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Stochastic Mixed-Integer Programming for Integrated Portfolio Planning in the LNG Supply Chain

Adrian Werner, Kristin Tolstad Uggen, Marte Fodstad, Arnt-Gunnar Lium, and Ruud Egging

Year: 2014
Volume: Volume 35
Number: Number 1
DOI: 10.5547/01956574.35.1.5
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Abstract:
We present a new model to support strategic planning by actors in the liquefied natural gas market. The model takes an integrated portfolio perspective and addresses uncertainty in future prices. Decision variables include investments and disinvestments in infrastructure and vessels, chartering of vessels, the timing of contracts, and spot market trades. The model accounts for various contract types and vessels, and it addresses losses. The underlying mathematical model is a multistage stochastic mixed-integer linear problem. Industry-motivated numerical cases are discussed as benchmarks for the potential increases in profits that can be obtained by using the model for decision support. These examples illustrate how a portfolio perspective leads to decisions different than those obtained using the traditional net present value approach. We show how explicitly considering uncertainty affects investment and contracting decisions, leading to higher profits and better utilization of capacity. In addition, model run times are competitive with current business practices of manual planning.



Stochastic Modeling of Natural Gas Infrastructure Development in Europe under Demand Uncertainty

Marte Fodstad, Ruud Egging, Kjetil Midthun, and Asgeir Tomasgard

Year: 2016
Volume: Volume 37
Number: Sustainable Infrastructure Development and Cross-Border Coordination
DOI: https://doi.org/10.5547/01956574.37.SI3.mfod
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Abstract:
We present an analysis of the optimal development of natural gas infrastructure in Europe based on the scenario studies of Holz and von Hirschhausen (2013). We use a stochastic mixed integer quadratic model to analyze the impact of uncertainty about future natural gas consumption in Europe on optimal investments in pipelines. Our data is based on results from the PRIMES model of natural gas demand and technology scenarios discussed in Knopf et al. (2013). We present a comparison between the results from the stochastic model and the expected value model, as well as an analysis of the individual scenarios. We also performed sensitivity analyses on the probabilities of the future scenarios. Comparison of the results from the stochastic model to those of a deterministic expected value model reveals a negligible Value of the Stochastic Solution. We do, however, find structurally different infrastructure solutions in the stochastic and the deterministic models. Regarding infrastructure expansions, we find that 1) the largest pipeline investments will be towards Asia, 2) there is a trend towards a larger gas supply from Africa to Europe, and 3) within Europe, eastward connections will be strengthened. Our main finding using the stochastic approach is that there is limited option value in delaying investments in natural gas infrastructure, until more information is available regarding policy and technology in 2020, due to the low costs of overcapacity.



The Role of Natural Gas in a Low-Carbon Europe: Infrastructure and Supply Security

Franziska Holz, Philipp M. Richter, and Ruud Egging

Year: 2016
Volume: Volume 37
Number: Sustainable Infrastructure Development and Cross-Border Coordination
DOI: https://doi.org/10.5547/01956574.37.SI3.fhol
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Abstract:
In this paper, we analyse infrastructure needs of the European natural gas market in response to decarbonisation of the European energy system. To this end, we use numerical modelling and apply the Global Gas Model. We investigate three pathways of future natural gas consumption: i) a decreasing natural gas consumption, following the scenarios of the EU Energy Roadmap 2050; ii) a moderate increase of natural gas consumption, along the lines of the IEA's New Policies Scenario; and iii) a temporary increase of natural gas use as a "bridge" technology, followed by a strong decrease after 2030. Our results show that current import infrastructure and intra-European transit capacity are sufficient to accommodate future import needs in all scenarios. This is despite a pronounced reduction of domestic production and a strong increase in import dependency. However, due to strong demand in Asia, Europe must increasingly rely on exports from Africa and the Caspian region, leading to new infrastructure capacity from these regions. When natural gas serves as a "bridge" technology, short-term utilisation rates of LNG import capacity temporarily increase instead of instigating large scale pipeline expansions.



Representing GASPEC with the World Gas Model

Ruud Egging, Franziska Holz, Christian von Hirschhausen and Steven A. Gabriel

Year: 2009
Volume: Volume 30
Number: Special Issue
DOI: 10.5547/ISSN0195-6574-EJ-Vol30-NoSI-7
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Abstract:
This paper presents results of simulating a more collusive behavior of a group of natural gas producing and exporting countries, sometimes called GASPEC. We use the World Gas Model, a dynamic, strategic representation of world gas production, trade, and consumption between 2005 and 2030. In particular, we simulate a closer cooperation of the GASPEC countries when exporting pipeline gas and liquefied natural gas; we also run a more drastic scenario where GASPEC countries deliberately hold back production. The results show that compared to our Base Case, a gas cartel would reduce total supplied quantities and induce price increases in gas importing countries up to 22%. There is evidence that the natural gas markets in Europe and North America would be affected more than other parts of the world. Lastly, the vulnerability of gas importers worldwide is further illustrated by the results of a sensitivity case in which price levels are up to 87% higher in Europe and North America.





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