Optimization of Purchase, Storage and Transmission Contracts for Natural Gas Utilities

Optimization of Purchase, Storage and Transmission Contracts for Natural Gas Utilities

Indifference pricing of natural gas storage contracts

Natural gas markets are incomplete due to physical limitations and low liquidity, but most valuation approaches for natural gas storage contracts assume a complete market. We propose an alternative approach based on indifference pricing which does not require this assumption but entails the solution of a highdimensional stochastic-dynamic optimization problem under a risk measure. To solve this...

Optimization of Injection/Withdrawal Schedules for Natural Gas Storage Facilities∗

Control decisions for gas storage facilities are made in the face of extreme uncertainty over future natural gas prices on world markets. We examine the problem faced by owners of storage contracts of how to manage the injection/withdrawal schedule of gas, given past price behavior and a predictive model of future prices. Real options theory provides a framework for making such decisions. We de...

Natural Gas Storage Valuation and Optimization: A Real Options Application

In this paper we present an algorithm for the valuation and optimal operation of natural gas storage facilities. Real options theory is used to derive nonlinear partial-integro-differential equations (PIDEs) for the valuation and optimal operating strategies. The equations are designed to incorporate a wide class of spot price models that can exhibit the same time-dependent, mean-reverting dyna...

Natural Gas Storage Valuation, Optimization, Market and Credit Risk Management

In this paper we present a model for the valuation, optimization, market and credit risk management of natural gas storage facilities and associated derivative contracts. A reduced form Markovian term structure model for the gas forward curve is developed and is shown to describe over 98% of the total historical variation of the fluctuations of the Henry Hub Futures curve. This approach facilit...