Abstract
Liquefied Natural Gas contracts offer cancelation options that make their pricing difficult, especially if many gas storages need to be taken into account. We develop a valuation mechanism from the buyer’s perspective, a large gas company whose main interest in these contracts is to provide to clients a reliable supply of gas. The approach combines valuation with hedging, taking into account that price-risk is driven by international markets, while volume-risk depends on local weather and is stage-wise dependent. The methodology is based on setting risk-averse stochastic mixed 0-1 programs, for different contract configurations. These difficult problems are solved with light computational effort, thanks to a robust rolling-horizon approach. The resulting pricing mechanism not only shows how a specific set of contracts will impact the company business, but also provides the manager with alternative contract configurations to counter-propose to the contract seller.
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Acknowledgements
The authors are grateful to Steven Lillywhite for his implementation of the Schwartz and Smith model calibration.
CS was supported by CNPq grant 303840, PRONEX-Optimization, and FAPERJ. JPZ was supported by CNPq grants 302161 and 474085, and by the FAPERJ/CEST program.
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C. Sagastizábal is a visiting researcher at IMPA, on leave from INRIA, France.
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Guigues, V., Sagastizábal, C. & Zubelli, J.P. Robust Management and Pricing of Liquefied Natural Gas Contracts with Cancelation Options. J Optim Theory Appl 161, 179–198 (2014). https://doi.org/10.1007/s10957-013-0309-5
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DOI: https://doi.org/10.1007/s10957-013-0309-5