PORTFOLIO OPTIMISATION
Markets
PRICE FORECASTS FORWARD CURVES VOLATILITIES COSTS & TARIFFS
Asset Characteristics COMMODITY IN
Includes term purchases, asset production forecasts, physical exchange receipts, possible maket trades, etc.
COMMODITY OUT
Includes term sales, customer or demand forecasts, physical exchange deliveries, possible maket trades, etc.
TRANSPORT
Pipeline, ships, vessels, barges, rail, truck, etc.
STORAGE Storage, terminals, etc. PROCESSING
Blending, re‐grading, quality conversion, fractionation, etc.
PLANTS
Power plants, refineries, fractionators, VPP’s, etc.
A key benefit of advanced physical portfolio optimisation is
that it improves the management of the overall business at the lowest level of granularity
Beginning Position Source: Sapient Global Markets
become inputs into the next iteration of optimisation for the next period. The expected portfolio continuously evolves with market conditions and target transactions that get executed. A key benefit of advanced physical optimisation
portfolio is that it
improves the management of the overall business at the lowest level of granularity. This is done in an integrated way across lines of business through transparency in the key day- to-day decisions, such as whether to buy or produce for demand, store or sell for supply or transport or exchange for movements. The decision makers have all the contract and asset information at hand, and are able to explicitly view the potential options for execution across all business divisions, including the potential financial and risk impacts of the decision before it is made. Additionally, transparency helps with the development of the optimal baseline movement plans, re-routes in case of extreme weather, etc. An additional benefit of this approach is that a large part of the organization’s
46 March 2013
contract usage and operating knowledge-base is transparently captured in information systems, improving knowledge retention and simplifying the ramp up of new users. An advanced physical portfolio optimisation approach can
be leveraged to shape the future of the asset and contract portfolio, enable the creation of what-if contracts and markets, etc. and evaluate how these impact the portfolio in terms of value and risk. This makes portfolio and asset extension or rationalization decisions easier to understand and make. In the same way, advanced physical portfolio optimisation can be used to understand the sensitivity and risk around the markets by varying the prices or varying the supply and demand. This can demonstrate to such groups as management, treasury, the board or ratings agencies how the organization is managing assets and contracts effectively, thereby increasing confidence in the business and potentially reducing the cost of capital. Companies that have undertaken this kind of systematic optimisation have realized a 5-10% increase in margin across the board and, in some instances, there have been substantially higher breakthrough increases through restructuring of assets in a subset of areas based on the optimisation insights.
Example Consider a hypothetical natural gas Gulf Coast portfolio to demonstrate how the optimisation concepts will be put into use. The sample portfolio (Figure 3) consists of production assets
in northeast Texas and offshore production assets in the Gulf of Mexico, storage assets near Henry Hub and in Texas, multiple term purchase and sales contracts at different locations in Texas and
TARGET TRANSACTIONS: Market optimization formulates optimal shape of transactions based on target portfolio and beginning positions
EXECUTED TRANSACTIONS: Actions taken to move towards target portfolio. Exogenous (market based) and endogenous (unplanned outage) constraints and factors cause differences from target transactions
Optimization User Actions
Figure 2: Advanced Physical Portfolio Optimisation Provides Recommended Transactions to Maximize Profit within Asset and Contractual Constraints
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70 |
Page 71 |
Page 72 |
Page 73 |
Page 74 |
Page 75 |
Page 76 |
Page 77 |
Page 78 |
Page 79 |
Page 80 |
Page 81 |
Page 82 |
Page 83 |
Page 84