I got a call from a recruiter and he told me that he can arrange for a couple interviews for me with Furtune 500 energy companies. I said: what? energy companies? And he said: yes, energy companies. they trade comodoties. So, can someone explain, how is quant job in an energy company different from a quant job in a bank?

QuoteOriginally posted by: YuraI got a call from a recruiter and he told me that he can arrange for a couple interviews for me with Furtune 500 energy companies. I said: what? energy companies? And he said: yes, energy companies. they trade comodoties. So, can someone explain, how is quant job in an energy company different from a quant job in a bank?You work in Texas rather than NYC.It's hard for me to compare because I've worked as a programmer in a Fortune 500 energy company, but not as a quant in the bank. As with quant jobs, it depends on what they have you do. The big demand for programmers in energy companies is not in commodities but rather in petroleum exploration, where there is a huge amount of 3-d visualization and database work. As with bank quant jobs, there the oil equivalent of a front desk quant (although the stress is a lot less).One big difference is that there is more of a petroleum software market than there is a finance software market.PM me and I'll tell you want companies you want to work for, and what companies you probably don't want to work for.

Just to establish my background, I have worked in the energy merchant/commodities trading business for my entire career.I assume you're talking about quant jobs in an energy commodities trading group, rather than petroleum jobs like Dr. Wang mentioned. If you're talking about a quant job in an energy commodity group, the work is very similar to what goes on at investment banks. In fact, the energy commodity business exists as an entire, separate parallel structure to i-banking. Energy requires its own specialized originators (i-banker equivalents), structurers, traders, quants, lawyers, and other back office people. It is a much smaller industry than the securities industry. After a while, you will end up knowing at least a few people at most other shops. Many i-banks now have their own energy trading/marketing groups, which are often separated (physically and institutionally) from the rest of the bank because it's such a different business. Many of the jobs, are, of course, in Houston rather than NYC.Quant work in energy commodities can be very different than quant work in a more traditional area at an i-bank. Many of the assumptions that hold true in finance do not hold true for energy (e.g. electricity is [mostly] a non-storable commodity). Energy markets, especially electricity, are volatile, very immature, illiquid, and rapidly changing. As an energy quant, you will spend a lot of time learning about models, processes, and software specific to the industry that will not be readily transferable to another industry. You will also have to learn a lot about the physical fundamentals of the market. Some quants are drawn to the field because it is still so immature and there's lots of room to develop new approaches to things rather than just learning how to apply long-established theories. By necessity, energy groups tend to be flatter and less specialized. Energy commod quants can decide to stay in the core field of research/system development or move into more applied roles such as structuring (deal pricing and valuation) or risk management (very non-trivial given the frequency of energy-related blowups!).Not being a quant, it's hard for me to compare working for a bank vs. energy trading, but I'd say energy is a much more wide-open field with better opportunities, but it's probably where you'd get stuck. It's also a very cyclical industry, even more so than banking. An i-bank won't get rid of ALL its people or suddenly decide to exit i-banking, but this has certainly happened to energy trading shops.

Thank you, dojistar! Your post's been very helpful!As long as models/assumptions are so different in energy trading from equities, what do you need to know to get a quant job in this field? What kind of questions do they ask during interviews?

For quants new to the energy business, I don't think the interviews or requirements are really all that different. I've seen people move from pure academics to energy without problems. Expect the usual interview: quant tests, thought problems, etc. After you've been in the industry for a while, I would think that energy-specific experience would count more than education or academic credentials because energy is so specialized. You should know all the things you would ordinarily want to know for a standard i-bank quant interview, especially trading topics like options valuation approaches, greeks and risks of various positions, term structure of commodities, spread option modeling (very common and important in energy) etc. Programming skills are, as everywhere else, useful.I think you would get some points for reading up on energy ahead of time, especially if you're coming straight from academia. For an overview for someone with a quant background, Kaminski's Managing Energy Price Risk (amazon) is probably a good bet; it goes over the major markets and discusses some of the quant issues when it comes to modeling price processes, etc. It would also give you an idea if valuing natural gas storage facilities or power transmission projects is really what you want to do for your career. I haven't read his newer book, Energy Modelling, but looking at the table of contents, it seems to be focused much more on solving a few specific advanced topics rather than the fundamentals. Older books are generally not as useful because the industry has changed so much. There are also a lot of academic papers out there.

Thanks for the tips, dojistar!

Hi Yura,I'm pretty sure that dojistar is correct. Most opportunities in energy are in Houston, as most of the companies have their trading floors there. Trading energy derivatives is very similar to trading derivatives in the financial world, and the analytics requirements are much the same. We are always looking for better and improved ways of pricing the risk for structured transactions and even our pure vanilla derivatives. The upside of working in energy is that there are a lot of unsolved and/or partially solved problems where smart people can add tons of value with quantiative analysis. The derivative markets in some energy products are very nascent (think electricity) and the inherent risks in the commodity due to its incredibly volatile nature provide pricing problems that are fundamentally different than traditional financial products (can you accurately describe the price of power in the Pacific Northwest with a price process? Does this same process decribe the power price in California or PJM?). I obviously come from a power background, but there are other problems in energy markets that you can definitely derive an edge from if you can price things effectively. Also, you should understand that big banks are getting into energy in a big way. The markets used to be dominated by physical shops, but things are changing as investment banks crank up their operations in energy trading. Who knows if this is a permanent endeavor (some banks have gotten in and out of energy before), but I would assume that banks will be looking to add a similar amount of quant firepower to their energy operations as they have to their, say, credit operations.I would check out Energy and Power Risk Management by Eydeland and Wolyniec. Also feel free to pm me if you have any other questions.

Is a PhD degree required to be an energy quant in utility/commodities group in i-bank? If so, which prof would be a good supervisor in energy finance? Matt Davison from UWO seems an expert in this area, but the location of UWO is not that nice... Any prof. in Toronto who does research in energy finance?