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 describe the theory behind our model and a software application that seeks to optimize the expected value of the storage facility, given capacity and deliverability constraints, via Monte-Carlo simulation. Our approach also allows us to determine an upper bound on the expected valuation of the remaining storage facility contract and the gas stored therein. The software application has been successfully deployed in the energy trading division of a gas utility.