An optimization model for planning natural gas purchases, transportation, storage and deliverability

Abstract

Natural gas local distribution companies (LDCs) face the problem of managing natural gas purchases under conditions of uncertain demand and frequent price change. In this paper, we present a stochastic optimization model to solve this problem. Unlike other models, this model explicitly considers deliverability, the rate at which gas can be added to and withdrawn from a storage facility, as a variable, and considers its role in ensuring a secure supply of gas. Deliverability is often overlooked in gas supply planning, yet is a critical factor in achieving a secure gas supply. Using data from an LDC in Huntsville, Alabama, we show how this model can be used to minimize total cost while meeting constraints regarding the security of gas supply. We also demonstrate that security is dependent on the rate of deliverability, which in turn is affected by a number of factors including gas availability, storage and transportation considerations, and weather conditions.

A Translation Approach To Teaching Linear Program Formulation

“…The development of this approach is based on our own work in modeling real world problems (e.g., Bopp, et al, 1996) as well as our teaching experience. A summary of the steps in the form of a class handout that can be used by the instructor is provided as an appendix to the paper.…”

Daily price adjustments in the U.S. market for natural gas

“…If weather follows a predictable pattern, there would still be price movements related to the cost of storage. Gas storage is expensive and can add $.25 to $.40 to a price that is often in the range of $2.00 per thousand cubic feet [Bopp, 1996]. Moreover, gas storage is billed both on the amount stored and on the injection or withdrawal rate of changing the storage level.…”

Costs and Constraints of Transporting and Storing Primary Energy for Electricity Generation

“…This approach provides a convenient way to conduct sensitivity analyses over parameters other than demands. Unlike most prevailing models where deliverability, the maximum amount of gas that can be withdrawn from or injected into storage each day, is given as exogenous, another linear stochastic program proposed by Bopp et al [44] explicitly considers it as a decision variable that closely ties and impacts other variables. A case study of the LDC at Huntsville, Alabama, showed that in order to achieve minimum cost, deliverability must be carefully chosen according to the minimum level of firm transportation requirements and the availability of spot purchases.…”