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RESOURCESThe newsletter of the Global Energy Management Institute at the Bauer College of Business
Volume 1, Issue 1 sPRING 2007
Bauer College Upcoming EventsApril 4 FarfelLecture 5 DistinguishedLeadersSeries-John
Hofmeister,President,ShellUSA 12 CougarFundAnnualMeeting 13 NACDBreakfast 18 GLOLuncheon–Scholarships
Presentation18-19 Burgerfest 19 BauerBreakfast 20 HBSADiversityConference 26 SEIGraduationat
TheHoustonClub 27 CEOBreakfastatROCC27-28 UHAlumniCollege–HAO
MAy 1 PlannedGivingConference 10 CEIGraduationat
TheHoustonClub 10 HBSAGraduationDinner 11 MBAGraduation 12 BBAGraduation 21 BauerAlumniGolfTournament
2007 GEMI EventsOur 2007 event calendar is shaping up.Contact us at 713-743-4895 or check future issues for updates.
JAnuAry25 TradingConference:“FifthAnnual
EnergyTrading&MarketingConference”(AnnualEvent)
MArch26 Pipeline&GasJournal’s3rd
AnnualPipelineOpportunitiesConference(UHGEMI–Sponsored)
April Students’TradingCompetition:“4thOpenOutCryTradingCompetition”(AnnualEvent)
MAy Students’Competition:“3rdJ.S.HeroldEnergyAnalysisCompetition”(AnnualEvent)
RefineryBiofuelsWorkshopJune28 ThirdAnnualElectricPower
ConferenceOct/nOv2007 2ndAnnualSupply&Demand
ConferencetBA DownstreamConference:Focuson
Refineries
DearGEMIMembers,
ItgivesmegreatpleasuretosendyoutheinauguralissueofResources,GEMI’snewsletterforitsmembers.WeplantouseResourcestocommunicateregularlywithyouonawiderangeofissues.TheseincludekeepingyouabreastoftheongoingevolutioninGEMI’splans,highlightingcurrentandprospectiveinitiatives,bringingnewsofupcomingeventsinGEMIandtheBauerCollege,introducingyoutokeyBauerCollegepersonnel,joiningsubstantiveenergyrelatedissues,andshowcasingthesuccessofalumnifromoureducationalprograms.And,thisissuewillillustratethescopeofthisnewsletter.
Asmanyofyouareprobablyaware,IrecentlytookoverastheExecutiveDirectorofGEMI.Asabitofbackground—underDeanArthurWarga’sleadership,Ico-foundedGEMIin2001andwrotethebusinessplanforit;and,withthehelpofotherfaculty,IdesignedtheEnergyRiskManagement(ERM)CertificateandtheundergraduateGEMtrack—bothofthesehavebeenverysuccessful.PartofmyinspirationforGEMIwas(andremains)theimportantroleStanfordUniversityplaysinthehi-techindustry,someofwhichIsawfirsthandwhilecompletingmygraduateworkthere.IwouldliketothankLaneSloanforhiseffortsandvisioninguidingGEMIinthelastfewyears.
BauerCollegeandGEMIareabsolutelycommittedtobecomingtheproviderofworld-classenergyprogramsforgraduatebusinessstudents,andwe
havemadesubstantialprogresstothatend.Onpage7inthisissue,youwillfindthecontentoffournewgraduateenergycertificates,appealingtoawide-rangeofbackgroundsandinterestsintheenergyindustry,andavailabletonon-degreestudents.Ourfocusnowistoenhancethevalueweprovidetoourmembersandto
increaseourinteractionwiththeenergyindustry.
WewouldliketointegrateourmemberstothefabricofourCollege,sothattheycanparticipateintheexcitingthingsgoingoninBauerCollege(e.g.,thefinancedepartmentwasrecentlyranked#8inthecountryfortheresearchproductivityofitsfaculty).Thisincludesnotonlyeasieraccesstomeetingandrecruitingstudents,butalsogreaterintellectualengagementbyfrequentworkshopsonchallengingissues,withtheparticipationoffacultyandindustryexperts.Here,weplantobuildonoursuccessfulconferences.TheGEMIboardenthusiasticallyendorsedtheseplansinourmeetingonFebruary6.YouwillfindinformationinthisnewsletteronfutureGEMIandBauerCollegeevents.WehavealsoprovidedcontactdetailsforimportantpeopleintheCollege.Pleasedropmeane-mail(pkumar@uh.edu)withyoursuggestionsonhowwecanenhancethevalueGEMIprovidesforyou.
IlookforwardtoworkingwithyoutotakeGEMItothenextlevel.
Bestregards,PraveenKumarTexas Commerce Bank/Tenneco ProfessorChair, Department of Finance713-743-4770
From the Executive Director
IN THIS ISSUE:
Praveen Kumar
Page 2 Market Commentary:TheFutureoftheGulfCoastRefiningIndustry
Page 5 Around GEMI:2007TradingandMarketingConference
Page 6 Did you know?:GraduateCertificatesinEnergy
ResouRces • Vol. 1, No. 1 • Page �
MaRKeT Commentary
The Case for New Investment
The case for new investment in Gulf Coast refining hasto overcome a multi-decade legacy of poor financial
performance. Refining’s financial performance indices, suchas gross margin per product barrel and Return on CapitalEmployed(ROCE)suggestanindustrythathasstruggledforoverthreedecadestoearnitscostofcapital.Thisconditionled to the drying up of major expansion projects. WhileU.S.refiningcapacitydidgrowvia ‘creep’expansions, largeincrementsofnewcapacitywerenotadded.The lastmajorU.S.refiningexpansionoccurredintheearly1980’s.SolongasdemandforU.S.motorfuelswasonlygrowingat1-2%p.a.,creepexpansionwassufficienttomaintainabalancedorevenasurplusofrefiningcapacityintheNorthAmericanmarket.This was the condition that prevailed from the mid-1980’suntil2003.Periodically itwasworsenedbyboutsofglobalsparecapacity,suchascharacterizedAsiafrom1997through2002.
TheNorthAmericanmarketisthepropercontextwithinwhichtoanalyzetheconditionoftheGulfCoastindustry.Thismarket comprises not only U.S. refineries, but also CanadaandMexico,plusexportrefineriesintheCaribbean(Aruba,Curacao, St. Croix) and Venezuela. The U.S. Refining &Marketing industry optimizes economics across all of theserefineriesandincorporatesimportedgasolineandcrackerfeedfrommoredistantlocationswhenitiseconomictodoso.The‘steadystate’positionoftheGulfCoastduringthelate1980’sand1990’swasasituationwiththefollowingcharacteristics:•CanadianrefineriesexportedproducttotheU.S.•MexicoimportedproductsfromtheU.S.GulfCoast•EastCoastU.S.importedgasolinefromEurope•GulfCoast&EastCoastrefineriesimportedcrackerfeeds
fromtheCaribbeanandEurope• West Coast markets imported small amounts of product
fromAsianrefineries•ThepresenceofeconomicproductimportsfromCaribbean/
Venezuelan refineries and from Europe left Gulf CoastrefinerswithachroniclayerofsparecapacityConsequently, U.S. refining margins for simple
(hydroskimming)plants averaged less than$3/b*,which isnot sufficient to earn a double digit ROCE for an averagecost industryplayer.Duringthisperiod,GulfCoastrefiners
became impressed with the fragile structure of industrymargins. Relatively small amounts of spare capacity seemedrepeatedlytoengenderdestructivepricecompetition;thiswasespeciallysoamongrefinerswithsimilarcoststructures,butrefinerswithleadingscaleandcomplexitywerealsoadverselyimpacted.
Several factors accounted for the fragility of refiningmargins.Refinersfoundthemselvescontinuouslyconfrontedwith the ‘tyrannyofmarginal economics’.Facedwith sparecapacityandprevailingpricesthatofferedpositivecashmarginsrelativetomarginalcost,refinersconstantlyweretemptedtomaximizetheirownproduction.Thecumulativeeffectwastocreate surplus supplies that encouragedbuyers to pit sellersagainst each other. This tendency towards destructive pricecompetitionwasthenintensifiedbycustomers’actions;overtimeretailers,distributorsandindustrialcustomersdevelopedpotentmeanstoconsolidatebuyingpower.ThiswasespeciallythecasewithdiscountretailerssuchasRacewayandalsowith‘bigbox’andhyper-marketerswhodecidedtoinstallgaspumpsasameansofattractingmotoriststotheirstores.Refinersfoundthemselvesfacinglargerandmorefrequentauctionsituationsforthedisposaloftheirmarginalproduction.Theseauctionssetlowprices,whichanincreasingpricetransparencyrapidlycommunicatedthroughoutthemarket.AchronicconditionofpoorstructuralprofitabilityforU.S.refinerswastheresult.
In a broader context, massive expansions of refiningcapacitytookplaceintheprotectedmarketsofIndia,ThailandandKoreainthemid-1990s.Whenthe“Asianflu”infectedAsianeconomiesinthelate1990s,sparecapacityinAsiawerediffusedglobally, infectingmarginsfirst in theMiddleEast,thenontoEuropeandfinally,throughincreasedavailabilityofEuropeanproductforUSmarkets,ontotheGulfCoast.
ThecombinationofpoorU.S. refining results andevenmore severe conditions outside this hemisphere helpedrefashionedsupplypatterns intoNorthAmerica.Starting inthemid-1990’s,U.S.motorfuelsdemandbegantoaccelerate.WithminimalnewcapacityappearingontheGulfCoastandbuyers geared to find cheap product from any source, thevolumeofproduct importsbegan to swell.Tightening fuelspecificationsandthelegislatedwithdrawalofMTBEfromthemarketfurtherreducedtheavailablevolumeandfungibilityofGulfCoastproduction.Relianceonrefinedproductimports
This paper summarizes a general hypothesis regarding the ‘Case for New Investment’ in the Gulf Coast Refining Industry.ThebasichypothesisisthatestablishedparticipantsintheGulfCoastRefiningIndustryconsidertheirbusinesstohaveafragileprofitabilitystructure.Consequently,theindustryapproachesthecasefornewinvestmentwithawell-foundedcaution.NewGulfCoastrefininginvestmentwillthusbelimited,theproductofspecificcircumstances,suchas:1)changesinthecrudesupplybarrel;2)expansionstrategiesbyforeignplayers;or3)integratedinvestmentstiedtoupstreamheavycrudeproduction.ThishypothesisalsopointstopotentialdifficultiesfortheU.S.economyonfuelsupplysecurity.TheU.S.economyhasbecome,andwillremain,partiallydependentonimportedproductsuppliesfromdistantlocations.Thissituationinvolvesphysicalsupplysecurityandpricerisksthatthepublicsectorwillhavetoaddress.
Continued on page 3
TheFutureoftheGulfCoastRefiningIndustry‘RefeRence case’ statement, stephen V. aRbogast, executiVe pRofessoR, uh-gemi
ResouRces • Vol. 1, No. 1 • Page �
thusintensifiedfurther.Whilethelate1990’sweredifficultforGulfCoastrefiners,
thedifficultiesnotedabovealsowerelayingthegroundworkforarecovery.BecauseofthepresenceofimportsfromCaribbeanrefineries, the North American market already possessed an‘import-parity’ structure. Within such structures, importedproducttendstosetpricesforthewholemarket.Thisstructurebenefits domestic refiners by setting prices at levels adequatetopayfortransportationfrommoredistantlocations.SolongasthemarginalimportsourcewasVenezuelaorCuracao,this‘transportation differential’ was relatively small. However, asU.S.demandgrewinthe1990’s,growingvolumesofimportedproductbegantoarrivefrommoredistantsources.Thisdevelopedfirstonthewestcoast.Constrainedbytightenvironmentalrulesandgearedeconomically to runonlyAlaskanandCaliforniancrude,westcoastrefinershadexpandedminimally;thismarketislogisticallyremotefromtheCaribbeanandnotwellconnectedbypipelinetotheGulfCoast.Asaresult,productsfromAsianrefineriesbegan to arrive into thishighly constrainedmarket.Westcoastpricesrosetolevelsthatwouldattractlongdistanceimportsintoabottleneckedlogisticalstructure;unsurprisingly,westcoastpricesalsoreachedlevelswellabovethose inotherU.S.regions.
What happened first on the west coast became a moregeneral phenomenon by 2003. Transportation fuel productdemandwasnowgrowingat3-4%p.a.FirsteastcoastandthenGulfCoastrefiningfounditssparecapacitysoppedup.Productand residual fuel imports from Western and Eastern Europe,RussiaandevenNorthAfricabegantoaccelerate.MeanwhileproductdemandgrowthinIndiaand China was accelerating,consuming Asian spare capacity,and reversing trends that hadweakenedglobalrefiningmarginsin the 1990s. This transitionto import-parity and minimaldomestic spare capacity had anespecially significant effect onheavy crude economics. Ownersof complex refineries found thatin a tight crude supply market,less-complex refineries wereforced to compete for a finitepool of light sweet crudes theirsitescouldprocess.Thishadtheeffectofdrivinglightcrudepricesuprelativetoheaviercrudes;thiswasmostnotableforglobalbenchmark crudes like WTI and Brent. What spare crudeproduction capacity remained in the global supply chain wasnowheavyand/or sour.Complex refiners—thosewhose sitespossessedamplecatalyticcrackers,hydrocrackersandcokers—discoveredpricediscountsforheavy/sourcrudesreachinglargeandevenrecordlevelsversusthebenchmarkcrudes.Thisgavecomplex refinersevery incentive to run theirconversionunitsfull, until U.S. conversion capacity became fully utilized.Theeffectsofthesemarketchangeswerethreefold:•Themarginalsupplysituationbecameasfollows:heavy/sour
crude production was spare, but mismatched against less-
complex spare refining capacity• Less-complex refineries bidding for light/sweet crudes
became the marginal supply source and thus the market price setting mechanism
• Consequently, complex refining profitability soared, as light/heavy crude differentials and clean/dirty spreads widened to levels not seen in decadesItwasthisconfigurationofmarketeventswhichprompted
Saudi spokesmen to argue that ‘refining bottlenecks’ were amajorcauseofthehighcrudepricesandresultingmotorfuelsprices. This diagnosis was spelled out by Dr. Adnan Shihab-Eldin, writing on behalf of the OPEC Secretary General inWorld Energy Magazine,Volume8,Number2,2005:
“Now the focus is on downstream, where growth in refining capacity lags behind demand, leading to bottlenecks…downstream investment is primarily the responsibility of the consuming countries and international oil companies (IOC’s). The recent large revenue increases in the IOC’s over the last two years have not yet been visibly translated into substantial additional investments, particularly in the downstream. On Sept. 25, 2005, the Washington Post indicated that the United States, as a result of the most recent increase in the price of gasoline, crude producers are gaining around 45% over their take of the year before, while refiners have gained more than 250% in the same period. While this may, indeed, be a ‘snapshot’ in one location on a particular day, the overall picture nevertheless remains valid.”Distilledtoitsessence,theSaudicommentsattributemuchof
theresponsibilityforhighbenchmarkcrudepricestotheIOC’sreluctancetoinvestinneededrefiningcapacity.Clearly,anysuchassessment would encompass the large refining concentration
on the U.S. Gulf Coast. Inresponse to such a critique,the IOC’s would likelymake the following rebuttalpoints:• Although new grassrootsfacilities have not beenbuilt, U.S. Gulf Coastrefining capacity has beencontinuously expanded.Moreover, this ‘creep’expansion will not onlycontinue, but is possiblyaccelerating as some majorexpansions have beenannounced.• It is appropriate for the
industry to be careful not to overbuild. Bitter experiencehasshownhoweasyitisfortheindustrytomiscalculatetheamountof capacityneeded and todiscover, yet again, thatrelatively small miscalculations have large adverse marginimpacts.
•Andfinally,timeshouldbeallowedforthemarkettowork.Indeed,highpricesarealreadyworkingtodampendemandandencourage technologyandadaptations thatwill reducetheneedfornewrefiningcapacity.Saiddifferently,theIOC’swouldarguethattheU.S.energy
market is very dynamic. High prices are already encouragingContinued on page 4
Market Commentary continued from page 3
ResouRces • Vol. 1, No. 1 • Page �
motorists to think about both better mileage vehicles andshifting from gasoline to diesel, hybrids or bio-fuels. It is abravemarketforecasterwho, inthefaceofallthese‘movingparts’, believeshe can assess thenetdemand for gasoline in2016.Yetitisexactlythatkindofenergyforecastwhichwouldbe relevant to the economics of a major refinery expansionprojectlaunchedtoday.
WhiletheIOC’smayhavevalidforecastingandeconomicreasonsforexercisingcaution,theirreluctancetoinvest
does leave the U.S. economy more dependent on productimports from more distant locations. It also leaves thesame economy highly dependent on the existing industry’sconcentrationontheGulfCoast.Arethesestructuralexposuresseriousrisksormerelytheglobalenergymarketatwork?
The hypothesis here is as follows: if it is accepted thatbottlenecksinU.S.refiningandconversioncapacitycurrentlycontributetohighcrudeprices,thenitfollowsthatthissamesituation exposes the general economy to both potentialsupplyshocksandevenhigherprices.Thespecificsbehindthishypothesisarethefollowing.Dependenceonforeignrefiningcapacity located outside the North American tributary zonemeansdependenceoncapacitywhichis:a)notexclusivelydedicatedtothismarket,andthereforemay
beunavailableif/whenaUSemergencyneedarises;b)ispartiallylocatedincountrieseitherpronetopoliticalrisks
(MiddleEast)orwhoseforeignpoliciesmaynotbealignedwithAmerica’s(Russia);and
c)isinthehandsofcompanieswhoregardtheUSasa‘swing’market, rather than one for which capacity is coordinatedandcustomizedThustherisksarerealthatwhen/ifasupplyshockoccurs
intheUS,compensatorysupplieseithermaynotbeavailablein the form needed for this market or may not be availableat all. Having said this, it must be acknowledged that theUS industryhandled theKatrina supply shockwithminimaldisruption. Adequate import supplies were organized andreroutedinatimelymannertotheeastcoastmarket.However,successinthiscaseisnoguaranteethattheexposuresjustnotedwillnotcontinuetointensify,therebybecomingmoreseriousconstraintsinthenextsupplycrisis.
TheU.S.hasfordecadeshedgeditsexposuretoacrudeoilsupplyshockbycompilingaStrategicPetroleumReserve.Nosuchreserveexistsinrefinedproducts.IftheU.S.continuestobeshortofrefiningcapacity,noamountofcrudeoil reservewill compensate foramajor refiningoutage.ThecrudemaybeinTexasandLouisiana,buttheavailablerefiningcapacitywillbeoverseas.Thiswindowofvulnerabilityonfuelproductsupplymaybefinite.Theindustryisprobablyrightthathighpriceswillworktheiradjustmentprocessovertime.In-roadsfromethanolmaycombinewithflatteningdemandandsomemajorU.S.refiningexpansionstorestoreamorecomfortableposition down the road. Already there is evidence of somerefinersmovingtoexpandfacilitiesonthebasisofintegratedeconomicswithnewheavycrudeproduction.Petrobrasbought
intoaPasadenarefineryrecentlywiththeannouncedintentionofdoublingitscapacitytoaccommodateheavycrudeimportsfrom Brazil. ConocoPhillips followed this by announcing ajointventurewithEncanathatwillchannelnewCanadiantarsandsproductionintotwoupgradedmid-westrefineries.Thesedevelopmentscouldbe the leadingedgeofamorecompleteadjustmentprocess.
For the moment however, the U.S. has an exposure.Congressisawareofitandhasbeguntoconsideroptionsforhedgingbothfuelproductsupplyandpricerisks.Amongtheoptionsunderconsiderationare:•Usingtermcontractsforthepurchaseoffuelforthemilitary
tofostertheconstructionofnewrefiningcapacity,and•SomeformofStrategicFuelProductReserve
OutsidethehallsofCongress,variousjournalists,consultantsandacademicshavecalledforsignificantincreasesinmotorfuelsales taxes (with proceeds going to fund a Strategic Reserveand/or subsidies or price supports for alternative energyfacilities)andsuchstepsasthereductionintariffsonimportedethanol and/or reducing the excise tax break on domesticethanol.Theselatteractions,whilelikelyunpopularinfarmbeltstates,wouldstrengthentheopportunityforCaribbeansugarislands to enter the ethanol export business. Whether anyofthese is agoodoption for improving supply security remainsto be proven. Surveying all the potential changes that coulddivert current trends innewdirections,one is inclined tobemore understanding of the refining industry’s caution. Thenumberofmovingpartsis large.Theindustry’sabilitytoseehow they will settle out is limited. The weight of history isconsiderable–ahistoryremindingtheindustrythathighpricestypicallyleadtoflatdemand,oversupplyandpoormarginsforextendedperiods.Publicpolicyshouldprobablybedevelopedbasedontheassumptionthattheindustrywillremaincautious;mostlikely,theGulfCoastindustrywillonlybuildsuchcapacityasitabsolutelyneedstoaccommodatechangingcrudequalityandproduct specificationsorwhoseeconomics aredrivenbyintegration with production upstream. Those responsiblefor the U.S. economy should not assume that the industry’snaturaldynamicswillclosethewindowofsupplyvulnerabilityin thenext coupleof years.On theotherhand, they shouldrememberthemistakesofill-judgedlegislationinthepastsuchasthewastefulandineffectivesmallrefinerbiasofthe1970s.ThusthereisroomforpublicpolicytosupplementwhatU.S.refinerswillaccomplishontheirown.Whetherthatactionwillbetimelyoreffectiveneedstobeexaminedandremainstobedetermined.
*exact hydroskimming margins varied materially by individual producer depending upon their disposition alternatives for residual fuel oil.
(This hypothesis was intended to provide a starting point for discussions attheNovember3,2006UH-GEMIConference,andwasnotputforwardasafinishedproductofacademicresearch.)
The Risks of Dependence on Imported Products
Market Commentary continued from page 4
ResouRces • Vol. 1, No. 1 • Page �
AluMNI PRoFIlEJason Ho(’92&MBA’99)
Principal Analyst, Corporate Investment Evaluation/ Market Planning, Exelon Corp, Chicago
JasonHoisadistinguishedalumnusoftheBauerCollegeandamemberofthefirstEnergyRiskManagementCertificateclass.HeiscurrentlyPrincipalAnalyst,
CorporateInvestmentEvaluation/MarketPlanning,withExelonCorporationinChicago.
Around GEMI
Withthepriceofgasolineafixtureinthenews,andgrowingconcernovertheescalatingworldwidedemand
foroilandgas,thetopicofthisyear’sEnergyTrading&MarketingConferencewasatimelyone:speculationinenergymarkets.Thefifthannualconference,presentedbytheUniversityofHouston’sGlobalEnergyManagementInstitute(GEMI),washeldonJanuary25inHouston,andprovidedabout100localenergyprofessionalsanopportunitytoheartheinsightsofanumberofnationwideexperts.
“Almostsincecommoditiesexisted,”saysconferencemoderatorandBauerCollegeofBusinessProfessorCraigPirrong,“therehasbeenconcernoverthepotentialforspeculationtohaveanadverseimpactonconsumerprices.Thisisanissuethatcutsacrosseconomic,technologicalandevenpoliticalboundaries.”Onerecentfinancialanalysis
GEMIbringsenergytradingexpertstotown—again
Continued on page �
AtExelon,JasonhasledaninitiativeinembeddingRealOptionsAnalysistechniquesintothecorporate-wideinvestmentevaluationprocess,andactedasasubjectmatterexpertinevaluatingmodelsthatarerelatedtoelectricity,fuelsandemissionsmarkets.
JasonobtainedhisEnergyRiskManagementCertificatein2003andofferedthistestimonialabouttheprogram:“TheEnergyRiskManagementprogramatGEMIisoneofthebestinvestmentsIhaveevermade—lowrisk,highreturn,andlotsofembeddedstrategicoptions!Itisagreatprogramthatenhancesknowledgebuilding,professionalnetworkingandcareeradvancement.”
Trading and Marketing Conference attendees heard from a host of experts.
From left, Michael Cosgrove, amerex energy President and conference speaker, chats with Jeremy Grant,
U.S. Financial Correspondent with the Financial Times.
concludedthatspeculationinenergyfutureshadadded$35tothepriceofabarrelofoilinthepastthreeyears.Ontheotherhand,themoreclassiceconomicanalysiswouldsuggestthatspeculationinfuturesmarketsisreallyjustamethodforinvestorstoearnareturnandforproducerstohedgetheirrisksoffuturepricevolatility.“Asyoumightexpect,”saysPirrong,“thisisacomplexissue,andthereisnoconclusiveanswerrightnow.”
Theconferencewasdesignedasaneutralforum,andsothehalf-daymeetingconsistedofanaddressandbriefQ&Asessionbyeachspeaker.Speakersincludedexecutivesfromthelegal,regulatory,legislativeandtradingareas.
“I’veattendedfourofthesemeetings,andspokenatthelasttwo,”saysAmerexPresidentMichaelCosgrove,“andit’sanextremelyimportantmeeting—bothforourcompany
andforthewholeenergycommunity.Itprovidesanexceptionalopportunityforustoheartheperspectivesofpeoplewhoseopinionsanddecisionswillaffectthefutureofourindustry.Italsoprovidesaplatformforpolicymakerstomakestatementsthatclarifyimportantissues.Forexample,whileitisnotsurprisingtolearnthattheCFTC’sfundinghasbeeninsufficienttoitsmandate,hearingWalterLukkenspeakspecifically
tothisissuebringsthematterintoanimportant,sharpfocus.”
TheEnergyTrading&MarketingConferencebeganinthewakeoftheEnronscandal,whenpublicconfidenceintheenergymarketswassolowthattheirfuturewasin
ResouRces • Vol. 1, No. 1 • Page �
Recruiting teams from Shell, Pride, and Spectra energy were among the numerous energy industry companies who recently participated in Bauer College’s Spring Career Fair presented by the Rockwell Career Services Center on February 22.
A panel of expertsGEMI’s5thannualEnergyTrading&MarketingConferencefeaturedaslateofspeakerswithexceptionalexpertise:
George BakerPrincipal Williams & Jensen (ThisWashington,D.C.lawfirmhasbroadexpertiseinlobbying.)
Dan BerkovitzStaffSenate Permanent Subcommittee on Investigations
Michael CosgrovePresidentamerex Brokers LLC (Amerexisoneoftheoldestandlargestover-the-counterenergybrokersintheworld.)
Kyle DickardManaging Director of Commodity analyticsMerrill Lynch
Walter LukkenCommissioner of the Commodity Futures Trading Commission (CFTC)
Todd MullinsBranch ChiefInvestigations for Division of Investigations, Office of enforcement, Federal energy Regulatory Commission
Jonathan ShortSenior Vice President InterContinental exchange (TheExchangeoperatestheleadingglobal,electronicmarketplacefortradingbothfuturesandover-the-counterenergycontracts.)
doubt.“Sincethen,”saysPirrong,“thelandscapehaschangedconsiderably.Asaresultofdramaticallyimprovedfinancialcontrols,clearingisnottheproblemitoncewas,andinvestmenthasreturned.Infact,it’sbeenfairlyrobust,withasignificantincreaseinthenumberofenergyhedgefunds.Doesthiskindofspeculationinfluencethepriceatthepump?Ofcourseitdoes,buttherealquestionsarehowmuch,andinwhatways.”Judgingbythetoneofthepresentations,itappearsthatthemajorimpacttodayisclosertowhataneconomicanalysiswouldsuggest—energyfuturestradingprovidesinvestorswithamarkettheycantrust,andoilandgasproducerswithawaytoprotectthemselvesagainstfuturedramaticpricefluctuationsoverwhichtheyhavelittlecontrol.
“However,”sayPirrong,“thedebatecontinues.Ourintenthasbeentoserveasacatalystforcommunicationanddiscussionoftheissues.Iftherewereafinalanswer,therewouldbenoneedforconferenceslikethisone.”
TheBauerCollegeofBusiness’sGlobalEnergyManagementInstitutehoststhreeothermajorenergyindustryconferenceseachyear—onpower,upstream(oilandgasexplorationandproduction),anddownstream(oilandgasrefininganddistribution).“Houstonistheworld’senergycapital,andweconsideritbothaprivilegeandaresponsibilitytoengageworldwideenergyleadersinanongoingdialogue,”saysBauerCollegeDepartmentofFinanceChairmanPraveenKumar.“Initsrelativelyshortfive-yearhistory,theEnergyTrading&MarketingConferencehasalreadyestablisheditsreputation,drawingtopspeakers,growingattendanceandinternationalmediaattention.”
ResouRces • Vol. 1, No. 1 • Page �
Did you know...?
TheC.T.BauerCollegeofBusinessispleasedtoofferfourgraduatecertificatesinenergy:· Energy Investment Analysis · Economics of Energy Value Chain · Energy Risk Management · Energy Accounting & Finance
Thesecertificatesarecarefullydesignedtoappealtostudentswithawiderangeofbackgroundsandinterestsintheenergyindustry.Forexample,thesecertificatesallowstudentsto:
·Developsuperiorinsightintotheeconomicsofenergyindustrycapitalprojects·Developabroadeconomicperspectiveontheenergybusiness·Becomeexpertinthefinancialcontrolandmanagementofenergyfirms·Prepareforacareerinenergyriskmanagementorenergytrading
Thesecertificatesarecomprisedofthree-foursemester-long(15weeks)advancedenergycourses.TheyaretaughtbyacombinationofregularBauerfacultyandadjunctfacultydrawnfromseniorexecutivesintheenergyindustry.Thecertificatesandtheirassociatedcoursesaredescribedbelow.
StudentstakingthecertificateswilltypicallybeenrolledinaBauerdegreeprogram—suchastheEnergyMBAortheMastersProgramsinFinanceandAccounting.(Abriefdescriptionoftheseprogramsisalsogivenbelow).However,non-degreestudentscanalsoenrollforthesecertificatesthroughtheBauerCenterforExecutiveDevelopment(CED).Suchstudentswillhavetodemonstratepreparationinbasicaccounting,economics,finance,andstatistics.
For more information, the contacts are: Degree stuDents:Dr.LathaRamchand(ramchand@uh.edu) non-Degree stuDents:Mr.DanCurrie(dcurrie@uh.edu)
Energy Investment Analysis (EIA)Studentsinterestedindevelopingsuperiorinsightintotheeconomicsofenergyindustrycapitalprojectsshouldconsider
thiscertificate.Studentscurrentlyworkinginorinterestedinworkinginprojectdevelopment,strategicplanning,mergersandacquisitions,capitalbudgeting,businessunitmanagementorenergysecurityanalysisshouldfindthiscertificatehelpfultocareerdevelopment.
The Economics of the Energy Value Chain (EVC)Studentsinterestedindevelopingabroadeconomicperspectiveontheenergybusinessshouldconsiderthiscertificate.The
coursesofferedshouldbeveryhelpfultoengineersandotherfunctionalspecialistsseekingtodevelopmanagerialperspectivesuitableforexecutiveresponsibilities
Energy Accounting & Finance (EAF)Studentswhowishtobecomeexpertinthefinancialcontrolandmanagementofenergyfirmsshouldconsiderthiscertificate.
ThecoursesofferedshouldbenefitprofessionalsintheTreasuryandControllersfunctionsandthoseaspiringtoaCFOpositionforanenergyfirm.
Energy Risk Management (ERM)Studentsconsideringacareerinenergyriskmanagementorenergytradingwillbenefitfromthiscertificate.Materialfrom
thecoursesinthecertificateishighlyusefultothoseinfrontoffice,mid-office,orbackofficepositionsinenergytradingfirms,orfirmsthatuseenergyderivativestomanagepriceandquantityriskexposure.Thiscertificateisalsohighlyrelevanttothose
GRADUATECERTIFICATESINENERGY
EnErGy CErTIfICATEsEnErGy InVEsTMEnT
AnALysIsECOnOMICs Of THE EnErGy VALUE CHAIn
EnErGy ACCOUnTInG & fInAnCE
EnErGy rIsK MAnAGEMEnT
Courses strategy of Project finance
The Energy Value Chain International Energy The Energy Value Chain
Competitive strategy and real Options in Energy
Upstream Economics Oil and Gas Accounting financial Engineering and Energy Derivatives
Techniques of Project finance
Downstream/Petrochemical Economics
strategy of Project finance Quantifying and Hedging Energy Price risk
Energy Trading
Possible Career paths
CfO, Energy Analyst Engineers seeking to transition to management, CEOs
Treasurer, Controller risk manager, Energy Trader
Continued on page 8
GEMIadvISory board
George AlcornPresident, alcorn exploration Inc.
Gerald BalboaVice President BP Gas & Power North america
Ed Bellexecutive Vice President StratCom advisors LLC
J. Robert (Bo) Collins, Jr.President & CeO, Mother Rock
Chris ConwayPresident Commercial Gas & Power ConocoPhillips
Randy CurryPresident, Chevron Natural Gas
Patrick French Senior Vice President Texas alliance of energy Producers
C. Gregory HarperGroup Vice President, Duke energy
Vince KaminskiManaging Director, Rice
Fran Keeth President, Shell Chemical (retired December 200�)
Richard LoomisWorld energy Magazine
Deniese Palmer-Huggins President and CeO, Sun Coast Resources, Inc.
Donna Pederson McGinnisVice President, Underwriting, aeGIS Insurance
Brett Perlman Former Commissioner Texas Public Utility Commission
John Podrazaafrica Group Controller exxonMobil Corporation
Michael ProkopVice President, amerex
Christopher Ross Senior Vice President, CRa International
Thomas Seitz Principal, McKinsey & Company
Art SmithPresident & CeO, J.S. Herold
Bill Swanstrom Partner, Locke Lidell & Sapp
Michael TrevinoMarathon Oil Company
Peter TumminelloVice President, aGL Resources
C. John Wilder President & CeO, TXU energy
CONTACT US C.T.BauerCollegeOfBusiness•GlobalEnergyManagementInstitute•334MelcherHall•713-743-4885uhgemi@uh.edu • bauer.uh.edu/UHGEMI
Did you know...?whoaspiretoadvanceinthefinancefunctioninenergyfirmsorfinancialinstitutionsthatparticipateinenergymarkets.Itprovidesathoroughgroundinginthesourcesofenergyrisk,thebehaviorofenergyprices,thetoolsandmarketsavailabletomanageenergypriceandquantityrisks,thevaluationofenergyriskmanagementtools,thequantificationofenergypricerisk,andtheuseoffinancialinstrumentsandderivativestomanagethisrisk.
GraduateDegreeProgramsattheBauerCollegeofBusinessThe Bauer MBA : The Energy MBA
TherehasneverbeenabettertimetopursueacareerintheEnergyIndustry.Awaveofmanagementtalentisnearingretirementageandthepipelineofnewworkerscannotfullyreplaceretiringenergyemployees.Challengingopportunitieswillaboundforthosewiththeskillsandpositioningtotaketheirplaceinthiscriticalpartofoureconomy.ThisisallthemorerelevantinHouston,theenergycapitaloftheworld.So,theBauerCollegethroughtheirGlobalEnergyManagementInstitute(GEMI)hasputtogetherEnergyModulesofstudyintheMBAprogramthatcombineacademicrigorwithindustryrelevance.Inshort,ifyouforeseeacareerinEnergy,theBauerMBAistheplacetobe.
Masters in Finance (MSF)Overthelastdecade,financeprofessionalshavefacedanincreasinglycomplexand
technicalworldwiththeadventofatremendousnumberofnew“exotic”securities,theexplosionintheoptionsandfuturesmarkets!,theincreaseinfinancialglobalization,andtheincreasedvolatilityinequityandcurrencymarkets.Thishasgeneratedademandforafocused,intensivecourseofstudyinthetechnicalaspectsofsecurityvaluation,tradingstrategies,hedging,andcorporatereorganization.ThisdemandhasgivenrisetotheMasterofScienceinFinanceProgramattheC.T.BauerCollegeofBusiness.
Theprogramprovidesstudentswithafocused,technicalcertificateinthefinanceareatohelpgraduatesdealwiththeincreasinglycomplexworldofFinance.TheMastersofScienceinFinanceisafullyaccreditedgraduateprogramintheUHBauerCollegeofBusiness.Theprogram’sobjectiveistoprovideparticipantswithafocusedcourseofstudythatwillenhancetheirunderstandingoftheprinciplesandpracticeoffinance.Thiswillenableparticipantstodealmorereadilywiththeincreasinglycomplexconceptsandbodyofknowledgefacedbyfinanceprofessionals.Theprogramwouldbeparticularlyrelevanttothoseworkingin,orplanningtoworkinthefollowingareas:commercialandretailbanking;investmentbanking;securityanalysisandbrokerage;corporatefinance,venturecapitalandcorporaterestructuring;securitytradingandriskmanagement;andfinancialconsulting.
Masters Program in Accounting (MPA)TheMPAprogramisforstudentswhohaveabachelor’sdegreeinaccountingorin
otherdisciplines.GraduatesreceivetheMasterofScienceinAccountancydegreeandareacademicallyeligibletotaketheCPAexam.Theprogramisfor36–72hoursdependinguponpreviouseducation.It’slearninggoalsare: I. theabilitytorecognizedysfunctionalaccountingsituations, II. thecapacitytoengageinaccountingresearchandcommunicatefindingsinaclear
andconcisemanner, III. theskillsrequiredtoworkasamemberofaprofessionalteambycoordinating
actionsandeffortstosolveaccountingproblems, IV. anoverallunderstandingofaccountingandfinancialconcepts,and V. thecapacitytorecognizeandrespondappropriatelytoethicalandregulatory
dilemmas.
ResouRces • Vol. 1, No. 1 • Page �
ConTACTSglobal eneRgy management institute
Praveen KumarTexasCommerceBank/TennecoProfessorChair,DepartmentofFinancepkumar@uh.edu713-743-4770
Avani DaveEventCoordinatorajdave@uh.edu713.743.4895
exteRnal Relations
Robert CaseyAssociateDeanDirectorofExternalRelationsbobcasey@uh.edu713-743-4624
John O’DellDirector,AlumniDevelopmentjwodell@uh.edu713-743-4457
Lisa JollyCorporateDirectorofDevelopmentlajolly@uh.edu713-743-4716
Erika GuerraExecutiveSecretary,ExternalRelationsEguerra4@uh.edu713-743-4626
gRaduate and pRofessional pRogRams
Latha RamchandAssociateDean,GraduateandProfessionalProgramsramchand@uh.edu713-743-4769
Dan CurrieExecutiveDirector,CentersandInstitutesdcurrie@uh.edu713-743-4806
Michelle PoullardProgramDirector–GraduateandProfessionalProgramsmpoullard@uh.edu713-743-4631
Rockwell caReeR seRVices centeR
Jamie BelinneExecutiveDirector,RockwellCareerServicesCenterjbelinne@uh.edu713-743-4915
Dawn ButlerStudentLeadershipCoordinator,RockwellCareerCenterdbutler@bauer.uh.edu713-743-4709(forassistancewithcontactingstudentorganizations)
Brett HobbyAssistantDirector,EmployerServicesandRecruitmentRockwellCareerServicesCenterbhobby@uh.edu713-743-8129
undeRgRaduate business pRogRams
Frank KelleyAssistantDean,UndergraduateBusinessProgramsfwkelley@uh.edu(713)743-4912
Natalie MerrittFinanceandGEMAcademicAdvisornmerritt@uh.edu(713)743-4792
UndergraduateProgramsinGlobalEnergyManagement
TheBauerCollegeofBusinessoffersauniqueGlobalEnergyManagement(GEM)programforundergraduates.Thisprogramisdesignedtoeducatethefutureleadersoftheenergyindustry.Theprogramhasthreeoptions: 1–GEMProfessionalProgram
2–GEMtrackinFinance3–GEMminor
Thecurriculumforeachoptionhasbeendesignedtoblendatechnicalbackground,notunlikethebasisforanengineeringdegree,withthemanagementskillsmissinginmostenergyworkerstoday.Thisblendedapproachresultsinamuchmoreappealingcandidatefortheenergyindustry.Eachoptionoffersaspecialfocusonenergyrelatedcoursesattheadvancedlevel.
TheGEMProfessionalProgramisthemostpowerfulandcomprehensiveblendoftechnicalandbusinessskillsavailableattheundergraduateandgraduatelevel.Studentsinthis5-yearprogramobtainaBBAinFinancewithaGEMspecialization,EnergyRiskManagement(ERM)certification,andanMSinFinance.Meanttobeginatthefreshmanyearandcarrythroughgraduation,theGEMProfessionalProgramrequiresahigherlevelmathandsciencecorethanthetraditionalBBAinFinance.Inadditiontotherequiredbusinesscorecoursework,GEMPPstudentstakealltheiradvanced-electivecoursesinenergybusiness.StudentsintheprogramideallyarealsomembersoftheBauerBusinessHonorsProgramandtheUHHonorsCollege.
TheGEMTrackinFinanceisaspecializationofthetraditionalBBAinFinancewhichgivesgraduatestheleadingedgewhenenteringtheenergyjobmarket.StudentsoftheGEMTrackinFinanceprogramarefinancemajorswhotakeaseriesofpre-selectedenergybusinesselectivesintheirjuniorandsenioryears.
TheGEMMinoroptionisopentoallUniversityofHoustonstudentswantingtoaddanenergybusinessflavortotheirdegree.TheGEMminorexposesstudentsoutsidetheFinancedisciplinetothefundamentalsoftheenergybusinessandEnergyFinance.Butmostimportantly,the16-credithourGEMMinorprovidesstudentswiththeknowledgebaseforafasttrackintoseniormanagementregardlessoftheirdiscipline.
Thecompletedetailsonthisprogramcanbefoundontheprogramwebsite:http://www.bauer.uh.edu/finance/gem/.
Did you know...?
ResouRces • Vol. 1, No. 1 • Page �
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