Gas Storage
Figure 1: Typical Summer/Winter & Weekly Pattern NBP
during the summer and depleted during
the winter (the heating season in Europe).
These reservoirs are large and have low
extraction and injection rates. Depleted
gas reservoirs are the most common type
of baseload storage facility.
Peakload storage facilities are designed
to have high output for short periods of
time, meaning natural gas can be
withdrawn from and injected to storage
quickly. Peakload facilities are intended to
meet sudden, short-term demand
increases. Peakload facilities can have
turnover rates which are intraday, a few
days or weeks. Salt caverns are the most
Source: Viz Risk Management
common type of peakload storage facility.
typically high in the short-term, spot market and low in the
Overview of Gas Storage Types: long-term, forward market.
•
Depleted gas reservoir – cheap, large, low cycle. Operationalflexibilityisallwellandgood,butalsobringsthe
•
Aquifer – Expensive, medium size, medium cycle. challenge of making optimal decisions. As a storage facility can
•
Salt caverns – expensive, small, high cycle. only produce today what has been injected earlier, it is
•
LNG storage facilities – expensive, small, very high important to make optimal decisions over the short as well as
withdrawal rates. longer-term. In other words, each of the possible decisions: to
inject,toextractortostore(donothing)hasanopportunitycost.
The intrinsic value of the gas storage facility is driven by The optimisation problem that needs to be solved has four
seasonal price differences which are visible in the forward areas of consideration:
market. These usually consist of annual and weekly seasonal
•
Seasonal price differences.
patterns and could also include intraday patterns. Gas is
•
Operational characteristics or limitations of the storage.
usually more expensive in the winter than in the summer and
•
Non parallel price movements other than seasonal.
costs more during the week than at weekends.
•
Opportunity cost of decisions.
The operational characteristics of the gas storage determine
how much of these seasonal variations in price can be Performance of Different Optimisation Methods
captured. These are: Inordertoassesstheeffectivenessofdifferentsolutionstothe
•
Volume. optimisation problem we have back-tested models using
•
Cycling rate. historic NBP data and a typical seasonal storage facility with
•
Injection rate (volume dependent). corresponding operational characteristics (see Bjerksund,
•
Depletion rate (also volume dependent). Stensland and Vagstad, 2008 – see end for details). The value
•
Regulatory restrictions. of the model is compared with the total value of the
•
Cost of injection and extraction (pressure dependent). retrospective ideal operation of the storage which constitutes
the maximum value.
In addition, to the extent that seasonal price differences can A simple intrinsic model, which is designed to lock-in the
be captured, the operational characteristics also determine the seasonal price difference, is able to capture between 24% and
extent to which they can react to sudden price movements. 37% of the maximum storage value. Such a model determines
This is often referred to as extrinsic value, which is derived from an initial optimal operation plan based on a forward curve
highly volatile and unpredictable gas prices. As in most and the relevant operational characteristics. Increasing the
commodity markets, the volatility term structure for gas granularity of the forward curve from monthly to daily
displays a typical down sloping curve as a decreasing function granularity to capture weekly price patterns can add 5% to
of time to delivery. This means that instantaneous volatility is 10% to the value of the storage.
worldPower 2009 61
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