Gas Storage
The NoDoC models for gas STORAGE FACILITIES includes:
- Above ground natural gas storage
- Underground gas STORAGE FACILITIES
- Bulk storage
- Evaluation (economy) of gas storage
Also NoDoC have a methods for estimating the cost for storage of the followings:
- Absorbed natural gas,
- Compressed Natural Gas
- Liquefied natural gas
As with all infrastructural investments in the energy sector, developing STORAGE FACILITIES is capital intensive. Investors usually use the return on investment as a financial measure for the viability of such projects.
Ads by CinPlus-2.5c×It has been estimated that investors require a rate or return between 12 percent to 15 percent for regulated projects, and close to 20 percent for unregulated projects. The higher expected return from unregulated projects is due to the higher perceived market risk. In addition significant expenses are accumulated during the planning and location of potential STORAGE SITES to determine its suitability, which further increases the risk.
The capital expenditure to build the facility mostly depends on the physical characteristics of the reservoir. First of all, the development cost of a STORAGE FACILITY largely depends on the type of the storage field. As a general rule of thumb, salt caverns are the most expensive to develop on a Bcf of Working Gas Capacity Basis. However one should keep in mind that because the gas in such facilities can be cycled repeatedly, on a Deliverability basis, they may be less costly.
A Salt Cavern facility might cost anywhere from $10 million to $25 million/Bcf of working gas capacity. The wide price range is because of region difference which dictates the geological requirements. These factors include the amount of compressive horsepower required, the type of surface and the quality of the geologic structure to name a few. A depleted reservoir costs between $5 million to $6 million/Bcf of Working Gas Capacity. Finally another major cost incurred when building new STORAGE FACILITIES is that of base gas. The amount of base gas in a reservoir could be as high as 80% for aquifers making them very unattractive to develop when gas prices are high. On the other hand salt caverns require the least amount of base gas. The high cost of base gas is what drives the expansion of current sites vs. the development of new ones. This is because expansions require little addition to base gas.
The expected cash flows from such projects depend on a number of factors. These include the services the facility provides as well as the regulatory regime under which it operates. Facilities that operate primarily to take advantage of commodity arbitrage opportunities are expected to have different cash flow benefits than ones primarily used to ensure seasonal supply reliability. Rules set by regulators can on one hand restrict the profit made by storage facility owners or on the other hand guarantee profit, depending on the market model.
NoDoC models divides and therefore considers followings as the aim of the gas storage process:
Gas storage is principally used to meet load variations. Gas injected into storage during periods of low demand and withdrawn from storage during periods of peak demand. It is also used for a variety of secondary purposes, including:
- Balancing the flow in pipeline systems. This is performed by mainline transmission pipeline companies to maintain operational integrity of the pipelines, by ensuring that the pipeline pressures are kept within design parameters.
- Maintaining contractual balance. Shippers use stored gas to maintain the volume they deliver to the pipeline system and the volume they withdraw. Without access to such storage facilities, any imbalance situation would result in a hefty penalty.
- Leveling production over periods of fluctuating demand. Producers use storage to store any gas that is not immediately marketable, typically over the summer when demand is low and deliver it when in the winter months when the demand is high.
- Market speculation. Producers and marketers use gas storage as a speculative tool, storing gas when they believe that prices will increase in the future and then selling it when it does reach those levels.
- Insuring against any unforeseen accidents. Gas storage can be used as an insurance that may affect either production or delivery of natural gas. These may include natural factors such as hurricanes, or malfunction of production or distribution systems.
- Meeting regulatory obligations. Gas storage ensures to some extent the reliability of gas supply to the consumer at the lowest cost, as required by the regulatory body. This is why the regulatory body monitors storage inventory levels.
- Reducing price volatility. Gas storage ensures commodity liquidity at the market centers. This helps contain natural gas price volatility and uncertainty.
- Offsetting changes in natural gas demands. Gas storage facilities are gaining more importance due to changes in natural gas demands. First, traditional supplies that once met the winter peak demand are now unable to keep pace. Second, there is a growing summer peak demand on natural gas, due to electric generation via gas fired power plants.
NoDoC considers following Parameters in evaluation of gas storage systems:
- the current price per unit of natural gas.
- the current amount of working gas inventory.
- the control variable that represents the amount of gas currently being released from (c > 0) or
- injected into (c < 0) storage.
- the maximum storage capacity of the facility.
- the maximum deliverability rate, i.e. the maximum rate at which gas can be released from
- storage as a function of inventory levels.
- the maximum injection rate, i.e. the maximum rate at which gas can be injected into
- storage (cmin(I) < 0) as a function of inventory levels.
- the amount of gas that is lost given c units of gas are being released from (c > 0) or injected
- into (c < 0) storage and I units are currently in storage. (When gas is injected into storage fuel
- is needed to power the injection process, gas can also be lost due to reservoir seepage. The rate of seepage depends on inventory levels.)
For this purpose NoDoC basis are described here in below:
The accurate valuation and optimization of a gas storage facility depends greatly on its operating characteristics. Another important consideration is the random nature of natural gas spot prices.
The role of storage facilities in the natural gas market is to balance the seasonal and intra-seasonal demand swings of gas end-users. By purchasing and injecting gas into storage during the non-heating months and releasing gas reserves during the heating months, gas storage facilities help to mitigate seasonal demand and price fluctuations.
With the increase in gas-fired power generation, intra-day gas demand fluctuations caused by daily peak electricity demand will also have to be balanced by HDMC storage units. The market force of gas storage to mitigate demand fluctuations is not perfect, and predictable seasonal price trends can still be observed. Sometimes these market imperfections can lead to dramatically high and low price spikes far outside normal seasonal equilibrium levels. These price spikes are the markets way of signaling a need for more storage capacity investment. Price spikes are therefore crucial to storage valuation and control in that they represent enormous arbitrage opportunities. Making the most of these opportunities increases the value of existing storage units and in the long run contributes to a more efficient market. Gas storage investment and control decisions must be made in the face of uncertainty and the exciting new field of real options theory provides a framework for making such decisions.
The theory of real options is based on the realization that many business decisions have properties similar to those of many derivative contracts used in financial markets. For example, ignoring operating characteristics a natural gas well can be thought of as a series of call options on the price of natural gas, where the strike or exercise price is the total operating and opportunity costs of producing gas.
A gas storage facility (again ignoring operating characteristics) can be thought of as a series of call and put options of different strikes. In markets where there exists a liquid secondary derivatives market, the picture is enhanced even further. Derivative prices can be used to determine the market’s risk preferences and view on the probability distribution of future prices. By operating a gas storage facility in the way that maximizes the expected cash flow with respect to the market’s view of future uncertainties and its risk tolerances for those uncertainties, one can subsequently maximize the market value of the facility itself. The difficulty arises when operating characteristics and extreme price fluctuations are included. The exotic nature of real gas storage facilities and gas prices requires the development of new methodologies both from the theoretical as well as the numerical perspective.
The operating characteristics of a real storage facility pose a theoretical challenge due to the nature of the opportunity cost structure. When gas is released from storage the opportunity to release that gas in the future is forgone. As well, when gas is released the deliverability of the remaining gas in storage is decreased. Similarly when gas is injected into storage both the amount and the rate of future gas injections are decreased. The opportunity costs (and thus the exercise price) varies nonlinearly with the amount of gas in the reservoir.
These facts, coupled with the complicated nature of gas prices have serious implications for
numerical valuation and control. There are three common numerical techniques used in option pricing: Monte-Carlo simulation, binomial/ trinomial trees, and numerical partial differential equation (PDE) techniques. Monte-Carlo simulation is flexible in terms of being able to handle a wide range of underlying uncertainties but it cannot handle problems for which an optimal exercise strategy needs to be determined especially when that strategy may be complicated. Binomial and trinomial trees can handle problems which require an optimal exercise strategy but, not in the case of natural gas storage.
Hyperbolic equations require far more sophisticated techniques than can be achieved with trees. Secondly, tree procedures are local in nature and as such they are limited in the types of underlying stochastic processes they can handle. In particular, trees cannot handle price spikes which are non-local; these are best modeled by Poisson processes. As price spikes are one of the market’s ways of signaling a need for more gas storage investment, models which cannot include such behavior may have a serious flaw.
This leaves but one alternative, numerical PDE solvers, or more precisely (as we shall illustrate) numerical techniques for solving non-linear partial-integro differential equations (PIDEs).
In particular the proposed methodology is designed to accurately incorporate the various operating characteristics of real storage facilities, and is capable of dealing with the complex stochastic nature of natural gas prices. We begin by deriving a class of non-linear PIDEs the solution of which will simultaneously determine the expected cash flow and the optimal operating strategy of a general gas storage facility. We then illustrate the numerical implementation of this general theory with an example of a typical salt cavern facility. To the best of our knowledge nowhere in the academic literature has the problem of natural gas storage optimization been addressed.
Bulk quantities of high-pressure gases and gas mixtures are shipped in tube trailers and stored on storage area. The storage systems typically consist of a number of high-pressure steel pressure vessels that are manifold together. The systems are modular in design and are sized for your use rate. The systems can handle argon, carbon monoxide, compressed air, helium, hydrogen, nitrogen, and oxygen.
Individual pressure vessels measure approximately 22 1/2 feet in length and have a diameter of 24 inches. A permanent manifold connects the vessels selected for the site. The gas discharges to your houseline through a pressure-reducing station that automatically controls the pressure. An independent stanchion is provided for filling the vessels from the high-pressure tube trailer. The vessels are filled by the pressure trans fill equalization method.
Pressure Vessels
Vessels meet the requirements of the ASME UPV Code, Section VIII and Appendix 22. They have a maximum allowable working pressure of 2,450 psig. Each vessel is equipped with an angle-type shutoff valve and a safety burst disc assembly that will rupture at approximately 3,100 psig. The pressure vessel module is a horizontal row of three vessels mounted between two I-beam frames that provide all necessary support and stabilization. Modular assemblies can be built up to meet almost any range of gas storage requirements.
Pressure Reducing Station
The pressure reducing station is mounted in a weatherproof cabinet, which protects the dual-pressure reducing regulators, gauges, optional low-pressure alarm switches, equalizing valves, and safety-relief valves.
Tube Trailer Discharging Stanchion
The L-shaped tube trailer discharging stanchion, fabricated from an aluminum I-beam, supports the flexible pigtail, valves, and piping necessary to discharge product from the tube trailers into the high-pressure storage vessels. This filling apparatus is separated from the control cabinet for safety and convenience.
- Above ground natural gas storage
- Underground gas STORAGE FACILITIES
- Bulk storage
- Evaluation (economy) of gas storage
Also NoDoC have a methods for estimating the cost for storage of the followings:
- Absorbed natural gas,
- Compressed Natural Gas
- Liquefied natural gas
As with all infrastructural investments in the energy sector, developing STORAGE FACILITIES is capital intensive. Investors usually use the return on investment as a financial measure for the viability of such projects.
Ads by CinPlus-2.5c×It has been estimated that investors require a rate or return between 12 percent to 15 percent for regulated projects, and close to 20 percent for unregulated projects. The higher expected return from unregulated projects is due to the higher perceived market risk. In addition significant expenses are accumulated during the planning and location of potential STORAGE SITES to determine its suitability, which further increases the risk.
The capital expenditure to build the facility mostly depends on the physical characteristics of the reservoir. First of all, the development cost of a STORAGE FACILITY largely depends on the type of the storage field. As a general rule of thumb, salt caverns are the most expensive to develop on a Bcf of Working Gas Capacity Basis. However one should keep in mind that because the gas in such facilities can be cycled repeatedly, on a Deliverability basis, they may be less costly.
A Salt Cavern facility might cost anywhere from $10 million to $25 million/Bcf of working gas capacity. The wide price range is because of region difference which dictates the geological requirements. These factors include the amount of compressive horsepower required, the type of surface and the quality of the geologic structure to name a few. A depleted reservoir costs between $5 million to $6 million/Bcf of Working Gas Capacity. Finally another major cost incurred when building new STORAGE FACILITIES is that of base gas. The amount of base gas in a reservoir could be as high as 80% for aquifers making them very unattractive to develop when gas prices are high. On the other hand salt caverns require the least amount of base gas. The high cost of base gas is what drives the expansion of current sites vs. the development of new ones. This is because expansions require little addition to base gas.
The expected cash flows from such projects depend on a number of factors. These include the services the facility provides as well as the regulatory regime under which it operates. Facilities that operate primarily to take advantage of commodity arbitrage opportunities are expected to have different cash flow benefits than ones primarily used to ensure seasonal supply reliability. Rules set by regulators can on one hand restrict the profit made by storage facility owners or on the other hand guarantee profit, depending on the market model.
NoDoC models divides and therefore considers followings as the aim of the gas storage process:
Gas storage is principally used to meet load variations. Gas injected into storage during periods of low demand and withdrawn from storage during periods of peak demand. It is also used for a variety of secondary purposes, including:
- Balancing the flow in pipeline systems. This is performed by mainline transmission pipeline companies to maintain operational integrity of the pipelines, by ensuring that the pipeline pressures are kept within design parameters.
- Maintaining contractual balance. Shippers use stored gas to maintain the volume they deliver to the pipeline system and the volume they withdraw. Without access to such storage facilities, any imbalance situation would result in a hefty penalty.
- Leveling production over periods of fluctuating demand. Producers use storage to store any gas that is not immediately marketable, typically over the summer when demand is low and deliver it when in the winter months when the demand is high.
- Market speculation. Producers and marketers use gas storage as a speculative tool, storing gas when they believe that prices will increase in the future and then selling it when it does reach those levels.
- Insuring against any unforeseen accidents. Gas storage can be used as an insurance that may affect either production or delivery of natural gas. These may include natural factors such as hurricanes, or malfunction of production or distribution systems.
- Meeting regulatory obligations. Gas storage ensures to some extent the reliability of gas supply to the consumer at the lowest cost, as required by the regulatory body. This is why the regulatory body monitors storage inventory levels.
- Reducing price volatility. Gas storage ensures commodity liquidity at the market centers. This helps contain natural gas price volatility and uncertainty.
- Offsetting changes in natural gas demands. Gas storage facilities are gaining more importance due to changes in natural gas demands. First, traditional supplies that once met the winter peak demand are now unable to keep pace. Second, there is a growing summer peak demand on natural gas, due to electric generation via gas fired power plants.
NoDoC considers following Parameters in evaluation of gas storage systems:
- the current price per unit of natural gas.
- the current amount of working gas inventory.
- the control variable that represents the amount of gas currently being released from (c > 0) or
- injected into (c < 0) storage.
- the maximum storage capacity of the facility.
- the maximum deliverability rate, i.e. the maximum rate at which gas can be released from
- storage as a function of inventory levels.
- the maximum injection rate, i.e. the maximum rate at which gas can be injected into
- storage (cmin(I) < 0) as a function of inventory levels.
- the amount of gas that is lost given c units of gas are being released from (c > 0) or injected
- into (c < 0) storage and I units are currently in storage. (When gas is injected into storage fuel
- is needed to power the injection process, gas can also be lost due to reservoir seepage. The rate of seepage depends on inventory levels.)
For this purpose NoDoC basis are described here in below:
The accurate valuation and optimization of a gas storage facility depends greatly on its operating characteristics. Another important consideration is the random nature of natural gas spot prices.
The role of storage facilities in the natural gas market is to balance the seasonal and intra-seasonal demand swings of gas end-users. By purchasing and injecting gas into storage during the non-heating months and releasing gas reserves during the heating months, gas storage facilities help to mitigate seasonal demand and price fluctuations.
With the increase in gas-fired power generation, intra-day gas demand fluctuations caused by daily peak electricity demand will also have to be balanced by HDMC storage units. The market force of gas storage to mitigate demand fluctuations is not perfect, and predictable seasonal price trends can still be observed. Sometimes these market imperfections can lead to dramatically high and low price spikes far outside normal seasonal equilibrium levels. These price spikes are the markets way of signaling a need for more storage capacity investment. Price spikes are therefore crucial to storage valuation and control in that they represent enormous arbitrage opportunities. Making the most of these opportunities increases the value of existing storage units and in the long run contributes to a more efficient market. Gas storage investment and control decisions must be made in the face of uncertainty and the exciting new field of real options theory provides a framework for making such decisions.
The theory of real options is based on the realization that many business decisions have properties similar to those of many derivative contracts used in financial markets. For example, ignoring operating characteristics a natural gas well can be thought of as a series of call options on the price of natural gas, where the strike or exercise price is the total operating and opportunity costs of producing gas.
A gas storage facility (again ignoring operating characteristics) can be thought of as a series of call and put options of different strikes. In markets where there exists a liquid secondary derivatives market, the picture is enhanced even further. Derivative prices can be used to determine the market’s risk preferences and view on the probability distribution of future prices. By operating a gas storage facility in the way that maximizes the expected cash flow with respect to the market’s view of future uncertainties and its risk tolerances for those uncertainties, one can subsequently maximize the market value of the facility itself. The difficulty arises when operating characteristics and extreme price fluctuations are included. The exotic nature of real gas storage facilities and gas prices requires the development of new methodologies both from the theoretical as well as the numerical perspective.
The operating characteristics of a real storage facility pose a theoretical challenge due to the nature of the opportunity cost structure. When gas is released from storage the opportunity to release that gas in the future is forgone. As well, when gas is released the deliverability of the remaining gas in storage is decreased. Similarly when gas is injected into storage both the amount and the rate of future gas injections are decreased. The opportunity costs (and thus the exercise price) varies nonlinearly with the amount of gas in the reservoir.
These facts, coupled with the complicated nature of gas prices have serious implications for
numerical valuation and control. There are three common numerical techniques used in option pricing: Monte-Carlo simulation, binomial/ trinomial trees, and numerical partial differential equation (PDE) techniques. Monte-Carlo simulation is flexible in terms of being able to handle a wide range of underlying uncertainties but it cannot handle problems for which an optimal exercise strategy needs to be determined especially when that strategy may be complicated. Binomial and trinomial trees can handle problems which require an optimal exercise strategy but, not in the case of natural gas storage.
Hyperbolic equations require far more sophisticated techniques than can be achieved with trees. Secondly, tree procedures are local in nature and as such they are limited in the types of underlying stochastic processes they can handle. In particular, trees cannot handle price spikes which are non-local; these are best modeled by Poisson processes. As price spikes are one of the market’s ways of signaling a need for more gas storage investment, models which cannot include such behavior may have a serious flaw.
This leaves but one alternative, numerical PDE solvers, or more precisely (as we shall illustrate) numerical techniques for solving non-linear partial-integro differential equations (PIDEs).
In particular the proposed methodology is designed to accurately incorporate the various operating characteristics of real storage facilities, and is capable of dealing with the complex stochastic nature of natural gas prices. We begin by deriving a class of non-linear PIDEs the solution of which will simultaneously determine the expected cash flow and the optimal operating strategy of a general gas storage facility. We then illustrate the numerical implementation of this general theory with an example of a typical salt cavern facility. To the best of our knowledge nowhere in the academic literature has the problem of natural gas storage optimization been addressed.
Bulk quantities of high-pressure gases and gas mixtures are shipped in tube trailers and stored on storage area. The storage systems typically consist of a number of high-pressure steel pressure vessels that are manifold together. The systems are modular in design and are sized for your use rate. The systems can handle argon, carbon monoxide, compressed air, helium, hydrogen, nitrogen, and oxygen.
Individual pressure vessels measure approximately 22 1/2 feet in length and have a diameter of 24 inches. A permanent manifold connects the vessels selected for the site. The gas discharges to your houseline through a pressure-reducing station that automatically controls the pressure. An independent stanchion is provided for filling the vessels from the high-pressure tube trailer. The vessels are filled by the pressure trans fill equalization method.
Pressure Vessels
Vessels meet the requirements of the ASME UPV Code, Section VIII and Appendix 22. They have a maximum allowable working pressure of 2,450 psig. Each vessel is equipped with an angle-type shutoff valve and a safety burst disc assembly that will rupture at approximately 3,100 psig. The pressure vessel module is a horizontal row of three vessels mounted between two I-beam frames that provide all necessary support and stabilization. Modular assemblies can be built up to meet almost any range of gas storage requirements.
Pressure Reducing Station
The pressure reducing station is mounted in a weatherproof cabinet, which protects the dual-pressure reducing regulators, gauges, optional low-pressure alarm switches, equalizing valves, and safety-relief valves.
Tube Trailer Discharging Stanchion
The L-shaped tube trailer discharging stanchion, fabricated from an aluminum I-beam, supports the flexible pigtail, valves, and piping necessary to discharge product from the tube trailers into the high-pressure storage vessels. This filling apparatus is separated from the control cabinet for safety and convenience.
