Expert Interview: Energy Risk Modelling with Sjur Westgaard
"It gives you the tools to calculate risk in energy futures and spot markets." That’s how professor Sjur Westgaard explains what attendees will learn from Montel’s upcoming Risk Modelling Course on 18th-19th January. We talked to Sjur about the course and who would benefit from participating.
Sitting in Trondheim in early December, watching the sun re-awaken after its long overnight rest during the Nordic winter, Sjur leans back in his chair as we begin our interview. “Of course”, he says “I can tell you all about my background, but the question is just how much time you have to listen!”
And in the best possible way, this is no understatement. Now a Professor at the Norwegian University of Science and Technology (NTNU) the road to this point has been long and storied. Both an MSc and PhD in industrial economics, Sjur’s commitment to his area of research has taken on many different forms.
“In terms of real-world experience, I have worked as an investment portfolio manager for an insurance company, a project manager for a consultant company, and as a credit analyst for an international bank. This has naturally come as a result of my main research interests relating to risk management and forecasting for financial institutions and industry corporations.”
This also feeds into more academic work too. As someone who conducts brand new research into risk management methods, Sjur is one of the founders and editors of the Journal of Commodity Markets, something he manages alongside work as an associate editor of the Journal of Energy Markets (he was also previously been an associate editor of Journal of Banking and Finance).
My major areas of research relate to Energy and Commodity markets studies, economic and financial forecasting, energy price risk forecasting and big data analysis. We’re looking at all sorts of methods for doing this too, econometric methods, Machine Learning, AI and explainable AI… you name it, we are looking at it!"
His credentials therefore for running a course focusing on how to model risk in energy markets are clear. As part of the, Industrial Economics and Technology Management department at NTNU, focus shift on not just what the description suggests but everything under the field of ‘decision science’, essentially building statistical and mathematical models required to make the best decision in any given scenario, be it in the fishing, shipping or energy industries.
This year marks 10 years of collaboration between Montel and the Professor, and over that past decade, many course participants from across the world have learned to navigate energy markets thanks to his teaching. “It is just as well I suppose. After I did my PhD in 2005, I was going to go back to the bank, but some colleagues at the university talked me into looking at energy markets and now the rest is history!”
That was really where the energy risk courses began. After receiving grants to conduct research and working with large utilities all over Europe, individual companies began asking Sjur to deliver specific training for their trading departments. Knowing that what he was presenting was useful information, Sjur then reached out to Montel. Already well-established back in 2012 as the place where the energy market comes to meet, the natural partnership of the Risk Modelling course and Montel’s network of contacts was clear.
As much as the participants get hugely useful information from the course, it is also really useful for me too. It is only by conducting this sort of exercise with people involved in energy markets every day that I can get new and up-to-date feedback on the state of these commodity markets, as well as the current challenges posed by operating in them."
With the array of energy traders, risk managers, market analysts, production planners, investors, and generation asset owners that attend this course, the opportunities for knowledge sharing and networking within the discipline have always been huge. Now turned into an online webinar, anyone with an interest in decision analysis, calculating risk and positions can attend, regardless of where they might be located.
And never has the information offered by this course been more valuable. With energy more volatile than other commodity markets nowadays, market participants are facing huge challenges as a result. Knowing the risks was important enough even when prices were low, but now that getting it wrong is much more expensive, it is absolutely crucial to get this right. Increased demand and extreme weather conditions continue to make things harder for market analysts too, as does the ever-increasing level of renewables providing intermittent power generation.
Describing the course in a sentence, “It gives you the tools to calculate risk in energy futures and spot markets”, says Sjur. Those tools include such things as the modelling of spot price dynamics, methods of calculating spot prices using fundamental data, regression analysis and, how to address the risk of trading calendar spreads.
It also includes time to explore and evaluate different types of risk models, including back testing and stress testing to see the positives and negatives of each method, alongside core competencies, such as how to model extreme risk and working out what is the probability of an event happening within a certain timeframe.
However, it is not all hard programs and computer modelling. Through the use of real-world examples of significant energy derivative trading losses, such as China Aviation Oil, Einar Aas and optionsellers.com, Sjur helps guide participants past the pitfalls and helps to create strategies for success.
To read the full course programme and register for your place, click here.