Energy Policy
Executive MBA
Course Syllabus
July-August, 2019
Professor Craig Pirrong
Phone: 713-743-4466
E-mail: cpirrong@uh.edu and cpirrong@gmail.com.
COURSE DESCRIPTION
This course will examine some important new policy developments, in particular those related to energy trading and risk management, the Dodd-Frank act, and regulations that have or will be issued to implement the act. After an introduction to energy trading and price risk management, I will analyze rules related to speculation, manipulation, clearing, capital, and collateral to try to understand how these rules will affect energy trading, energy markets, and energy firms.
COURSE MATERIALS
All of the materials for the course are online. Hyperlinks to these materials are in the syllabus. My Streetwise Professor blog also has many posts that analyze issues discussed in the course.
GRADING
Grading for the course is based on a short policy paper.
COURSE OUTLINE
29
July. An Introduction to Energy Derivatives & Energy Trading. In this week we
will describe futures contracts, learn how they are traded, and analyze their
purpose, focusing particularly on price risk management. We will examine
concepts such as arbitrage, delivery, hedging, basis, basis risk, and
clearing. There will also be an examination of the basics of energy
trading, focusing on the transformations (over time, space, and form) in
energy, and how trading can help maximize the value of these transformations. Reading:
1 August. Speculation and Commodity Pricing. Speculation is a controversial subject in commodity markets. We will examine the economics of speculation, and its effects on prices. We’ll then consider the potential for speculation to distort prices, and the evidence relating to the effects of speculation. Finally, we will analyze the rationale for limits on speculation, notably position limits. Reading:
·
Pirrong,
“No Theory? No Evidence? No Problem” (Regulation,
2010)
· Stout, Regulate OTC Derivatives by Deregulating Them & Comments by Helwege, Wallison, & Pirrong
·
CFTC
Position Limit Rule Proposal.
·
Pirrong Position
Limit Comment Letter
5 August. Commodity Market Manipulation. Manipulation--and accusations of manipulation--have bedeviled commodity markets since the birth of commodities trading in the 19th century. Just what constitutes manipulation is highly controversial, and the subject of considerable legal dispute. Acting pursuant to Dodd-Frank, the CFTC has implemented a new anti-manipulation rule. (The FTC has a similar anti-manipulation rule that applies specifically to petroleum and petroleum products). This class will analyze the economics of manipulation, the ways it can be detected, the economically efficient way to deter it, and actual government policies. Reading:
· CFTC Manipulation Rule (2011).
·
Senate
Permanent Subcommittee Report on Amaranth.
8-12 August. Structural
Changes in the Energy Markets. The energy industry is undergoing
dramatic, and unexpected change, especially in the United States. Fracking and
shale have transformed the world energy market. We’ll examine some of
these fundamental changes, and the policy responses to the. Specific
topics may include the development of LNG markets (focusing on LNG exports from
the US); US oil export restrictions; the implications of oil production shocks
on transportation infrastructure (focusing on pipelines vs. rail); renewables;
and the geopolitical effects of the dramatic shifts in the spatial patterns of
oil production.