
43. Investment bank X has been approached by a consortium seeking to build an LNG liquefaction and
export terminal. The consortium proposes a financing deal under the following terms:
 65% equity funded at an average cost of 9.9%

 35% debt funded at an average cost of 6.5%
 Effective corporate tax rate: 22%
 Project risk premium: 4%
Given these factors, what is the minimum return on investment the bank will most likely require to approve
development of the field?
a. 8.21%
b. 10.94%
c. 11.29%
d. 12.20%

44. A commodity trading firm sells a cargo of crude oil to a foreign refinery. Delivery is arranged under the
terms of an FAS contract, and the costs associated with this transaction are listed below (quoted in
thousands of USD):
 Crude oil sale price: 11,800

 Preparation for shipping: 210
 Transportation to pier: 750
 Pier “gate” charges: 400
 Miscellaneous port fees: 190
 Ocean freight charges: 4,100
 Marine insurance: 910
What is the difference in shipping costs (in thousands of USD) the firm would realize if this deal was
instead struck under the terms of a CIF contract rather than an FAS contract?
a. 5,200
b. 5,970
c. 6,560
d. 12,390
45. Party A sells the mineral rights to an 800 acre plot of land in Texas to Party B in return for a 25% working
interest in the development of an oil reserve located under the land. Party B then creates a 1/6 overriding
royalty interest (ORI) with Bank C in return for a cash payment of USD 750,000 to raise capital for
exploration and development. If the gross revenues from the first year of production at the field are
USD 1,350,000, what is the approximate gross amount (in USD) Bank C will realize from the ORI?
a. 75,015
b. 150,000
c. 168,784
d. 225,045
46. An investor consortium funds construction of an LNG liquefaction and export facility. The project is
organized into two distinct ventures to separately cover upstream and downstream operations. The
downstream venture has a SPA to sell a volume of LNG to a third-party buyer—this includes delivery of
specific quantities of LNG to the seller. The SPA also specifies an 85% take-or-pay obligation and related
make-up rights for the buyer. What consortium strategy most effectively mitigates the risk the seller will
not take the volume of LNG specified in the SPA?
a. A corporate guarantee provided by the sponsors of the LNG project

b. A flexible destination clause allowing the buyer or seller to change the port of destination for the LNG
cargo
c. A joint operating agreement (JOA) with the upstream venture of the LNG project within the terms of
the SPA
d. A gas sales agreement (GSA) with the upstream venture of the LNG project, closely mirroring the
arrangements under the SPA


47. A petroleum company begins operations in a foreign country to manage production at a large oil field.
While production at the field can potentially be very lucrative for the company, the country has a history of
political instability, exposing the company to substantial political risk. Which of the following actions is the
most advisable for the company take to most effectively mitigate their political risk?
a. Concentrate company operations within the smallest geographical area possible.

b. Employ as many local suppliers and subcontractors as feasible.
c. Launch a public relations campaign within the country to build corporate brand awareness.
d. Limit interactions with government officials as much as possible.
48. A 300 MW generator enters into a contract with an ISO to serve as an operating reserve for a period of
six hours. Which of the following statements best describes the compensation this generator will receive?
a. A fee-based payment for time served as an operating reserve with no additional compensation for
any electricity generated and dispatched.
b. A fee-based payment for time served as an operating reserve with additional payments for any
electricity generated and dispatched.
c. A flat payment for time served as an operating reserve equal to the market clearing price, plus an
option to sell any excess power generated on the spot market.
d. A flat payment for time served as an operating reserve equal to the market clearing price, with no
additional economic consideration for power dispatched.
49. A manager at a Swedish company that supplies retail power to end-users has access to the following
pricing data, with prices in Swedish kronor (SEK):
Forecasted
Day ahead Real t me power Real zed power
market pr ce market pr ce consumpt on consumpt on
(SEK/MWh) (SEK/MWh) (MWh) (MWh)
Hour 1 224.8 231.6 90 96
Hour 2 205.0 211.3 75 68
The company sends hourly offers to the Nord Pool system operator for power which will be delivered the
following day. Given the information above, what was the company’s total cost to purchase electricity
(in SEK) during this two-hour period?
a. 35,517.50
b. 35,607.00
c. 36,602.00
d. 36,996.60

50. A small, mid-merit gas-fired power generation plant has a nameplate capacity of 180 MW. Plant
operators report the following monthly statistics at the end of April:
 Total output for April: 108,000 MWh

 Days offline for planned outages: 3
 Days offline due to unplanned outages: 2
The plant ran at full capacity ATC for all the other days in the month. What was the plant’s capacity factor
for April?
a. 83.3%
b. 87.1%
c. 90.0%
d. 93.3%
51. A natural gas company is reviewing a proposal to construct a new LNG liquefaction terminal. To
determine the economic viability of the project, the company is using the following assumptions as part of
an NPV analysis:
 Average cost of debt: 3.55%

 Average cost of equity: 7.80%
 Financing structure: 70% debt; 30% equity
 Spread over risk-adjusted cost of capital: 3.50%
Which of the following represents the discount rate that the company should assume in its NPV analysis?
a. 4.27%
b. 4.90%
c. 7.78%
d. 8.30%
52. A commodities trader strikes a deal with a natural gas purchaser for a cargo of LNG under the terms of a
DAP contract to be delivered to the buyer’s import terminal. Which of the choices below correctly
identifies the point at which title to the natural gas will pass from the buyer to the seller.
a. When the contract is signed.

b. When the LNG is loaded onboard the LNG tanker.
c. At a pre-determined point of the voyage in international waters.
d. When the LNG is unloaded at the import terminal.


53. Six generators are connected to a power grid. The system operator receives the following day-ahead
bids for a given hour:
Generator Bid Price Capacity (MW) Minimum

(USD/MWh) Quantity (MW)
A 23.75 50 25
B 27.50 100 0
C 31.70 200 100
D 33.60 40 30
E 37.20 100 0
F 48.70 50 50
The system operator forecasts a load of 140 MWh for this hour and schedules generators accordingly,
but the actual load for the hour is 160 MWh. What is the system clearing price (in USD/MWh) for
this hour?
a. 31.70
b. 33.60
c. 35.40
d. 37.20
54. A 275 MW natural gas-fired power generator forecasts demand for a large industrial customer for
the month of May. The parties agree to a supply contract covering the entire production of the
generating plant at a fixed flat rate of USD 48.70/MWh. During the month, the generator has the
following operating characteristics:
 Average natural gas price: USD 3.41/MMBtu

 ATC capacity factor: 86%
 Operational heat rate (at 275 MW output): 9.3 MMBtu/MWh
Given these factors, which of the following amounts best approximates the gross profit (in USD) the
generator realized on this contract for the month of May?
a. 892,000
b. 921,000
c. 2,893,000
d. 2,989,000

55. A natural gas marketer uses the following market data to assess an offer to export LNG from a storage
facility in Europe to Asia:
 Average European gas hub price: USD 8.00/MMBtu

 Asian spot LNG price: USD 11.00/MMBtu
 Re-gasifying cost: USD 0.50/MMBtu
 Reloading cost: USD 1.00/MMBtu
 Charter rate, Europe to Asia: USD 2.00/MMBtu
If LNG spot prices remain stable, should the gas marketer accept the offer?
a. Yes, revenue will be USD 0.50/MMBtu higher.

b. Yes, revenue will be USD 1.00/MMBtu higher.
c. No, revenue will be USD 0.50/MMBtu lower.
d. No, revenue will be USD 1.00/MMBtu lower.
56. The procurement manager at a hydroskimming refinery studies the pricing data currently available for four
grades of crude oil shown below:
Feedstock Price Spread vs. Brent

crude (USD/bbl) (USD/bbl)
Canadian Oil Sands (bitumen) 41.9 19.28
Mexico Mayan Heavy 55.50 5.68
Nigerian Bonny Light 65.40 -4.22
West Texas Sour 59.80 1.38
If the current spot price for Brent crude oil is USD 61.18/bbl, which of the crude oils shown above will the
manager most likely select to maximize gasoline production (assuming transportation costs for all four
crude oils are equal)?
a. Canadian Oil Sands

b. Mexican Mayan Heavy
c. Nigerian Bonny Light
d. West Texas Sour


57. An oil trader purchases a 600,000 barrel Brent CFD in July based on the following market prices:
 July Dated Brent (5-day average for trading window): USD 62.90/bbl
 July Brent Forward: USD 62.61/bbl
 August Brent Forward: USD 62.68/bbl
 August WTI Futures: USD 59.30/bbl
What is the per barrel spread (in USD) the trader will pay for the CFD?
a. 0.22
b. 0.29
c. 3.38
d. 3.60
58. An independent petroleum company operates drilling and production facilities in Country A under a PSA
agreement with the following economic terms:
 Royalty: 9%
 Allowable cost recovery (annual): 25%
 Government’s profit oil take: 36%
 Effective income tax rate: 16%
During the first full year of production, the average price of crude oil from Country A was USD 59.80/bbl.
Assuming costs are not yet fully recovered, what is the company’s after-tax profit (in USD/bbl)?
a. 8.37
b. 21.94
c. 26.12
d. 32.15

59. The risk management team at an ISO prepared the following summary of one week of daily operational
data for a grid with 700 MW of installed capacity:
Load Outages
(MW) (MW)
Monday 680 0
Tuesday 710 0
Wednesday 670 40
Thursday 690 20
Friday 700 0
Saturday 670 30
Sunday 630 10
Based on the information above, what is the total lost load (in MW) on the grid over this 7-day period?
a. 10
b. 30
c. 60
d. 100
60. An investment analyst observes the following information reported by four upstream petroleum
companies on proven reserve holdings:
Company Booked reserves Production volume

(in million bbl) (bbl/yr)
A 11.5 720,000
B 9.7 510,000
C 7.9 480,000
D 14.0 680,000
Assume the primary evaluation criteria is the longest reserve life index. Which company will the analyst
recommend for investment?
a. A
b. B
c. C
d. D


61. A natural gas-fired power plant enters into a contract to supply the plant with fuel for the month of May.
The contract is settled on a weekly basis against the closing NYMEX Henry Hub futures settlement each
Monday and includes a cap and floor equivalent to +/- 15% of the average NYMEX Henry Hub price for
the previous month. The average April closing price and weekly pricing data for May are shown below:
Average April closing price (USD/MMBtu): 3.21
NYMEX Henry Hub Monday closing price for May (USD/MMBtu)
Week 1: 3.46
Week 2: 3.53
Week 3: 3.58
Week 4: 3.76
Assuming the plant consumes 120,000 MMBtu of gas per day, seven days per week, which of the
following represents the approximate amount (in USD) the manager must pay for the fuel supply over the
four weeks in May?
a. 11,171,000
b. 11,575,000
c. 11,980,000
d. 12,037,000
62. DEF Power holds a tolling agreement on a 175 MW natural gas-fired power plant. Under the terms of the
tolling agreement, DEF decides whether or not to operate the plant for the upcoming day at the beginning
of each 24-hour period. DEF has the following data available for the next day:
 Average day-ahead electricity price: USD 36.35/MWh

 Variable non-fuel operating costs: USD 4.60/MWh
 Spot natural gas price at local hub: USD 2.97/MMBtu
 Heat rate: 8.3 MMBtu/MWh
Assume market prices remain constant over the next 24-hour period and start-up, emission, and
transmission costs are zero. What is the net cash flow (in USD) received by DEF Power?
a. 0, the plant is idle

b. 5,409
c. 29,816
d. 49,136

63. The scheduling coordinator for a portfolio of four natural gas plants in southern California is considering
fuel requirements for the plants. The heat rate for each plant is shown in the table below:
Heat Rate
Plant (Btu/kWh)
Plant 1 10,000
Plant 2 7,500
Plant 3 12,500
Plant 4 8,000
If the current cost of natural gas at the southern California border is USD 4.00/MMBtu, which of the
statements below is correct?
a. Plant 1 has a marginal operating cost of USD 40/MWh, but is not the most efficient plant.
b. Plant 2 has a marginal operating cost of USD 38/MWh and is the least efficient of the four plants.
c. Plant 3 has a marginal operating cost of USD 46/MWh and is the most efficient of the four plants.
d. Plant 4 has a marginal operating cost of USD 24/MWh, but is not the most efficient plant.
64. An ISO received the following bids for dispatched power for one hour between 5:00 PM and 6:00 PM:
Bids Entity Quantity (MWh) Price (USD/MWh)

Bid U Gen 1 500 38.50
Bid V Gen 1 200 33.30
Bid W Gen 2 75 41.40
Bid X Gen 2 150 43.75
Bid Y Gen 3 100 44.90
Bid Z Gen 3 800 50.80
If the total grid load forecast for the hour is 800 MW, which of the following represents the marginal
clearing price (in USD/MWh) for the grid between the hours of 5:00 PM and 6:00 PM?
a. 41.40
b. 43.75
c. 44.90
d. 50.80


65. A natural gas trader has identified a seasonal pattern as illustrated in the chart below in the TETCO-M3
natural gas basis market located in the northeastern United States.
Based on the forward price curves above and other fundamental trends in the physical natural gas
market, the trader concludes that the TETCO-M3 summer basis has a high probability of remaining
negative relative to NYMEX Henry Hub. Which of the following would provide the most appropriate
rationale for the trader’s conclusion?
a. A backlog of drilled-but-not-completed wells are waiting to come online.

b. A large new gas discovery has been identified in the Permian basin.
c. Several large takeaway infrastructure projects are now complete and fully operational.
d. Shale gas production in the Marcellus and Utica regions has increased.
66. The procurement manager at a large power company is responsible for sourcing coal to fuel several large
generators operated by the company. If the manager seeks to minimize transportation costs, they should
arrange for coal deliveries from suppliers that offer coal containing which of the following physical
characteristics?
a. High ash content and low sulfur content

b. Low ash content and high sulfur content
c. High calorific value and low moisture content
d. Low calorific value and high moisture content

67. Consider the following operational information for a power generating plant over the course of a week:

 Average actual power produced: 305 MW
 Average power price: USD 51.50/MWh
 Average heat rate: 9.4 MMBtu/MWh
Given this information, what was the capacity factor for this plant during this week?
a. 63%
b. 87%
c. 97%
d. 115%
68. To increase local gathering capacity, a city’s regulated utility company introduces more decentralized
energy technologies over time. The following chart compares the actual daily load profile in 2017 with the
forecasted load in 2020:
Which combination of factors most likely accounts for the differences between the load in 2017 and the
forecasted load in 2020 at points A and B?
a. Energy efficiency (A) and demand response (B)

b. Distributed solar generation (A) and demand response (B)
c. Distributed storage (A) and distributed solar generation (B)
d. Energy efficiency (A) and distributed storage (B)


69. Four petroleum companies (A-D) report their annual production figures, summarized in the table below:
Booked Reserve Yearly Production

Company (in millions of bbls) (in millions of bbls)
A 75 8.7
B 54 4.9
C 66 9.1
D 79 12.3
If a petroleum market analyst assumes an average annual price for crude oil of USD 62.75/bbl, which
company has the longest reserve life index?
a. A
b. B
c. C
d. D
70. Which of the choices below correctly describes a financial benefit the operators of a 150 MW wind farm
will realize from a power purchase agreement that includes a feed-in tariff (FIT)?
a. A fixed price paid per kWh of power produced and delivered to the grid.
b. A one-time subsidy payment that is executed when the wind farm has been connected and integrated
into the power grid.
c. A spread paid above the market clearing electricity price that varies based on the operating efficiency
of each power generator on the grid.
d. A tax credit received for each marginal kWh of power produced and delivered to the grid by the farm
that exceeds a pre-determined minimum.
71. A natural gas company plans construction of a new supply and distribution system to serve a rapidly-
growing urban area. The company wants to meet anticipated demand spikes without purchasing
additional gas on the spot market. What action can the company take to meet these goals?
a. Convert a depleted oil field to facilitate peak-shaving of natural gas.

b. Transform an aquifer to facilitate peak-shaving of natural gas.
c. Install a cryogenic cooling system in the natural gas trunk pipeline, so LNG ships directly to the city
from an import terminal.
d. Require higher pressure ratings along the natural gas pipeline to create a linepack.

72. XYZ Power holds a tolling agreement on two power plants with similar capacity: one coal-fired, one
gas-fired. The following tables summarizes heat rate and operating expenses for each plant:
Coal-fired Gas-fired
Heat rate 10.85 MMBtu/MWh 8.40 MMBtu/MWh
O&M expense USD 4.15/MWh USD 3.05/MWh
The BTU-equivalent cost for coal is USD 3.14/MMBtu. No start-up or shut-down costs exist for either
plant. Currently, XYZ meets its current demand using only the coal plant. At what natural gas boundary
price (in USD/MMBtu) would XYZ make a switch from the coal plant to the gas plant?
a. 3.65
b. 3.86
c. 4.19
d. 4.78
73. Consider the product yields from three different crude oil refineries - A, B, and C - outlined in the
table below:
Product yield (as % of total output)

A B C
Light ends 55% 34% 30%
Middle distillates 35% 63% 45%
Heavy composites 10% 3% 25%
Which of the following correctly places refineries A, B, and C (in that order) in the correct classification
order, assuming each refinery processes the same intermediate grade of crude oil?
a. Conversion, Deep conversion, Hydroskimming

b. Deep conversion, Conversion, Topping
c. Hydroskimming, Deep conversion, Conversion
d. Topping, Conversion, Deep conversion


74. In a hypothetical power grid, off-peak demand is typically met by a 350 MW coal-fired plant with a fixed
start-up cost of USD 3,000 and environmental and no-load costs of zero. Dispatch decisions on the power
grid are made by the ISO in one-hour blocks based on day-ahead market prices. Dispatched power
levels from the power plant, hourly power prices, and variable hourly generator costs are shown in the
table below.
Power price Dispatched Generation

Hour
(USD/MWh) power (MW) cost (USD)
1 38.7 0 0
2 40.9 120 5,600
3 44.1 190 7,900
4 46.8 265 9,400
5 41.2 175 6,850
6 49.3 310 11,800
During which hour will the generator recover its startup costs?
a. 3
b. 4
c. 5
d. 6
75. When considering the operation of an underground natural gas storage facility, the term “working gas”
refers to which of the following volumes of natural gas?
a. The natural gas sold on the spot market on a given day.

b. The natural gas available for withdrawal from the facility on a given day.
c. The natural gas used to fuel the injection/extraction pumps at the facility.
d. The natural gas needed to maintain the proper operating pressure at the facility.

76. A hypothetical power grid is fully supplied by four generators. The maximum hourly capacity and the
variable operating cost for each generator are summarized in the following table:
Variable cost
Plant Capacity
(USD/MWh)
A 150 44.80
B 350 46.75
C 375 39.60
D 500 50.60
If the total hourly demand for the grid is 500 MW, which generators will be dispatched according to a merit
order curve?
a. Plant D only
b. Plants A and B
c. Plants A and C
d. Plants B and C
77. To hedge against potential losses due to congestion, a power trader purchases a 110 MW FTR from Hub
A to Hub B to cover the peak hours during one month (assume 22 days total with peak hours and 16 peak
hours per day). The trader purchases the FTR for USD 3.20/MWh. The table below shows the average
peak prices reported for the month:
Day-ahead Real-time
settlement settlement
(USD/MWh) (USD/MWh)
Hub A 42.60 40.70
Hub B 45.90 47.55
Given this information, what is the trader’s realized monthly profit/loss (in USD) on the FTR position?
a. -251,680
b. 3,872
c. 13,552
d. 141,328


78. A typical fractionating column from a refinery complex is illustrated below. If point A represents the
lightest products and point H represents the heaviest products, gasoline will most likely be drawn from
which of the following points?
a. A
b. C
c. E
d. G

A natural gas analyst is studying the following simplified natural gas storage report for the month of
September, where storage percentages represent the current total available capacity filled at each facility:
Total
Depleted Salt storage
Aquifer
field cavern volume
(all types)
East 83% 73% 80% 81%
West 89% 82% 83% 85%
Central 86% 79% 74% 83%
South 76% 77% 71% 79%
Daily withdrawal
3.5% 4.25% 5.5% N/A
(% of volume)
Cushion gas
requirement 40% 25% 15% N/A
(average)
Lead time required
6 days 3 days 12 hours N/A
for withdrawal
79. Natural gas production in the South region is unexpectedly halted for 15 days due to a hurricane. Which
storage location(s) will offer the most cost-effective alternative for meeting supply shortages in the South
region due to the lack of gas production (assuming demand levels, pipeline rates and withdrawal rates all
remain stable)?
a. All West facilities

b. Central aquifers only
c. South salt caverns only
d. South salt caverns and depleted fields
80. The analyst passes their findings along to a natural gas trader at their company. Given the posted
storage levels, the trader decides to structure an inter-hub basis swap. The trader gets pricing
information on contracts at the following locations:
 Iroquois (East region)

 Malin Center (West region)
 Mid-Continent (Central region)
 WaHa (South region)
Which of the following basis trades is the trader most likely execute?
a. Buy WaHa basis and sell Malin basis.

b. Buy Iroquois basis and sell WaHa basis.
c. Buy Malin basis and sell Mid-Continent basis.
d. Buy Mid-Continent basis and sell WaHa basis.


•
2019 ERP Practice Exam, Part I – Candidate Answer Sheet

1. _____a_____ 41. _____a____
2. _____d_____ 42. _____c____
3. _____b_____ 43. _____d____
4. _____b_____ 44. _____a____
5. _____d_____ 45. _____c____
6. _____c_____ 46. _____d____
7. _____d_____ 47. _____b____
8. _____d_____ 48. _____b____
9. _____b_____ 49. _____a____
10. ____a ____ 50. _____a____
11. ____c_____ 51. _____c____
12. ____c_____ 52. _____d____
13. ____b_____ 53. _____d____
14. ____b ____ 54. _____d____
15. ____a_____ 55. _____a____
16. ____c_____ 56. _____c____
17. ____d_____ 57. _____a____
18. ____d_____ 58. _____b____
19. ____b_____ 59. _____b____
20. ____b_____ 60. _____d____
21. ____a_____ 61. _____c____
22. ____b_____ 62. _____c____
23. ____b_____ 63. _____a____
24. ____a _____ 64. _____b____
25. ____c_____ 65. _____d____
26. ____c_____ 66. _____c____
27. ____a_____ 67. _____b____
28. ____d_____ 68. _____b____
29. ____b_____ 69. _____b____
30. ____d_____ 70. _____a____
31. ____c_____ 71. _____d____
32. ___ a_____ 72. _____c____
33. __ c_____ 73. _____a____
34. ____a_____ 74. _____c____
35. ____d_____ 75. _____b____
36. ____c_____ 76. _____c____
37. ____d_____ 77. _____b____
38. ____c_____ 78. _____b____
39. ____c_____ 79. _____d____
40. ____a_____ 80. _____a____


1. An analyst for an energy market regulator is asked to prepare a presentation about the viability of
different storage technologies. Which of the following statements correctly describes an advantage and a
disadvantage of a specific storage technology that could be included in the analyst’s presentation?
a. Flywheels can be used to provide power on short notice, but they have a high energy loss rate.
b. Lithium-ion batteries are cheaper to deploy than other battery storage technologies, but they have
limited storage capacity of less than an hour.
c. Power-to-gas installations have high roundtrip efficiency compared to other storage technologies, but
they are expensive to deploy.
d. Pumped hydro facilities can efficiently address transmission constraints in urban areas during peak
hours, but they are less efficient than other types of storage.
Answer: a
Explanation:
Flywheel technologies store electricity by converting it to mechanical energy. As such it has a very high
loss rate, which therefore makes them viable only for short-term purposes such as primary frequency
regulation (an ancillary service). They are most viable when needing a large amount of energy in a short
period of time.
B is incorrect. Li-Ion batteries can store electricity for up to ten hours. They are more expensive by far
than other battery technologies such as PB-acid.
C is incorrect. Power to gas is still a developing technology with very few actual deployments. It has one
of the lowest efficiencies at 60% compared to the other storage technologies discussed.
D is incorrect. Pumped hydro cannot efficiently address unexpected congestion spikes since pumped
hydro stations are typically located far from population centers. Efficiency is 65-80% which is reasonably
high and comparable to most other types except Li-Ion.
Reference: KU Leuven Energy Institute. Storage Technologies for the Power System.


2. Company Z holds the rights to an oil field with an estimated 1.25 billion barrels of oil-in-place (OIP). In its
annual report to shareholders, Company Z reports the field as having proved reserves of 160 million
barrels. Which of the following statements best describes proved reserves?
a. The volume oil already physically extracted from the field.

b. The volume of oil identified within the field under active exploration and development.
c. The volume of OIP assigned to subcontractors for development through lease agreements.
d. The volume of oil identified within the field with a high probability of being commercially viable.
Answer: d
Explanation:
By definition, proved reserves refer to the portion of OIP - both developed and undeveloped - that is likely
to be recovered with existing technology and under current market conditions. Typically, this likelihood is
identified as 90% or greater. Proved reserves are also known as P1 reserves.
Reference: Andrew Inkpen and Michael H. Moffett. The Global Oil and Gas Industry: Management,
Strategy and Finance, Chapter 3.
3. The following data is available for a series of natural gas-fired generators connected to a power grid:
 Grid load: 560,000 MWh

 Average market clearing price: USD 41.55/MWh
 Natural gas price (daily average): USD 3.16/MMBtu
Given these factors, what is the implied market heat rate (in MMBtu/MWh) for the power grid?
a. 4.27
b. 13.15
c. 13.48
d. 16.64
Answer: b
Explanation:
The implied market heat rate is calculated by simply dividing the cost of the natural gas into the market
clearing price for electricity, in this case: USD 41.55 / USD 3.16 = 13.15 MMBtu/MWh
Reference: John E. Parsons. Introduction to Electricity Markets, Chapter 5.

4. A market analyst reviews the following specifications of a tolling agreement:
 Term: 9 months
 Capacity: 200 MW
 Heat Rate: 7,900 Btu/kWh
 Fuel: Natural Gas
 Tolling Fee: USD 4.10/MWh
 Capacity Payment: USD 6.30/kW per month
*Assume there are no startup/shutdown costs.
What maximum volume of natural gas (in MMBtu) will the analyst determine is required each month to
operate the plant, assuming the plant is expected to generate power during all peak hours each month
(320 hours) and the tolling agreement counterparty has agreed to purchase electricity for USD
44.60/MWh?
a. 140,800
b. 505,600
c. 576,000
d. 3,629,000
Answer: b
Explanation:
To determine the volume of natural gas (in MMBtu) needed to operate the plant; the expected output (200
MW * 320 peak hours) is multiplied by the heat rate of 7.9 MMBtu/MWh (or 7,900 Btu/kWh), or
200*320*7.9=505,600 MMBtu each month.
Reference: Kenneth Skinner, Heat Rates, Spark Spreads, and the Economics of Tolling Agreements.


5. An analyst at a petroleum company observes the following operational parameters for a producing
oil well:
 Lease operating expense (LOE) per month: USD 11,500

 Working interest: 60%
 Net revenue interest (NRI): 40%
 Tax rate: 11%
Which of the following amounts represents the required monthly production volume the analyst will
designate as the break-even volume for the well, assuming an average monthly price of USD 61.40/bbl is
used for the break-even calculation?
a. 112
b. 187
c. 281
d. 316
Answer: d
Explanation:
The break-even number of barrels can be calculated using the following formula:
Break-even = (WI x LOE) / (NRI x Pcrude x (1 - T))
Or:
Break-even = (.6 x USD 11,500)/(.40 x 61.40 x (1-0.11)) = 6,900 / 25.45 = 316 barrels per month

6. LNG regasification terminal enters into a long-term supply contract with a natural gas supplier. LNG
shipments from the terminal are indexed against the Brent oil futures contract and must meet a specific
BTU content. Testing on a sample from the most recent LNG delivery indicates it has a BTU content
lower than the level specified in the contract. How will the regasification terminal most likely deal with this
off-spec LNG cargo?
a. The regasification terminal will reject the LNG delivery.

b. The seller will provide a make-good cargo to the terminal of on-spec LNG at their cost.
c. The seller will financially compensate the terminal for the additional processing required in
regasification.
d. The regasification terminal will accept delivery and sell the LNG cargo at a premium because of its
higher heating value.
Answer: c
Explanation:
The typical remedy in this situation is for the seller to compensate the buyer for any additional processing
required to bring the natural gas in line with the contract specifications. While refusal of cargo is typically
permitted under the terms of the contract, it has never been employed in practice - according to the
authors - since it is seen as “too draconian” and would poison the buyer-seller relationship, an important
consideration since most LNG cargoes are still transported under long-term contractual arrangements.
Reference: Michael D. Tusiani and Gordon Shearer. LNG: Fuel for a Changing World: A Nontechnical
Guide, 2nd Edition, Chapter 14.
7. Which of the following sequences correctly ranks the slate of refined products typically produced from a
barrel of oil (from lightest to heaviest)?
a. Asphalt – Gasoline – Diesel – LPG – Kerosene

b. Diesel – Gasoline – Kerosene – Asphalt - LPG
c. Kerosene – LPG – Gasoline – Asphalt – Diesel
d. LPG – Gasoline – Kerosene – Diesel – Asphalt
Answer: d
Explanation:
The slate of refined products typically produced by a refinery, listed from light ends to heavy, would
correctly be listed as: Liquefied Petroleum Gas (LPG), Gasoline, Kerosene, Diesel, and residual asphalt.
Reference: Andrew Inkpen and Michael Moffett. The Global Oil and Gas Industry: Management,
Strategy, and Finance, Chapter 12.


8. Which of the amounts below indicate the optimum number of price spikes that a gas turbine plant
operator in an “energy-only” power market would like to see per year to incentivize investment the power
grid?
a. 0
b. 1-3
c. 3-6
d. 6-10
Answer: d
Explanation:
Energy-only markets rely on price spikes to incentivize generators to build additional capacity to ensure
the reliability of the grid. If there are too few (or no) price spikes, generators may then not invest in new
capacity, therefore negatively affecting the overall reliability of the grid. Of the choices, therefore, D, 6-10
spikes, would provide the most additional revenue for the plant operator and thus incentivize investment.
Reference: Rafal Weron. Modeling and Forecasting Electricity Loads and Prices, Chapter 1.
9. Petroleum Company X agrees with a host country to operate a new oil field under a concessionary
agreement. Operating data for the first year of production at the field is shown below:
 Gross revenue (in USD): 12,400,000

 Royalty rate: 20%
 Severance taxes: 5.5%
 E&P costs (in USD): 9,750,000
 Annual production costs (in USD): 1,600,000
If exploration and drilling costs are pro-rated over the first 6 years of the agreement, which of the following
amounts (in USD) represents the approximate net earnings realized by Company X during the first year
of production?
a. -375,000
b. 5,051,000
c. 6,149,000
d. 7,874,000
Answer: b
Explanation:
On revenue of USD 12,400,000, the company will pay 20% of this amount, or USD 2,480,000 in royalties
and 5.5% * 12,400,000, or USD 682,000 for the severance payment, leaving USD 9,238,000. From this
amount, the USD 1,600,000 in operating expenses and a USD 1,625,000 pro-rated share of E&P costs
are deducted. The 16% income tax is then deducted from the USD 6,013,000 amount of taxable income,
leaving the company a profit of USD 5,050,920.
Reference: Charlotte Wright. Fundamentals of Oil & Gas Accounting, 6th Edition, Chapter 18.

10. Company X, an energy trading firm, agrees to supply a counterparty in the Netherlands. After signing a
contract with the counterparty, Company X contacts the Title Transfer Facility (TTF) in the Netherlands.
Company X will use the TTF to complete which of the following actions related to this contract?
a. Purchase a volume of physical natural gas on the spot market.

b. Clear an imported cargo of LNG through customs.
c. Inject gasoline from a storage facility into a pipeline network for final delivery.
d. Settle an hourly power generation contract with the Nord Pool system operator.
Answer: a
Explanation:
The TTF is an emerging natural gas trading and delivery hub in the Netherlands. Along with the
Zeebrugge facility in Belgium, they are the most mature natural gas hubs within Europe, outside of the
United Kingdom’s National Balancing Point. The TTF therefore would be used by the trader to purchase
physical natural gas on the spot market.
Reference: Anthony J. Melling. Natural Gas Pricing and its Future: Europe as the Battleground,
Chapter 1.
11. Gas Company Z is negotiating a long-term, fixed-rate supply contract with a utility company in Asia for
shipments of LNG. Company Z wants to protect itself from economic loss if the utility refuses to take
delivery of a specified volume of LNG. Which of the following clauses should Company Z include in the
supply contract to protect against this loss?
a. Credit support annex

b. Force majeure clause
c. Take-or-pay provision
d. Quick sale provision with liquidated damages
Answer: c
Explanation:
A take-or-pay provision forces the customer to either take the volume of gas specified by the contract –
whether it is needed or not – or pay for the gas, even if it is never delivered. Answer a is incorrect
because this circumstance would not be covered under a credit support annex, nor would refusal of
delivery trigger a force majeure clause. Answer d is incorrect because while a regional spot market is
developing for LNG, it cannot be considered fully liquid in that the exporter cannot be guaranteed that
there would be a buyer available for this cargo.
Reference: Anthony J. Melling. Natural Gas Pricing and its Future: Europe as the Battleground.


12. An offshore, untapped natural gas field extends across the territorial waters of two neighboring countries.
National policy in both countries is to begin production of the field and to maximize its future commercial
viability. Because the two countries have a history of tense relations, both governments want to minimize
the risk of a conflict over mineral rights. Based on historical precedents, which of the following strategies
would be the most successful model for the two countries to follow to achieve this goal?
a. Agree to a joint, pro-rata ownership of mineral rights under the United Nations Law of the Sea
Doctrine.
b. Claim independent drilling rights and designate a third-party arbitrator to settle any potential future
production disputes.
c. Establish a joint development zone that defines the shared area of the reserve before either country
begins exploitation.
d. Organize a sliding scale production arrangement that allocates the total projected volume of gas
recoverable from the field on a pro-rata basis.
Answer: c
Explanation:
The best strategy, and one that has been used successfully in many occasions, is for the two nations to
establish a joint development zone (JDZ) that encompasses the portions of the reserve in both country’s
territorial waters. The JDZ will include definitions of each nation’s claim and a unitization agreement to
maximize production for the entire reserve.
Reference: Andrew Inkpen and Michael Moffett. The Global Oil and Gas Industry: Management, Strategy
and Finance, Chapter 4.
13. The Asia-Pacific gas market is transitioning from an oil indexation system to a gas-on-gas pricing system
that relies on spot LNG cargos for reference pricing. What is the most likely effect this development will
have on the Asia-Pacific natural gas market?
a. Diminished influence by individual market participants

b. Constrained liquidity
c. Lower price volatility
d. Sustained backwardation
Answer: b
Explanation:
Given the current developing state of natural gas trading hubs in Asia, gas-to-gas indexation – an
indexation to spot prices that reflect the present supply & demand dynamics for natural gas in the market
– would be indexed to spot prices based upon a subset of Asian spot cargos. Liquidity is constrained by
the physical size of LNG cargos. Total spot trade in Asia in 2014 was 5.5 bcf/d. An average LNG cargo is
2.8 bcf of natural gas – so even if all spot trades were reported, the deal frequency would be around 2
cargos per day, resulting in an index which would lack depth, exhibit much volatility, and could be
influenced by individual players.
Reference: US Energy Information Administration. Perspectives on the Development of LNG Market

Hubs in the Asia Pacific Region.

14. A long-term tolling agreement exists between a power marketer and a gas-fired power generation plant.
To hedge against a possible financial loss, the power marketer goes short on the spark spread. By taking
this position, which of the following price movements is the power marketer expecting?
a. The electricity price increases while natural gas price stays constant.
b. The electricity price decreases while the natural gas price increases.
c. The electricity price increases while the natural gas price decreases.
d. The electricity price stays constant while the natural gas price decreases.
Answer: b
Explanation:
A short spark spread position implies the trader is short the price of electricity and long the price of gas. If
the price of electricity decreases relative to the price of gas, a short spark spread position will benefit
financially. Likewise, if the price of gas increases relative to the price of electricity, a short spark spread
position benefits financially. The opposite holds true if you are long the spark spread.
Reference: Kenneth Skinner. Heat Rates, Spark Spreads and the Economics of Tolling Agreements.


Consider the hypothetical three-bus power grid illustrated below. The amount of power supplied and
consumed, along with the marginal price of power generated at each node, is shown on the grid.
15. The maximum generation capacity at each node is 500 MW and the system operator (SO) reports that a
200 MW transmission constraint currently exists between nodes A and B. What is the minimum capacity
that the transmission line from node B to node C must have if the SO wants to keep the generator at node
C in reserve and not dispatching power to the grid?
a. 150 MW
b. 250 MW
c. 300 MW
d. 400 MW
Answer: a
Explanation:
There is a 400 MW load at node c and no power currently being added to the grid at that point. There is
generation of 500 MW at node A with a load of 250; this means that 250 MW can be sent to node C. If we
subtract 250 from 400, there is a remainder of 150 MW that must be supplied from node B; therefore
transmission line between nodes B and C must be capable of carrying at least 150 MW.

16. If the SO finds that there are no transmission constraint issues on the network, what will be the price for
electricity (in USD/MWh) at node C?
a. 34
b. 37
c. 40
d. 42
Answer: c
Explanation:
The 400 MW load at node C can be met with 250 MW of power from node A and 150 MW of power from
node B. This means that the cost for power at node C will be set by the marginal cost for power at node
B, or USD 40/MWh.


17. A European power generator needs to store surplus output from its portfolio of seven wind farms, each
with capacity of between 200 MW to 300 MW, and three solar farms each with capacity of about 100 MW.
The power generator evaluates the feasibility of four storage technologies: flywheel, power to gas,
battery, and pumped hydro; against the following criteria for each:
 Maturity
 Life cycle
 Potential size
 Cost per KWh
 Capacity (meeting 1/3 of portfolio’s potential output is required)
Based on these criteria and assuming the required resources are available to deploy each technology,
which storage technology best suits its needs?
a. Flywheel
b. Power to gas
c. Battery energy storage system
d. Pumped hydro
Answer: d
Explanation:
As discussed in the reference reading, pumped hydro storage is the most mature of the technologies
discussed in the reference as corroborated by the fact that PHS represents 99% of worldwide electricity
storage (as of 2014).
Additionally, as shown in Figure 1, comparing PHS to all other storage methods, PHS is the most mature;
has the longest cycle life, longest calendar life, and the highest power rating (can handle GW) – so is the
most applicable for the generator in the question.
A is incorrect. Flywheels are designed for seconds to a few tens of minutes worth of capacity.
Consequently, they are used in applications were high power exchange is more valuable than high
energy-storage capacity. This technology is mostly for limited-size applications and short-duration
purpose.
B is incorrect. Power to gas technology has a high potential, but maturity of the process is low and costs
are uncertain. The efficiency of P2G is relatively low at about 60%. It is unproven in large scale
applications.
C is incorrect. Although battery technology is improving rapidly and is frequently deployed in much
smaller scale applications (megawatt-scale), it has not matured to the point where it could feasibly store a
gigawatt or more of power cost-effectively. Therefore battery storage systems would be unsuitable at the
current point in time. Cf: Power rating in the figure on page 4.
Reference: KU Leuven Energy Institute, Storage Technologies for the Power System.

18. AAA Petroleum signs a long-term LNG charterparty agreement with YTZ Shipping for the use of an LNG
tanker owned by YTZ. The agreement includes a duty to maintain clause. Which of the actions below
will be required by the duty to maintain clause?
a. AAA will be required to pay all costs related to the operation of the tanker.
b. AAA will be responsible for maintaining the tanker in a seaworthy and cargo-worthy condition at all
times.
c. YTZ will be required to pay all costs related to the operation of the tanker.
d. YTZ will be responsible for maintaining the tanker in a seaworthy and cargo-worthy condition at all
times.
Answer: d
Explanation:
Under the terms of a duty to maintain clause, the owner of the tanker is responsible for maintaining the
vessel in a seaworthy and cargo-worthy condition at all times. Costs (options A and C) are not explicitly
covered by the duty to maintain and will be allocated in other parts of the charterparty agreement.
Reference: Michael D. Tusiani and Gordon Shearer. LNG: Fuel for a Changing World - A Nontechnical
Guide, 2nd edition, Chapter 15.
19. A power marketer holds a long-term tolling agreement with a gas-fired power plant. The marketer also
has long-term supply contract with a residential utility company. The marketer models power prices for the
upcoming 8-hour period and finds that the spark spread for the power plant is negative. Which of the
actions below is the best one for the power marketer to follow, given this forecast?
a. Buy and store natural gas to take advantage of the low gas prices indicated by the negative spark
spread
b. Idle the plant, sell the unused natural gas and buy power needed to fulfill the supply contract on the
spot market
c. Operate at a loss as necessary to fulfill the long-term supply contract
d. Run the plant at full capacity and sell excess power not required by the utility on the spot market for a
profit
Answer: b
Explanation:
The correct answer is B. The spark spread determines the profit a generator can make per unit of
electricity it produces. It is calculated as the difference between the price the generator can receive for
selling electricity and the cost for fuel to run the generator at a specific heat rate (level of efficiency in
converting fuel to electricity). A negative spark spread indicates that the plant cannot profitably sell
power, making D incorrect and is likely caused by rising fuel prices, making A incorrect.
The most likely strategy the power-marketer will follow in this circumstance is B – buy cheaper power on
the spot market and sell the unused natural gas. Answer c ignores the positive revenue the marketer
could receive from selling the nat gas.
Reference: Kenneth Skinner. Heat Rates, Spark Spreads and the Economics of Tolling Agreements.


20. A crude oil trader sells a cargo of crude oil from a producer in Saudi Arabia to a refinery in India. Terms of
the contract specify that the trader will arrange for shipment via seaborn tanker and delivery of the oil to
the refinery. The trader has access to the following financial and shipping information:
 Crude oil price (in USD/bbl): 62.30

 Worldscale base rate (USD/MT): 15.2
 Vessel size (DWT): 600,000
 Charter rate for this route: WS112
 Interest rate (1-yr LIBOR + 3 points): 4.94%
 Port and fuel costs (in USD): 1,200,000
 Voyage time (days): 21
What approximate daily hire rate (in USD) will the owner of the tanker earn for the crude oil shipment?
a. 377,000
b. 429,000
c. 458,000
d. 1,432,000
Answer: b
Explanation:
Tanker shipping rates are typically quoted according to Worldscale shipping rates. Worldscale rates are
quoted as factors against a base shipping rate, in this case WS112 is 1.12 times the base (WS100) rate
The Worldscale base WS100 rate for the voyage is USD 15.20/MT, making the WS112 rate (15.20 x 1.12)
= USD 17.02/MT. Multiplying this figure by the tanker DWT of 600,000 gives a result of USD 10,214,400.
From this amount, the USD 1,200,000 for port and fuel costs is deducted for a total of 9,014,400. This
number is then divided by the number of days in the trip (21), for a daily hire rate of USD 429,257.
Reference: Vincent Kaminski. Energy Markets, Chapter 16.

21. The management team at EFG Power analyzes the economic performance of a 400 MW coal-fired
generator owned by the company. The team has access to the following economic data for the
past week:
 Average market price for electricity (USD/MWh): 48.60

 Average price for coal at the production site (USD/ton): 32.50
 Coal transportation cost to the power plant (USD/ton):m 14.30
 Heat rate of plant (MMBtu/MWh): 11.6
 Heat content of coal (MMBtu/ton): 21.6
Given these factors, what is the dark spread for the plant?
a. 23.47
b. 34.48
c. 44.57
d. 47.19
Answer: a
Explanation:
The dark spread is equal to the profit the coal plant makes per MWh of electricity generated. It can be
determined using the following equation: Dark spread = [power price (USD/MWh)] – [Coal Cost (USD/ton)
+ Transport Cost (USD/ton)] X [Heat Rate of Generator (MMBtu/MWh) ÷ Heat Content (MMBtu/Ton)], or:
DS=48.60-(32.50+14.30)*(11.6/21.6)=USD 23.47 per MWh.
The equation is basically comparing the revenues to the cost of coal.
Reference: Vincent Kaminski. Managing Energy Price Risk, 4th Edition, Chapter 12.


22. An upstream company produces gas at USD 3.00/MMBtu. It liquefies the gas and transports the LNG to a
gas marketer in Europe under a long-term gas sales agreement (GSA). The LNG is transported by tanker
with DES delivery terms. The price paid by the gas marketer is indexed to 10% of the front-month Brent
contract price. Other factors include:
 Amount of feed gas lost in the liquefaction process: 15%

 Round-trip LNG tanker journey duration: 20 days
 LNG tanker operational costs: USD 1.00/MMBtu
 LNG tanker boil-off rate: 0.15%/day
If the front-month Brent contract closing price is USD 70.00/bbl, what is the margin earned by the
upstream company under the terms of the GSA (in USD/MMBtu)?
a. 2.15
b. 2.36
c. 2.47
d. 2.91
Answer: b
Explanation:
LNG production cost = Feed gas cost / (1 - Liquefaction losses) = 3 / (1 - 15%) = USD 3.53 /MMBtu
LNG DES supply cost = LNG production cost / (1 - Boil-off) + Ship charter = [3.53 / (1 - 0.15%)20 ] + 1.00
= USD 4.64 /MMBtu
Margin = Contract price - LNG DES supply cost = 10% ꞏ 70 - 4.64 = USD 2.36/MMBtu

A renewable analyst at a utility company is assessing the operating economics of four different wind farms
that could potentially supply the utility’s service area. The operating characteristics for each installation
are summarized in the table below:
Nameplate
Wind farm capacity (MW) Capacity factor
A 275 0.25
B 210 0.32
C 180 0.38
D 145 0.46
23. What is the total annual output (in MWh) for wind farm B, assuming there are 8,760 hours in a year?
a. 383,250
b. 588,600
c. 610,400
d. 876,000
Answer: b
Explanation:
The capacity factor is a key measurement of the productivity of an electricity generator and is defined as
the ratio of power actually produced by a generator during a given period of time divided by the amount of
energy the generator could have produced over this same period of time if it had run at its maximum
capacity. Since the capacity factor, hours and MW have been given in the table above, what remains is to
solve for the total MWh or (.32=X/(210*8760)); which is 588,672 MWh.
Reference: Rebecca Busby. Wind Power: The Industry Grows Up, Chapter 6.


24. Which wind farm should the analyst prioritize for additional evaluation, if the highest expected output is
the most important decision criterion?
a. A
b. B
c. C
d. D
Answer: a
Explanation:
The total outputs of the four wind farms over 1 year (8,760 hours) are shown in the table below:
Nameplate
Farm name capacity (MW) Capacity factor Total output
A 275 0.25 602,250
B 210 0.32 588,672
C 180 0.38 599,184
D 145 0.46 584,292
Therefore, farm A has the highest total output and should be prioritized.
25. A natural gas trader typically trades contracts at the WaHa hub in Texas. The trader wants to replicate an
index position to hedge against locational basis risk. Entering into which of the following positions will
allow the trader to replicate an index position?
a. Enter into two NYMEX futures contract positions with different maturities
b. Enter into two WaHa basis OTC positions with different maturities
c. Enter simultaneously into a NYMEX futures contract position and a basis position.
d. Enter simultaneously into a basis position and a swap position.
Answer: c
Explanation:
The correct answer is C: We can replicate an index position by entering simultaneously into a NYMEX
position and a basis position. We can enter directly into an index transactions and a NYMEX transaction,
implicitly assuming a basis position.
Reference: Richard Lassander and Glen Swindle. Natural Gas Trading in North America, Chapter 8.

26. A public utility is located in a humid and urbanizing region of the US with a mild, temperate climate.
Senior managers at the utility are considering two options for a 500 MW renewable installation: either a
photovoltaic (PV) or concentrating solar power (CSP) installation. Which system is the utility most likely
to choose and for what primary reason?
a. CSP, because it has a higher maximum theoretical efficiency

b. CSP, because it is significantly cheaper to install for large-scale installations
c. PV, because of the characteristics of available solar energy at the site
d. PV, because it is able to store solar energy for use during peak hours
Answer: c
Explanation:
CSP plants require direct solar energy (direct-normal irradiance or DNI) in order to concentrate solar
energy. This direct energy is far more prevalent in warm, arid regions, as increasing humidity and
urbanization will lead to more diffuse solar radiation rather than DNI. This is because both humidity and
pollution scatter the sunlight in the atmosphere. PV modules can effectively convert diffuse radiation to
electricity, while CSP cannot, so in more humid, urbanized areas like the eastern US, PV is almost
ubiquitous (pp. 4, 20.)
Reference: US Department of Energy. Quadrennial Technology Review 2015, Chapter 4.
27. The national power grids of two adjoining countries are interconnected by a set of transmission lines that
cross the national border. In this arrangement, which of the following statements best describes
congestion surplus?
a. The premium paid by consumers above the price paid to generators.

b. The volume of excess power required to meet constraints on the grid.
c. The difference between the constrained price and the unconstrained price.
d. The amount of local capacity that exceeds the amount of interconnector capacity currently available.
Answer: a
Explanation:
While two neighboring grids may be interconnected, this does not mean that power can necessarily flow
between them unimpeded. Congestion situations can arise when a transmission line does not have
adequate capacity to carry the full volume of power required by loads being supplied by the transmission
line. The difference between payments and revenues is called the merchandising surplus, but when
created by network congestion, it is also called the congestion surplus.
Reference: KU Leuven Energy Institute. Cross-Border Electricity Trading: Towards Flow-Based Market
Coupling.


28. An analyst at a utility company is comparing load profile characteristics for three types of consumers. A
typical demand profile for each is described below:
 Residential: A home residence with a swimming pool.

 Street Lighting: An account that represents all street light consumption for a small city.
 Aluminum Producer: A large producer that operates the same around the clock.
The following chart depicts the normalized load duration curves (LDC) for each consumer account:
Which of the following is the proper match of the normalized LDCs with the appropriate consumer?
a. Load A – aluminum producer, Load B – residential, Load C - street lighting

b. Load A – residential home, Load B – street lighting, Load C - aluminum producer
c. Load A – street lighting, Load B – aluminum producer, Load C - residential home
d. Load A – residential home, Load B – aluminum producer, Load C - street lighting
Answer: d
Explanation:
The usage for the account for all the meters used for street lighting is constant during the night hours, and
zero or negligible during daylight hours. LDC for Load C shows this pattern, with one third of constant
usage and the other two thirds with almost zero usage. The large aluminum producer that operates the
same around the clock would exhibit constant almost usage, and LDC for Load B shows this pattern.
The usage for the home residence varies throughout the hours in the day and also depends on the
outside weather. The activity inside the house is also a factor. To the minimum, the refrigerator and some
electronics use some amount of electricity in all hours of the year; therefore the minimum usage is almost
zero. The highest usage occurs when the pool pumps for the swimming pool are running, perhaps
concurrent with A/C and stove/oven usage.
A key takeaway is that the home residence usage is not binary like the lighting meters, nor almost
constant like the aluminum producer.

29. A consortium has approached an investment bank about backing a wind farm project. The consortium
has data on several possible wind farm locations and proposed installations. Which of the following
factors would the investment bank find most favorable for investment?
a. A projected 10-year operating life

b. A projected capacity factor of 35%
c. A projected availability factor of 70%
d. A projected average wind speed of 5 m/s (10 mph)
Answer: b
Explanation:
The correct answer is b. Wind turbines typically operate 65-90% of the time but often do not operate at
their full rated power, so capacity factors of 33-35% are quite acceptable. (cf: p. 110.) Theoretically,
large wind turbines with small generators and large blades could be produced with higher capacity
factors, but these are very inefficient so the lower capacity factor combined with a larger generator
provides the best potential return on investment.
A is incorrect. Availability factor is the percentage of time a wind farm is running or available to run. Wind
farms generally require little downtime for maintenance and the text cites averages of 94-96% for 300
global wind farms (cf: p. 131.)
C is incorrect: A 20-year lifespan is industry standard.
D is incorrect: Wind turbine developers look for winds of at least 6-7 m/s (13-16 mph), gusting to 12-14
m/s (27-31) where large turbines are most efficient. 5 is too low.


30. An E&P company enters into a concessionary agreement with a national government to develop a
newly-discovered oil field. The costs associated with the first two years of the project are shown in the
table below:
Realized Projected Difference

(USD) (USD) (USD)
Land surveys 1,950,000 1,800,000 150,000
Geological testing 3,800,000 3,300,000 500,000
Drilling 9,900,000 8,500,000 1,400,000
Equipment 13,400,000 14,100,000 -700,000
Total 29,050,000 27,700,000 1,350,000
At the end of the second year, exploration activities lead the E&P company to conclude the field is not
commercially viable. Under the terms typically found in a concessionary agreement, which of the
following amounts (in USD) represents the financial loss realized by the company on this project?
a. 0
b. 1,350,000
c. 27,700,000
d. 29,050,000
Answer: d
Explanation:
Under a concessionary system, the E&P company assumes all the risks associated with exploring for and
developing oil and gas reserves. If their effort fails to find a viable reserve, the E&P company must bear
all of the costs; the host country does not bear any responsibility for these costs. Answer A assumes the
losses will be covered by the host country; answer B sums the difference between realized and projected
costs, answer C is the sum of projected costs as established at the beginning of the project.

31. A refinery typically estimates its price exposures using a 5:3:2 crack spread. The refinery’s risk
management team has access to the following April 2019 NYMEX futures data:
 WTI futures price: USD 63.50/bbl

 Refining margin: USD 8.45/bbl
 Ultra Low Sulfur Diesel (ULSD) futures price: USD 2.12/gal
Which of the following amounts (in USD/gal) represents the April 2019 RBOB futures contract price,
assuming the crack spread is based on two barrels of RBOB?
a. 0.74
b. 1.39
c. 1.44
d. 2.16
Answer: c
Explanation:
A 5:3:2 crack spread refers to a split where five barrels of crude oil are converted into three barrels of
gasoline and two barrel of ULSD. The crack spread represents the potential gross profit per barrel that the
refinery will make when it refines the raw materials and sells the refined products, in this case, USD
8.45/bbl. In order to back out the original RBOB gasoline price, we must first calculate the total combined
input costs and profit per 5 barrels of oil, since 5 barrels are used to produce the refined products. This
equals 63.50 x 5 = 317.50 for the oil plus 8.45 x 5 = 42.25 for the refining margin, for a total of USD
359.75. We then back out the value of the ULSD, which is 2.12/gal x 42 gallons per barrel, or USD 89.04
(times 2 for 2 barrels of USLD used in the 5:3:2 spread, or 178.08). Subtracting this from USD 359.75
gives a result of USD 181.67, the cost of 3 barrels of gasoline. Dividing this by 42 (number of gallons in a
barrel) and 3 (the factor for gasoline in a crack spread) gives a per gallon cost of USD 1.441825 or
1.44/gal.


32. Company A operates within a government-run mandatory cap-and-trade greenhouse gas reduction
system, which does not include a banking provision. Near the end of the year, company A has unused
emissions credits. What action is company A most likely to take at the end of the year?
a. Offer to sell unused emission credits to third parties.

b. Use the prior year’s total market emissions trading volume as a benchmark for adjusting its current
annual operating emission reduction targets.
c. Apply unused emission credits in the current year to reduce the emissions volume cap applied
against its operating activity in subsequent years.
d. Exchange unused carbon credits each year with the federal government in return for feed-in tariffs
and other economic incentives to add renewable generating capacity.
Answer: a
Explanation:
Emission credits are to be used within a time period, usually a calendar year. In a cap-and-trade scheme,
emitters may trade (sell) unused credits to other market participants. In theory, this incentivizes emitters
to reduce emissions, so they use fewer credits so they can sell the excess on the open market.
33. A crude oil blend XYZ has an API of 34.7° and a sulfur content of 0.88%. A crude oil trader wants to use
the NYMEX WTI futures contract as a price benchmark for XYZ. The NYMEX WTI contract calls for
crude oil with an API between 37° and 42° with a maximum sulfur content of 0.42%. How should the
trader price XYZ relative to the current NYMEX WTI contract?
a. At parity
b. At a premium
c. At a discount
d. WTI cannot be used as a benchmark because XYZ blend differs to much in specifications from WTI.
Answer: c
Explanation:
Benchmark crudes serve as a pricing standard against which the value of other crude oils can be set.
This crude oil would be classified as an intermediate crude with a sulfur level higher than WTI, making it
likely to sell at a discount to WTI.

34. The operators at Refinery X want to increase the octane levels of their gasoline. Which of the following
feedstocks will they most likely blend into the gasoline produced at the refinery to achieve this goal?
a. Alkylate
b. Distillate
c. Benzene
d. Polypropylene
Answer: a
Explanation:
Alkylation combines light olefins with isobutane to produce a high-octane (~90–94 RON) gasoline
blendstock (alkylate). Alkylation units are found only in refineries having FCC units. The US has the most
FCC capacity of any country and, consequently, the most alkylation capacity. Due to the nature of the
alkylation process, alkylate contains no sulfur, making it a premium gasoline blendstock.
Polypropylene is a polymer used in a wide variety of plastic applications.
Reference: The International Council on Clean Transportation. An Introduction to Petroleum Refining of

Ultra Low Sulfur Gasoline and Diesel Fuel.
35. A utility company in Japan signs an LNG sale and purchase agreement (SPA) with an export terminal,
located on the US Gulf Coast, to receive 10 million MMBtu of natural gas for one-year. The SPA includes
the following terms:
 LNG price = (Liquefaction cost) + (115% of Henry Hub)

 Liquefaction charges: USD 2.80/MMBtu
 Henry Hub reference gas price: USD 3.65/MMBtu
 Shipping cost (FOB): USD 5.70/MMBtu
 Cargo loading charges: USD 1.10/MMBtu
 Voyage duration (USGC to Japan): 22 days
Calculate the utility company’s all-in cost (in USD/MMBtu) to acquire the natural gas supply.
a. 8.10
b. 8.36
c. 11.00
d. 13.80
Answer: d
Explanation:
Since the contract is FOB, the utility company will pay for the transportation costs as well as the cargo
loading.
All-in cost
= ((Liquefaction cost) + (115% of Henry Hub)) + FOB + Cargo
= ((2.80+(3.65*1.15)) + 5.70 +1.10 = USD 13.80


36. An energy trader completes a deal to purchase gasoline. By nominating a volume of gasoline, the trader
is causing which of the following actions to take place?
a. Purchase of an RBOB futures contract on an exchange.

b. Withdrawal of a volume of physical gasoline from a storage facility.
c. Reservation of space on a pipeline for the physical shipment of gasoline.
d. Request for bids from counterparties for an OTC contract to hedge the original transaction.
Answer: c
Explanation:
A key part of shipping crude oil, refined products and natural gas through pipelines is the nomination
process, where parties interested in shipping a physical volume formally request space on a pipeline
network. Scheduling shipments within a pipeline can be a complex process, requiring nominations to
typically be made well ahead of the desired shipping date, usually on a monthly basis.
Reference: Allegro Energy Group. How Pipelines Make the Oil Market Work: Their Networks, Operation,
and Regulation.
37. An oil well with in an associated petroleum field produces 3,500 cf of natural gas for each barrel of oil
produced. Oil company A buys an 80% working and net revenue interest in the well, under the following
economic conditions:
 Current price of crude oil (USD/bbl): 61.50

 Current price of natural gas (USD/Mcf): 3.95
 Lease operating costs (USD/month): 110,000
Given these factors, what is the minimum level of crude oil production at the well (in bbl/month) for oil
company A to break-even?
a. 680
b. 850
c. 1,248
d. 1,641
Answer: d
Explanation:
The break-even production level of oil can be determined with the equation below. Since Investor E holds
a 80% working and net revenue interest in this well, both sides of the equation must include a factor of
0.80.
Break even = Working interest * LOE / (NRI * (POIL+Gas*PGas) * (1-Tax Rate))

= 0.80*110,000 / (0.80 * (61.5+(3.95*3.5) )) * (1-0.11))
= 1,641 bbl / month

38. An analyst at a petroleum company is studying the use of a reserve-based loan (RBL) as a way to raise
capital needed to develop a new oil field. Which of the statements below correctly describes a feature of
an RBL?
a. A decline in the borrowing base of an RBL typically coincides with reduced funding needs of
the borrower.
b. In an RBL, the borrower’s operating cash flow is typically restricted to pay only senior creditors.
c. RBLs typically have a longer cash conversion cycle compared to asset-based loans.
d. Traditional RBLs are typically secured by a first-priority lien against relatively illiquid assets.
Answer: c
Explanation:
The correct answer is C. RBL collateral is significantly more volatile given historical changes in the
underlying commodity prices, has a longer cash conversion cycle, and requires experienced operators to
continue extraction and production. RBL cash conversion can take several years as opposed to days or
months for working capital collateral found in asset-based loans (ABLs).
A is incorrect – Unlike traditional ABL facilities, a decline in the borrowing base of an RBL does not
necessarily coincide with reduced funding needs of the borrower. The RBL borrowing base tends to
decline because of a drop in the underlying commodity prices at a time when the company may be
experiencing a decline in operating cash flow and liquidity.
B is incorrect – In an RBL, the borrower’s operating cash flow is usually unrestricted, meaning the primary
source of repayment is normally available to pay senior and junior creditors.D is incorrect – Traditional
ABLs are typically secured by a first-priority lien against a borrower’s relatively liquid short-term assets
(inventory, accounts receivable).
Reference: Office of the Comptroller of the Currency (OCC). Oil and Gas Exploration and Production
Lending.
39. A governmental public fund is dedicated to developing renewable energy projects with a goal of delivering
the greatest amount of private financing while using the least amount of public money as possible. Which
financial instrument can help the fund achieve this goal with the highest leverage?
a. Equity for solar projects that have a PPA offtake counterparty with a high credit rating
b. Grants for geothermal projects in economically underdeveloped areas
c. Resource insurance for wind projects to protect against underproduction due to still periods
d. Senior debt for technologically proven concentrated solar power systems
Answer: c
Explanation:
Grants, equity and senior debt have low leverage, because they directly replace possible private
financing. Resource insurance has high leverage; only a relatively small commitment of funds is needed.
Reference: The World Bank. Financing Renewable Energy: Options for Developing Financing
Instruments Using Public Funds.


40. Gas company A sells natural gas to utility company B under the following terms:
 Volume: 800,000 MMBtu

 Price (in USD/MMBtu): 3.65
Company A schedules to transport the gas to the utility via a pipeline network that has a fuel operating
requirement of 2.8% of the total delivery volume. How will the fuel requirement to ship the natural gas be
accounted for in the economics of the transaction?
a. A surcharge of USD 0.102/MMBtu on the purchase price.

b. A flat tolling charge of USD 0.365/MMBtu for pipeline access.
c. A reduction of 44,800 MMBtu on the total volume delivered.
d. A fuel consumption fee of USD 81,760 for the total volume shipped.
Answer: a
Explanation:
The cost of the gas used as fuel by the pipeline pumps can be calculated as 0.028 x 3.65 = USD
0.102/MMBtu. This is then added to the cost of the natural gas charged by the shipper to the power plant
(for a total cost of USD 3.752/MMBtu)

41. The physical specifications for four crude oil samples (A, B, C, and D) are summarized in the table below:
A B C D
Diesel index 28 36 41 27
Sulfur 0.13% 0.22% 0.37% 0.45%
Freeze point 18º C -72º C 10º C -44º C
K Factor 11.7 12.0 12.1 11.8
API gravity 18.8º 33.0º 26.9º 15.5º
Viscosity @ 50º C 1.62 5.17 13.42 1.64
Viscosity @ 100º C 2.16 1.93 3.92 1.97
Based on the data provided, which of the following lists correctly ranks the crude oil samples from highest
to lowest in terms of their efficiency and economic value of their conversion into gasoline?
a. B, C, A, D
b. D, A, B, C
c. A, D, B, C
d. C, B, A, D
Answer: a
Explanation:
There are roughly 160 different grades of crude oil traded internationally, with more emerging as new
producing areas come on line. A general rule of thumb – the higher the API number, the lighter the crude.
Lighter crudes are typically more valuable since they will produce more of the higher valued refined
products. Therefore, ranking the crudes from the highest API to the lowest API will arrange them in order
from highest to lowest efficiency and economic value.
Viscosity provides a measure of a fluid’s internal resistance to flow (aka “thickness”). For example, honey
has a higher viscosity than water. Viscosity is typically evaluated for temperatures ranging from 35 to
300°F.
The K Factor or “characterization factor” is a systematic way of classifying a crude oil according to is
paraffinic, naphthenic, intermediate or aromatic nature. 12.5 or higher indicate a crude oil of
predominantly paraffinic constituents, while 10 or lower indicate a crude of more aromatic nature.
Reference: Andrew Inkpen and Michael Moffett. The Global Oil and Gas Industry, Chapter 10.


42. Consider the operating characteristics for a power generation plant outlined below:
 Plant type: combined-cycle gas turbine

 Plant heat rate: 7,100 Btu/kWh
 Current price of natural gas: USD 3.03/MMBtu
 Current price of electricity: USD 48.70/MWh
Assuming the plant operates at full capacity, what is the spark spread (in USD/MWh)?
a. -27.17
b. -21.51
c. 27.17
d. 42.67
Answer: c
Explanation:
The spark spread is a common metric for determining the profitability of a power generation plant. It is
the difference between the price received by a generator for selling the power it produces against the cost
of the fuel used by the generator. The calculation for determining the spark spread in this scenario is as
follows:
Spark Spread= Output Price – Input Price
Output Price = USD 48.70/MWh x 1MWh/1,000 kWh = USD 0.0487/kWh
Input Price = 7,100 Btu/kWh x USD 3.03/1,000,000 Btu = USD 0.02153/kWh
Therefore, the spark spread = 0.02717/kWh or USD 27.17 per MWh.

43. Investment bank X has been approached by a consortium seeking to build an LNG liquefaction and
export terminal. The consortium proposes a financing deal under the following terms:
 65% equity funded at an average cost of 9.9%

 35% debt funded at an average cost of 6.5%
 Project risk premium: 4%
Given these factors, what is the minimum return on investment the bank will most likely require to approve
development of the field?
a. 8.21%
b. 10.94%
c. 11.29%
d. 12.20%
Answer: d
Explanation:
The Weighted Average Cost of Capital (WACC) or hurdle rate for the project is [0.35 x 6.5% x
(1-0.22)] + [0.65 x 9.9%] = 8.20%. Adding in the project risk premium of 4.0% gives a hurdle rate of
12.20%.


44. A commodity trading firm sells a cargo of crude oil to a foreign refinery. Delivery is arranged under the
terms of an FAS contract, and the costs associated with this transaction are listed below (quoted in
thousands of USD):
 Crude oil sale price: 11,800

 Preparation for shipping: 210
 Transportation to pier: 750
 Pier “gate” charges: 400
 Miscellaneous port fees: 190
 Ocean freight charges: 4,100
 Marine insurance: 910
What is the difference in shipping costs (in thousands of USD) the firm would realize if this deal was
instead struck under the terms of a CIF contract rather than an FAS contract?
a. 5,200
b. 5,970
c. 6,560
d. 12,390
Answer: a
Explanation:
Under the terms of an FAS contract, the seller is responsible for items 1-4 (USD 13,160 in costs); in a CIF
contract, the seller is responsible for payment of all 7 items (USD 18,360 in costs), a difference to the
trading firm of USD 5,200.
Reference: Australian Customer and Border Protection Service. Incoterms 2010.

45. Party A sells the mineral rights to an 800 acre plot of land in Texas to Party B in return for a 25% working
interest in the development of an oil reserve located under the land. Party B then creates a 1/6 overriding
royalty interest (ORI) with Bank C in return for a cash payment of USD 750,000 to raise capital for
exploration and development. If the gross revenues from the first year of production at the field are
USD 1,350,000, what is the approximate gross amount (in USD) Bank C will realize from the ORI?
a. 75,015
b. 150,000
c. 168,784
d. 225,045
Answer: c
Explanation:
The correct answer is C. After the initial transaction, Party B retains the rights to 75% of the gross
revenue from the development of the oil field. Party B assigns 1/6th (or 16.67%) of its interest to Bank C
in return for the capital funds. Bank C therefore will realize 3/4 x 1/6 of the gross revenue from the field,
or (0.75*0.1667)*1,350,000 or USD 168,783.75.
46. An investor consortium funds construction of an LNG liquefaction and export facility. The project is
organized into two distinct ventures to separately cover upstream and downstream operations. The
downstream venture has a SPA to sell a volume of LNG to a third-party buyer—this includes delivery of
specific quantities of LNG to the seller. The SPA also specifies an 85% take-or-pay obligation and related
make-up rights for the buyer. What consortium strategy most effectively mitigates the risk the seller will
not take the volume of LNG specified in the SPA?
a. A corporate guarantee provided by the sponsors of the LNG project

b. A flexible destination clause allowing the buyer or seller to change the port of destination for the LNG
cargo
c. A joint operating agreement (JOA) with the upstream venture of the LNG project within the terms of
the SPA
d. A gas sales agreement (GSA) with the upstream venture of the LNG project, closely mirroring the
arrangements under the SPA
Answer: d
Explanation:
The correct answer is D. The GSA is the instrument that establishes the delivery of gas by the upstream
sector to the LNG plant (the downstream sector). If the upstream and downstream sectors are separate
ventures, the commitments and obligations under the SPA and the GSA must be closely aligned to
ensure proper fulfillment of LNG delivery obligations under the SPA.
Reference: Michael D. Tusiani and Gordon Shearer. LNG: Fuel for a Changing World – A Nontechnical


47. A petroleum company begins operations in a foreign country to manage production at a large oil field.
While production at the field can potentially be very lucrative for the company, the country has a history of
political instability, exposing the company to substantial political risk. Which of the following actions is the
most advisable for the company take to most effectively mitigate their political risk?
a. Concentrate company operations within the smallest geographical area possible.

b. Employ as many local suppliers and subcontractors as feasible.
c. Launch a public relations campaign within the country to build corporate brand awareness.
d. Limit interactions with government officials as much as possible.
Answer: b
Explanation:
The goal in managing political risk is to create an economic link with the host country, so that any
negative action the government may take against the company will be economically harmful. Using local
suppliers and subcontractors builds this economic link. The other answers are incorrect: in general, it is
advisable to build relationships with the host country’s government, decentralize operations and keep a
low profile (the opposite of d, to limit political risk exposure.
Reference: Andrew Inkpen, Michael H. Moffett. The Global Oil and Gas Industry: Management, Strategy
48. A 300 MW generator enters into a contract with an ISO to serve as an operating reserve for a period of
six hours. Which of the following statements best describes the compensation this generator will receive?
a. A fee-based payment for time served as an operating reserve with no additional compensation for
any electricity generated and dispatched.
b. A fee-based payment for time served as an operating reserve with additional payments for any
electricity generated and dispatched.
c. A flat payment for time served as an operating reserve equal to the market clearing price, plus an
option to sell any excess power generated on the spot market.
d. A flat payment for time served as an operating reserve equal to the market clearing price, with no
additional economic consideration for power dispatched.
Answer: b
Explanation:
As an operating reserve (OR), the generator agrees to have its dispatch controlled by the ISO. The
generator will receive payment for serving in OR and will be paid for any electricity they dispatch to the
ISO. If the generator does not dispatch any electricity, it will be paid a make-whole “side payment” as
long as it agrees to follow the dispatch rules set by the generator.
The other answers are incorrect: since it is in operating reserve, the generator cannot sell power on the
spot market, which is why serving as an OR is said to entail an opportunity cost to the generator, since
they do not have this opportunity to sell power on the open market.

49. A manager at a Swedish company that supplies retail power to end-users has access to the following
pricing data, with prices in Swedish kronor (SEK):
Forecasted
Day ahead Real t me power Real zed power
market pr ce market pr ce consumpt on consumpt on
(SEK/MWh) (SEK/MWh) (MWh) (MWh)
Hour 1 224.8 231.6 90 96
Hour 2 205.0 211.3 75 68
The company sends hourly offers to the Nord Pool system operator for power which will be delivered the
following day. Given the information above, what was the company’s total cost to purchase electricity
(in SEK) during this two-hour period?
a. 35,517.50
b. 35,607.00
c. 36,602.00
d. 36,996.60
Answer: a
Explanation:
The forecasted consumption amounts are purchased with day-ahead market prices and the differences
between forecasted and realized consumption amounts are settled by real-time market prices. For
instance, if the consumer’s realized consumption is higher than the forecasted consumption, the
additional power needed will be purchased by real-time prices. Reversely, if the forecasted consumption
is higher than realized consumption, the unneeded power amount is sold back by real-time prices. The
calculation for the question is shown below.
Day ahead cost Real time cost Settlement

Hour 1 20232 1389.6 21621.6
Hour 2 15375 -1479.1 13895.9
Total settlement for both hours is: SEK 35,517.50


50. A small, mid-merit gas-fired power generation plant has a nameplate capacity of 180 MW. Plant
operators report the following monthly statistics at the end of April:
 Total output for April: 108,000 MWh

 Days offline for planned outages: 3
 Days offline due to unplanned outages: 2
The plant ran at full capacity ATC for all the other days in the month. What was the plant’s capacity factor
for April?
a. 83.3%
b. 87.1%
c. 90.0%
d. 93.3%
Answer: a
Explanation:
The correct answer is A. The capacity factor is the ratio of actual output over potential output. Since the
plant did not run for 5 days during the month but ran around the clock at full capacity the rest of the time,
the actual can be determined with the following equation:
180*(30-3-2)*24=108,000
From there, it is a matter of determining the capacity factor:

Actual output = 108,000 MWh
Around-the-clock = 24 hrs * 30 days = 720 hrs
Potential output = 180 MW * 720 hrs = 129,600 MWh
Therefore, capacity factor = 108,000 / 129,600 MWh = 83.3%

51. A natural gas company is reviewing a proposal to construct a new LNG liquefaction terminal. To
determine the economic viability of the project, the company is using the following assumptions as part of
an NPV analysis:
 Average cost of debt: 3.55%

 Average cost of equity: 7.80%
 Financing structure: 70% debt; 30% equity
 Spread over risk-adjusted cost of capital: 3.50%
Which of the following represents the discount rate that the company should assume in its NPV analysis?
a. 4.27%
b. 4.90%
c. 7.78%
d. 8.30%
Answer: c
Explanation:
To determine the discount rate, the weight adjusted cost of capital must first be determined using the
following formula:
Cost of debt (since interest is tax deductible) = 3.55%*(1-22%) = 2.77%
Cost of equity is given as 7.8%.
WACC = [ 0.30 * .078 ] + [ 0.7 × .0277 ] = 4.28%
The spread over risk-adjusted cost of capital rate of 3.5% is added to the WACC (4.27%) for a total
discount rate of: 7.78%


52. A commodities trader strikes a deal with a natural gas purchaser for a cargo of LNG under the terms of a
DAP contract to be delivered to the buyer’s import terminal. Which of the choices below correctly
identifies the point at which title to the natural gas will pass from the buyer to the seller.
a. When the contract is signed.

b. When the LNG is loaded onboard the LNG tanker.
c. At a pre-determined point of the voyage in international waters.
d. When the LNG is unloaded at the import terminal.
Answer: d
Explanation:
Under the terms of a DAP (delivered-at-place) contract, title transfer from the buyer to the seller occurs
when the cargo (LNG) is unloaded from the ship at the import terminal.
53. Six generators are connected to a power grid. The system operator receives the following day-ahead
bids for a given hour:
Generator Bid Price Capacity (MW) Minimum

(USD/MWh) Quantity (MW)
A 23.75 50 25
B 27.50 100 0
C 31.70 200 100
D 33.60 40 30
E 37.20 100 0
F 48.70 50 50
The system operator forecasts a load of 140 MWh for this hour and schedules generators accordingly,
but the actual load for the hour is 160 MWh. What is the system clearing price (in USD/MWh) for
this hour?
a. 31.70
b. 33.60
c. 35.40
d. 37.20
Answer: d
Explanation:
Given the expected load of 140 MWh, the ISO originally would dispatch generator A for its full capacity
and Generator B for 90 MW. Since the actual load is 160 MWh, generator B is called on for an additional
10 MWh. An additional 10 MWh remains which is below the minimum capacity of Generators C and D.
Therefore, the operator has to dispatch generator E and the system clearing price becomes 37.20.

54. A 275 MW natural gas-fired power generator forecasts demand for a large industrial customer for
the month of May. The parties agree to a supply contract covering the entire production of the
generating plant at a fixed flat rate of USD 48.70/MWh. During the month, the generator has the
following operating characteristics:
 Average natural gas price: USD 3.41/MMBtu

 ATC capacity factor: 86%
 Operational heat rate (at 275 MW output): 9.3 MMBtu/MWh
Given these factors, which of the following amounts best approximates the gross profit (in USD) the
generator realized on this contract for the month of May?
a. 892,000
b. 921,000
c. 2,893,000
d. 2,989,000
Answer: d
Explanation:
The output of the generator during the month was: 275 MW x 31 days x 24 hrs x 86% = 175,956 MWh
The spark spread formula is: USD 48.70/MWh – (9.1 x USD 3.41/MMBtu) = USD 16.99/MWh
This results in a P&L calculation of: 175,956 MWh x USD 16.99/MWh = USD 2,988,965


55. A natural gas marketer uses the following market data to assess an offer to export LNG from a storage
facility in Europe to Asia:
 Average European gas hub price: USD 8.00/MMBtu

 Asian spot LNG price: USD 11.00/MMBtu
 Re-gasifying cost: USD 0.50/MMBtu
 Reloading cost: USD 1.00/MMBtu
 Charter rate, Europe to Asia: USD 2.00/MMBtu
If LNG spot prices remain stable, should the gas marketer accept the offer?
a. Yes, revenue will be USD 0.50/MMBtu higher.

b. Yes, revenue will be USD 1.00/MMBtu higher.
c. No, revenue will be USD 0.50/MMBtu lower.
d. No, revenue will be USD 1.00/MMBtu lower.
Answer: a
Explanation:
In order to determine whether the offer would be preferable, compare the revenues the marketer would
get from selling the LNG in Europe to selling it in Asia.
Revenues of European gas sales = Gas hub price - Re-gas cost = 8 - 0.5 = USD 7.5 /MMBtu
Revenues of Asian spot LNG sales = LNG hub price - Re-load cost - Shipping cost = 11 - 1 - 2 = USD
8.00/MMBtu
Value of re-loads = Revenues of Asian spot LNG sales - Revenues of European gas sales = 8.0 - 7.5 =
USD 0.5 /MMBtu

56. The procurement manager at a hydroskimming refinery studies the pricing data currently available for four
grades of crude oil shown below:
Feedstock Price Spread vs. Brent

crude (USD/bbl) (USD/bbl)
Canadian Oil Sands (bitumen) 41.9 19.28
Mexico Mayan Heavy 55.50 5.68
Nigerian Bonny Light 65.40 -4.22
West Texas Sour 59.80 1.38
If the current spot price for Brent crude oil is USD 61.18/bbl, which of the crude oils shown above will the
manager most likely select to maximize gasoline production (assuming transportation costs for all four
crude oils are equal)?
a. Canadian Oil Sands

b. Mexican Mayan Heavy
c. Nigerian Bonny Light
d. West Texas Sour
Answer: c
Explanation:
The refinery is described as a hydroskimming facility making it a “simple” refinery. Therefore, it will yield
the most gasoline by refining a light, sweet crude, which is choice c, even though Bonny Light is being
offered at a premium to Brent (which it typically is). West Texas Sour is a medium weight oil that will
require additional processing to remove the sulfur impurities, while the yield from the heavy Mayan crude
will seriously reduce the amount of gasoline produced, both of which will negate the discount offered for
these crudes. It is unlikely the refinery would even be able to process the raw Canadian bitumen.


57. An oil trader purchases a 600,000 barrel Brent CFD in July based on the following market prices:
 July Dated Brent (5-day average for trading window): USD 62.90/bbl
 July Brent Forward: USD 62.61/bbl
 August Brent Forward: USD 62.68/bbl
 August WTI Futures: USD 59.30/bbl
What is the per barrel spread (in USD) the trader will pay for the CFD?
a. 0.22
b. 0.29
c. 3.38
d. 3.60
Answer: a
Explanation:
The CFD is defined as the differential between the dated Brent price and the following month forward
price. In this case it is, USD 62.90 – USD 62.68 (August Brent forward), resulting in a differential of USD
0.22/bbl. This is the per barrel amount the trader will need to pay to buy the CFD.

58. An independent petroleum company operates drilling and production facilities in Country A under a PSA
agreement with the following economic terms:
 Royalty: 9%
 Allowable cost recovery (annual): 25%
 Government’s profit oil take: 36%
 Effective income tax rate: 16%
During the first full year of production, the average price of crude oil from Country A was USD 59.80/bbl.
Assuming costs are not yet fully recovered, what is the company’s after-tax profit (in USD/bbl)?
a. 8.37
b. 21.94
c. 26.12
d. 32.15
Answer: b
Explanation:
The correct answer is B. To determine the taxable share of the petroleum company’s income, the other
costs must be backed out from the USD 59.80/bbl sale price in this order: royalties, cost recovery,
government’s profit oil take. This results in a taxable amount of USD 26.12. After payment of income tax,
the IOC’s profit will be USD 21.94/bbl.
USD 59.80

Net
Percentage Cost Remaining
9% Royalty USD 54.42
25% Cost Recovery USD 40.81
Profit Oil paid
36% to govt USD 26.12
16% Taxes USD 21.94


59. The risk management team at an ISO prepared the following summary of one week of daily operational
data for a grid with 700 MW of installed capacity:
Load Outages
(MW) (MW)
Monday 680 0
Tuesday 710 0
Wednesday 670 40
Thursday 690 20
Friday 700 0
Saturday 670 30
Sunday 630 10
Based on the information above, what is the total lost load (in MW) on the grid over this 7-day period?
a. 10
b. 30
c. 60
d. 100
Answer: b
Explanation:
Lost Load can be expressed by the following statement:
LL = max(-OR, 0) where OR is Operating Reserve. OR = Installed capacity – generator outages – load
Looking at the table, we see on days 2, 3 and 4 load exceeds supply by 100 MW each day – on days 3
and 4 because of outages, on day 2 because load exceeds capacity.
The outages on day 6 and 7 aren’t calculated because even with the loss, the aggregate is still below the
level of installed capacity.
Installed
Capacity Load Outages LL
700 MW 680 0 0
700 MW 710 0 10
700 MW 670 40 10
700 MW 690 20 10
700 MW 700 0 0
700 MW 670 30 0
700 MW 630 10 0

60. An investment analyst observes the following information reported by four upstream petroleum
companies on proven reserve holdings:
Company Booked reserves Production volume

(in million bbl) (bbl/yr)
A 11.5 720,000
B 9.7 510,000
C 7.9 480,000
D 14.0 680,000
Assume the primary evaluation criteria is the longest reserve life index. Which company will the analyst
recommend for investment?
a. A
b. B
c. C
d. D
Answer: d
Explanation:
The correct answer is D. Based solely on this information, the analyst will look to determine which field
has the longest reserve life index. The reserve life index (right column in the table below) for each field
can be determined by dividing the booked reserves by the annual production levels.
Booked reserves Production levels Reserve life

Company (million bbl) (bbl/yr) index (yrs)
A 11.5 720,000 15.97
B 9.7 510,000 19.02
C 7.9 480,000 16.46
D 14.0 680,000 20.59
The analyst will suggest investing in the field that will produce the longest, in this case, Company D.


61. A natural gas-fired power plant enters into a contract to supply the plant with fuel for the month of May.
The contract is settled on a weekly basis against the closing NYMEX Henry Hub futures settlement each
Monday and includes a cap and floor equivalent to +/- 15% of the average NYMEX Henry Hub price for
the previous month. The average April closing price and weekly pricing data for May are shown below:
Average April closing price (USD/MMBtu): 3.21
NYMEX Henry Hub Monday closing price for May (USD/MMBtu)
Week 1: 3.46
Week 2: 3.53
Week 3: 3.58
Week 4: 3.76
Assuming the plant consumes 120,000 MMBtu of gas per day, seven days per week, which of the
following represents the approximate amount (in USD) the manager must pay for the fuel supply over the
four weeks in May?
a. 11,171,000
b. 11,575,000
c. 11,980,000
d. 12,037,000
Answer: c
Explanation:
For the calculation, the weekly price must be multiplied by 7, for the days of the week, and then by a
factor of 120,000 for the MMBtu per day amount. Week 4 will finish above the cap established by the
pricing scheme – USD 3.21 plus 15% = USD 3.69 – therefore this figure must be used for this week,
rather than the NYMEX closing price of USD 3.76. Therefore, the total for the four weeks is USD
11,979,660.

62. DEF Power holds a tolling agreement on a 175 MW natural gas-fired power plant. Under the terms of the
tolling agreement, DEF decides whether or not to operate the plant for the upcoming day at the beginning
of each 24-hour period. DEF has the following data available for the next day:
 Average day-ahead electricity price: USD 36.35/MWh

 Variable non-fuel operating costs: USD 4.60/MWh
 Spot natural gas price at local hub: USD 2.97/MMBtu
 Heat rate: 8.3 MMBtu/MWh
Assume market prices remain constant over the next 24-hour period and start-up, emission, and
transmission costs are zero. What is the net cash flow (in USD) received by DEF Power?
a. 0, the plant is idle

b. 5,409
c. 29,816
d. 49,136
Answer: c
Explanation:
The correct answer is C. Spark spread (SS) is equal to:
Electricity price – (Heat rate * Natural gas price) =
36.35 – (8.3 * 4.60) = 11.69 per MWh.
However, the total return per MWh would be SS less the variable non-fuel cost. Total return here is
USD 11.69 – 4.60 = USD 7.099/MWh.
The net profit for the plant for this operating day therefore would be:
24 h * 175 MW * (USD 7.099/MWh) = USD 29,815.80.


63. The scheduling coordinator for a portfolio of four natural gas plants in southern California is considering
fuel requirements for the plants. The heat rate for each plant is shown in the table below:
Heat Rate
Plant (Btu/kWh)
Plant 1 10,000
Plant 2 7,500
Plant 3 12,500
Plant 4 8,000
If the current cost of natural gas at the southern California border is USD 4.00/MMBtu, which of the
statements below is correct?
a. Plant 1 has a marginal operating cost of USD 40/MWh, but is not the most efficient plant.
b. Plant 2 has a marginal operating cost of USD 38/MWh and is the least efficient of the four plants.
c. Plant 3 has a marginal operating cost of USD 46/MWh and is the most efficient of the four plants.
d. Plant 4 has a marginal operating cost of USD 24/MWh, but is not the most efficient plant.
Answer: a
Explanation:
The correct answer is A. A breakdown of the marginal operating costs is shown below.
Heat Rate
Plant (Btu/kWh) Marginal Operating Cost
4 (USD/MMBtu) * 10,000 (Btu/kWh) * 1,000
Plant (kWh/MWh) / 1,000,000 (Btu/MMBtu) = USD
1 10,000 40/MWh
4 (USD/MMBtu) * 7,500 (Btu/kWh) * 1,000
2 7,500 30/MWh
4 (USD/MMBtu) * 12,500 (Btu/kWh) * 1,000
3 12,500 50/MWh
4 (USD/MMBtu) * 8,000 (Btu/kWh) * 1,000
4 8,000 32/MWh
The lower the heat rate, the higher the efficiency of the plant.

64. An ISO received the following bids for dispatched power for one hour between 5:00 PM and 6:00 PM:
Bids Entity Quantity (MWh) Price (USD/MWh)

Bid U Gen 1 500 38.50
Bid V Gen 1 200 33.30
Bid W Gen 2 75 41.40
Bid X Gen 2 150 43.75
Bid Y Gen 3 100 44.90
Bid Z Gen 3 800 50.80
If the total grid load forecast for the hour is 800 MW, which of the following represents the marginal
clearing price (in USD/MWh) for the grid between the hours of 5:00 PM and 6:00 PM?
a. 41.40
b. 43.75
c. 44.90
d. 50.80
Answer: b
Explanation:
The figure of USD 43.75/MWh represents the intersection of the supply and demand curves, or the
market equilibrium price. All bids less than or equal to the market equilibrium clearing price are accepted
and the generators are instructed to produce the amount of energy corresponding to their bids until the
demand is satisfied. Generators are paid this market clearing price or system marginal price. Consumers
pay the system marginal price for all consumption.


65. A natural gas trader has identified a seasonal pattern as illustrated in the chart below in the TETCO-M3
natural gas basis market located in the northeastern United States.
Based on the forward price curves above and other fundamental trends in the physical natural gas
market, the trader concludes that the TETCO-M3 summer basis has a high probability of remaining
negative relative to NYMEX Henry Hub. Which of the following would provide the most appropriate
rationale for the trader’s conclusion?
a. A backlog of drilled-but-not-completed wells are waiting to come online.

b. A large new gas discovery has been identified in the Permian basin.
c. Several large takeaway infrastructure projects are now complete and fully operational.
d. Shale gas production in the Marcellus and Utica regions has increased.
Answer: d
Explanation:
Geographic location of production has dramatically altered basis and seasonal spreads. Note the
meaningful discount of TETCO-M3 in the summer months (oversupply due to ramped up production
relative to weather-driven demand) and large price spikes in winter month (due to lack of adequate
pipeline and storage capacity to meet weather-driven demand). The TETCO-M3 market, located in the
US Northeast (Appalachian region) – typically a winter-peaking region – is dealing with surplus supply
from Marcellus and Utica shale fields. The primary driver behind the weakening summer prices has been
the sustained growth of production throughout Appalachia coupled with the lack of sufficient takeaway
infrastructure. With limited infrastructure to deliver natural gas to consumers, the Marcellus region can
quickly become oversupplied, causing prices within the Marcellus region (especially Pennsylvania) to be
discounted. In the Marcellus and Utica plays, production has grown rapidly over the past several years,
and infrastructure growth has not kept pace. This is partly because pipeline projects are costly and may
take several years to bring online. Therefore, the trader concludes that the TETCO-M3 to Henry Hub
spread is likely to remain negative in the summer months due to the local oversupply of gas near the
TETCO-M3 hub.

66. The procurement manager at a large power company is responsible for sourcing coal to fuel several large
generators operated by the company. If the manager seeks to minimize transportation costs, they should
arrange for coal deliveries from suppliers that offer coal containing which of the following physical
characteristics?
a. High ash content and low sulfur content

b. Low ash content and high sulfur content
c. High calorific value and low moisture content
d. Low calorific value and high moisture content
Answer: c
Explanation:
While all are factors in evaluating a coal sample, coal ranks are based on a combination of the calorific
value and moisture content. Coal rank is a classification based on a combination of the two factors:
calorific value and moisture content. Lignite coals through to high-volatile bituminous coals are classified
based on a moist, mineral-matter-free basis, whereas medium-volatile bituminous through to anthracite
coals are classified based on a dry mineral matter-free basis. The difference between the two types of
coal is moisture content, which is important because transportation cost is an important component of the
delivered price. Transportation of high-rank coal (lower moisture level) is less expensive.
67. Consider the following operational information for a power generating plant over the course of a week:

 Average actual power produced: 305 MW
 Average power price: USD 51.50/MWh
 Average heat rate: 9.4 MMBtu/MWh
Given this information, what was the capacity factor for this plant during this week?
a. 63%
b. 87%
c. 97%
d. 115%
Answer: b
Explanation:
The capacity factor is defined as the actual output of energy over a certain period of time divided by the
potential output if the unit is operated at its full nameplate capacity 24 hours a day with no interruptions
during the entire period. In this case, the plant’s capacity factor for the period was 305/350 = 0.8714, or
87%.


68. To increase local gathering capacity, a city’s regulated utility company introduces more decentralized
energy technologies over time. The following chart compares the actual daily load profile in 2017 with the
forecasted load in 2020:
Which combination of factors most likely accounts for the differences between the load in 2017 and the
forecasted load in 2020 at points A and B?
a. Energy efficiency (A) and demand response (B)

b. Distributed solar generation (A) and demand response (B)
c. Distributed storage (A) and distributed solar generation (B)
d. Energy efficiency (A) and distributed storage (B)
Answer: b
Explanation:
Solar panels are most productive during the middle of the day and reduce demand during these hours.
Demand Response technologies facilitate control of energy demand during peak energy use periods,
which occur during the late afternoon and early evening hours in most locations.
The other answers are incorrect. An energy efficiency strategy would have created a new, 2020, curve
that represents lower energy demand at all hours of the day and distributed storage would have created a
flat or flatter line at all hours of the day.
Reference: World Economic Forum. The Future of Electricity: New Technologies Transforming the Grid
Edge.

69. Four petroleum companies (A-D) report their annual production figures, summarized in the table below:
Booked Reserve Yearly Production

Company (in millions of bbls) (in millions of bbls)
A 75 8.7
B 54 4.9
C 66 9.1
D 79 12.3
If a petroleum market analyst assumes an average annual price for crude oil of USD 62.75/bbl, which
company has the longest reserve life index?
a. A
b. B
c. C
d. D
Answer: b
Explanation:
The reserve life index is an important metric for quantifying the value of an oil/gas field. It can be
determined by dividing the yearly production into the booked reserves.
Booked Reserve Yearly Production Reserve Life

(in millions of (in millions of Index
Company bbls) bbls) (in years)
A 75 8.7 8.62
B 54 4.9 11.02
C 66 9.1 7.25
D 79 12.3 6.42
In this example, the price is irrelevant for this calculation.


70. Which of the choices below correctly describes a financial benefit the operators of a 150 MW wind farm
will realize from a power purchase agreement that includes a feed-in tariff (FIT)?
a. A fixed price paid per kWh of power produced and delivered to the grid.
b. A one-time subsidy payment that is executed when the wind farm has been connected and integrated
into the power grid.
c. A spread paid above the market clearing electricity price that varies based on the operating efficiency
of each power generator on the grid.
d. A tax credit received for each marginal kWh of power produced and delivered to the grid by the farm
that exceeds a pre-determined minimum.
Answer: a
Explanation:
Feed-in tariffs are special rates paid to wind, solar and other renewable power generators for power
supplied to the grid at a fixed price per unit of renewable energy. Feed-in tariffs are designed to
incentivize the construction of renewable generators by offering investors favorable, guaranteed returns
for power generated.
71. A natural gas company plans construction of a new supply and distribution system to serve a rapidly-
growing urban area. The company wants to meet anticipated demand spikes without purchasing
additional gas on the spot market. What action can the company take to meet these goals?
a. Convert a depleted oil field to facilitate peak-shaving of natural gas.

b. Transform an aquifer to facilitate peak-shaving of natural gas.
c. Install a cryogenic cooling system in the natural gas trunk pipeline, so LNG ships directly to the city
from an import terminal.
d. Require higher pressure ratings along the natural gas pipeline to create a linepack.
Answer: d
Explanation:
A linepack is when a section of pipeline is pressurized by storing an additional volume of gas within it and
is a method for creating temporary storage sites for gas that can be quickly withdrawn, typically to meet
short-term demand spikes.
Reference: Chris Le Fevre. Gas Storage in Great Britain.

72. XYZ Power holds a tolling agreement on two power plants with similar capacity: one coal-fired, one
gas-fired. The following tables summarizes heat rate and operating expenses for each plant:
Coal-fired Gas-fired
Heat rate 10.85 MMBtu/MWh 8.40 MMBtu/MWh
O&M expense USD 4.15/MWh USD 3.05/MWh
The BTU-equivalent cost for coal is USD 3.14/MMBtu. No start-up or shut-down costs exist for either
plant. Currently, XYZ meets its current demand using only the coal plant. At what natural gas boundary
price (in USD/MMBtu) would XYZ make a switch from the coal plant to the gas plant?
a. 3.65
b. 3.86
c. 4.19
d. 4.78
Answer: c
Explanation:
The correct answer is C. To determine the threshold for fuel switching, you must first calculate the coal
electricity cost (Btu-equivalent Coal price (USD/MMBtu) * Heat Rate (MMBtu/MWh)) + O&M expense
(USD/MMBtu) = (USD 3.14/MMBtu * 10.85 MMBtu/MWh) + 4.15/MWh = USD 38.22/MWh
Next, calculate the parity gas price using the coal electricity cost. In this case: (USD 38.22/MWh – USD
3.05/MWh) ÷ 8.4 MMBtu/MWh = USD 4.19/MMBtu.
USD 4.19/MMBtu is therefore the natural gas price below which switching to gas makes economic sense.


73. Consider the product yields from three different crude oil refineries - A, B, and C - outlined in the
table below:
Product yield (as % of total output)

A B C
Light ends 55% 34% 30%
Middle distillates 35% 63% 45%
Heavy composites 10% 3% 25%
Which of the following correctly places refineries A, B, and C (in that order) in the correct classification
order, assuming each refinery processes the same intermediate grade of crude oil?
a. Conversion, Deep conversion, Hydroskimming

b. Deep conversion, Conversion, Topping
c. Hydroskimming, Deep conversion, Conversion
d. Topping, Conversion, Deep conversion
Answer: a
Explanation:
The correct answer is A. Refineries A and B are more complex than Refinery C due to their lower product
yield in heavy composites, such as asphalt and pet coke.
Refinery C can be considered a hydroskimming refinery with no extra capacity to process further the
heavy composites.
Refinery B is more complex than Refinery A because of its lower combined heavy distillates yields and
losses compared to those of Refinery A. Most probably Refinery B has invested in a coker unit cracking
the heaviest residue from crude distillation, into a range of lighter intermediates for further processing,
therefore classifying it into a deep conversion refinery.
Refinery A most probably is a Fluid Catalytic Cracking Refinery (high yields in gasoline) with higher yields
in heavy residue and losses therefore a conversion refinery.
Light ends are comprised of the following: LPG, gasoline, naphtha

Middle distillates are comprised of the following: kerosene, jet fuel, diesel, heating oil
Heavy composites are comprised of the following: asphalt, petcoke
Reference: The International Council on Clean Transportation. An Introduction to Petroleum Refining and
the Production of Ultra Low Sulfur Gasoline and Diesel Fuel.

74. In a hypothetical power grid, off-peak demand is typically met by a 350 MW coal-fired plant with a fixed
start-up cost of USD 3,000 and environmental and no-load costs of zero. Dispatch decisions on the power
grid are made by the ISO in one-hour blocks based on day-ahead market prices. Dispatched power
levels from the power plant, hourly power prices, and variable hourly generator costs are shown in the
table below.
Power price Dispatched Generation

Hour
(USD/MWh) power (MW) cost (USD)
1 38.7 0 0
2 40.9 120 5,600
3 44.1 190 7,900
4 46.8 265 9,400
5 41.2 175 6,850
6 49.3 310 11,800
During which hour will the generator recover its startup costs?
a. 3
b. 4
c. 5
d. 6
Answer: c
Explanation:
In hour 1, the company chose to keep the coal unit idle as the price is too low to produce enough MWs to
reach its minimum stable capacity. In Hour 2 it will come online incurring the start-up cost. By Hour 5 its
cumulative profit, minus start-up costs, is USD 5,773.
Price Dispatched Generation Hourly net Net

Hour (USD/MWh) power (MW) cost (USD) profit P and L
1 38.7 0 0 0 0
2 40.9 120 5,600 -3692 -3692
3 44.1 190 7,900 479 -3213
4 46.8 265 9,400 3002 -211
5 41.2 175 6,850 360 149
6 49.3 310 11,800 3483 3632


75. When considering the operation of an underground natural gas storage facility, the term “working gas”
refers to which of the following volumes of natural gas?
a. The natural gas sold on the spot market on a given day.

b. The natural gas available for withdrawal from the facility on a given day.
c. The natural gas used to fuel the injection/extraction pumps at the facility.
d. The natural gas needed to maintain the proper operating pressure at the facility.
Answer: b
Explanation:
Working gas is the volume of gas that can be extracted from the underground facility, since the entire
volume in storage will not be recoverable as some level of gas is needed to maintain an operating
pressure at the facility. Answer d is actually the definition of cushion gas.
Reference: Chris Le Fevre. Gas Storage in Great Britain.
76. A hypothetical power grid is fully supplied by four generators. The maximum hourly capacity and the
variable operating cost for each generator are summarized in the following table:
Variable cost
Plant Capacity
(USD/MWh)
A 150 44.80
B 350 46.75
C 375 39.60
D 500 50.60
If the total hourly demand for the grid is 500 MW, which generators will be dispatched according to a merit
order curve?
a. Plant D only
b. Plants A and B
c. Plants A and C
d. Plants B and C
Answer: c
Explanation:
The merit order curve dispatches generation in order of variable operating costs until total capacity for the
system is met. In this case, as the lowest cost generator, Plant C, will be activated for its entire capacity
of 375 MW. Plant A will be activated to supply the remaining 125 MW.

77. To hedge against potential losses due to congestion, a power trader purchases a 110 MW FTR from Hub
A to Hub B to cover the peak hours during one month (assume 22 days total with peak hours and 16 peak
hours per day). The trader purchases the FTR for USD 3.20/MWh. The table below shows the average
peak prices reported for the month:
Day-ahead Real-time
settlement settlement
(USD/MWh) (USD/MWh)
Hub A 42.60 40.70
Hub B 45.90 47.55
Given this information, what is the trader’s realized monthly profit/loss (in USD) on the FTR position?
a. -251,680
b. 3,872
c. 13,552
d. 141,328
Answer: b
Explanation:
FTR transactions are designed to mitigate losses due to congestion, though they can also be used for
speculative purposes. FTRs are settled against day-ahead, rather than real-time, prices. In the scenario
presented above, the FTR settlement is calculated by subtracting the Hub A price from the Hub B price or:
Profit/Loss = 110 MW * 22 days * 16 hours * ((45.90 – 42.60) – 3.20) = USD 3,872
The trader will therefore realize a profit of USD 3,872.


78. A typical fractionating column from a refinery complex is illustrated below. If point A represents the
lightest products and point H represents the heaviest products, gasoline will most likely be drawn from
which of the following points?
a. A
b. C
c. E
d. G
Answer: b
Explanation:
The correct answer is B. The chart below illustrates the products taken from the various draws in the
fractionating column. Since gasoline is one of the lighter products to be drawn from a fractionating
column, in this example, it will be taken from draw C.
Reference: The International Council on Clean Transportation. An Introduction to Petroleum Refining of

Ultra Low Sulfur Gasoline and Diesel Fuel.

A natural gas analyst is studying the following simplified natural gas storage report for the month of
September, where storage percentages represent the current total available capacity filled at each facility:
Total
Depleted Salt storage
Aquifer
field cavern volume
(all types)
East 83% 73% 80% 81%
West 89% 82% 83% 85%
Central 86% 79% 74% 83%
South 76% 77% 71% 79%
Daily withdrawal
3.5% 4.25% 5.5% N/A
(% of volume)
Cushion gas
requirement 40% 25% 15% N/A
(average)
Lead time required
6 days 3 days 12 hours N/A
for withdrawal
79. Natural gas production in the South region is unexpectedly halted for 15 days due to a hurricane. Which
storage location(s) will offer the most cost-effective alternative for meeting supply shortages in the South
region due to the lack of gas production (assuming demand levels, pipeline rates and withdrawal rates all
remain stable)?
a. All West facilities

b. Central aquifers only
c. South salt caverns only
d. South salt caverns and depleted fields
Answer: d
Explanation:
Withdrawal could begin from salt caverns in the South almost immediately. But the South salt caverns are
only at 71% of capacity and have a 15% cushion gas requirement, meaning only 55% of the gas is
available for withdrawal. At 5.5% per day, these sites will be depleted in 10 days, gas therefore would also
have to be taken from the depleted fields to make up for the 5 day shortfall. Taking gas from the Central
or West sites is not cost-effective since the pipeline rates will be higher than gas moved within the South
region.


80. The analyst passes their findings along to a natural gas trader at their company. Given the posted
storage levels, the trader decides to structure an inter-hub basis swap. The trader gets pricing
information on contracts at the following locations:
 Iroquois (East region)

 Malin Center (West region)
 Mid-Continent (Central region)
 WaHa (South region)
Which of the following basis trades is the trader most likely execute?
a. Buy WaHa basis and sell Malin basis.

b. Buy Iroquois basis and sell WaHa basis.
c. Buy Malin basis and sell Mid-Continent basis.
d. Buy Mid-Continent basis and sell WaHa basis.
Answer: a
Explanation:
If the trader is proposing a trade using gas storage data, this would entail purchasing the basis which is
farthest below its capacity and selling the basis which is the closest to its capacity. Therefore the trader
should go long WaHa in the South and sell Malin in the West.

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ENERGY RISK PROFESSIONAL

Practice Exam Part I

ERP Exam ERP Practice Exam ERP Exam ERP Practice Exam

a. The volume oil already physically extracted from the field.

 Grid load: 560,000 MWh

*Assume there are no startup/shutdown costs.

 Lease operating expense (LOE) per month: USD 11,500

a. The regasification terminal will reject the LNG delivery.

a. Asphalt – Gasoline – Diesel – LPG – Kerosene

 Gross revenue (in USD): 12,400,000

a. Purchase a volume of physical natural gas on the spot market.

a. Credit support annex

a. Diminished influence by individual market participants

 Crude oil price (in USD/bbl): 62.30

 Average market price for electricity (USD/MWh): 48.60

 Amount of feed gas lost in the liquefaction process: 15%

a. CSP, because it has a higher maximum theoretical efficiency

a. The premium paid by consumers above the price paid to generators.

 Residential: A home residence with a swimming pool.

a. Load A – aluminum producer, Load B – residential, Load C - street lighting

a. A projected 10-year operating life

Realized Projected Difference

 WTI futures price: USD 63.50/bbl

a. Offer to sell unused emission credits to third parties.

 LNG price = (Liquefaction cost) + (115% of Henry Hub)

a. Purchase of an RBOB futures contract on an exchange.

 Current price of crude oil (USD/bbl): 61.50

 Volume: 800,000 MMBtu

a. A surcharge of USD 0.102/MMBtu on the purchase price.

 Plant type: combined-cycle gas turbine

 65% equity funded at an average cost of 9.9%

 Crude oil sale price: 11,800

a. A corporate guarantee provided by the sponsors of the LNG project

a. Concentrate company operations within the smallest geographical area possible.

 Total output for April: 108,000 MWh

 Average cost of debt: 3.55%

a. When the contract is signed.

Generator Bid Price Capacity (MW) Minimum

 Average natural gas price: USD 3.41/MMBtu

 Average European gas hub price: USD 8.00/MMBtu

a. Yes, revenue will be USD 0.50/MMBtu higher.

Feedstock Price Spread vs. Brent

a. Canadian Oil Sands

Company Booked reserves Production volume

Average April closing price (USD/MMBtu): 3.21

NYMEX Henry Hub Monday closing price for May (USD/MMBtu)

 Average day-ahead electricity price: USD 36.35/MWh

a. 0, the plant is idle

Bids Entity Quantity (MWh) Price (USD/MWh)

a. A backlog of drilled-but-not-completed wells are waiting to come online.

a. High ash content and low sulfur content

 Nameplate capacity: 350 MW

a. Energy efficiency (A) and demand response (B)

Booked Reserve Yearly Production

a. Convert a depleted oil field to facilitate peak-shaving of natural gas.

Product yield (as % of total output)

a. Conversion, Deep conversion, Hydroskimming

Power price Dispatched Generation

a. The natural gas sold on the spot market on a given day.

Questions 79 - 80 use the information below:

a. All West facilities

 Iroquois (East region)

a. Buy WaHa basis and sell Malin basis.

Break even = Working interest * LOE / (NRI * (POIL+GasPGas) (1-Tax Rate))