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In this thesis, one methodology for natural gas storage valuation is developed and two methodologies are improved. Then all of the three methodologies are applied to a storage contract. The first methodology is called "intrinsic rolling with spot and forward", which takes both the spot and forward prices into account in the valuation. This method is based on the trading strategy by which a trader locks the spot and forward positions by solving an optimization problem based on the market information on the first day. In the following days, the trader can obtain added value by adjusting the positions based on new market information. The storage value is the sum of the first day's value and the added values in the following days. The problem can be expressed by a Bellman equation and solved recursively. A crucial issue in the implementation is how to compute the expected value in the next period conditioned on the information in current period. One way to compute the expected value is Monte Carlo simulation with ordinary least square regression. However, if all of the state variables, spot, and forward prices are incorporated in the regression there are too many terms, and the regression becomes uncontrollable. To solve this issue, three risk factors are chosen by performing principle component analysis. Dimension of the regression is greatly reduced by only incorporating the three risk factors. Both the second methodology and the third methodology only consider the spot price in the valuation. The second methodology uses Monte Carlo simulation with ordinary least square regression, which is based on the work of Boogert and Jong (2006). The third methodology uses stochastic dual dynamic programming, which is based on the work of Bringedal (2003). However, both methodologies are improved to incorporate bid and ask prices. Price models are crucial for the valuation. Forward prices of each month are assumed to follow geometric Brownian motions. Future spot price is also assumed to follow a geometric Brownian motion but for a specific month its expectation is set to the corresponding forward price on the valuation date. Since the simulation of spot and forward prices is separated from the storage optimization, alternative spot and forward models can be used when necessary. The results show that the value of the storage contract estimated by the first methodology is close to the market value and the value estimated by the Financial Engineering Associates (FEA) provided function. A much higher value is obtained when only spot price is considered, since the high volatility of the spot curve makes frequent position change profitable. However in the reality traders adjust their positions less frequently.

Real options have been widely applied to analyze investment planning and asset valuation under uncertainty in many industries, especially energy markets. Because of their close analogy to financial options, real options can be valued using the classical financial option pricing theories and their extensions. However, as real options valuation often involves complex payoff structures and operational constraints of the underlying real assets or projects, accurate and flexible methods for solving the valuation problem are essential. This thesis investigates three different approaches to real options valuation and contributes to aspects of modeling realism and computational efficiency. The contributions are illustrated through two important applications of real options in energy markets: natural gas storage and power plant valuation. Because spread options are commonly used in basic real options valuation techniques, the first part of the thesis addresses the problems of spread option pricing and hedging. We develop a new closed-form approximation method for pricing two-asset spread options. Numerical analysis shows that our method is more accurate than existing analytical approximations. Our method is also extremely fast, with computing time more than two orders of magnitude shorter than one-dimensional numerical integration. Closed-form approximations for the Greeks of spread options are also developed. In addition, we analyze the price sensitivities of spread options and provide lower and upper bounds for digital spread options. We then further generalize the above results to multi-asset spread options on an arbitrary number of assets. We provide two new closed-form approximation methods for pricing spread options on a basket of risky assets: the extended Kirk approximation and the second-order boundary approximation. Numerical analysis shows that both methods are extremely fast and accurate, with the latter method more accurate than the former. Closed-form approximations for important Greeks are also derived. Because our approximation methods enable the accurate pricing of a bulk volume of spread options on two or more assets in real time, it offers traders a potential edge in a dynamic market environment. In the third part of this thesis, we propose a market-based valuation framework for valuing natural gas storage facility with realistic operational characteristics. The operational process is modeled as a multi-stage stochastic optimization problem. We develop a Gaussian quadrature scheme to solve for the dynamically optimal spot trading strategy and show that the computational efficiency of this method exceeds existing approaches in about two orders of magnitude. Furthermore, with this flexible quadrature scheme, we propose to value a gas storage based on a novel hybrid trading strategy that successfully incorporates both spot and forward trading, thus improving the storage valuation significantly by accounting for both the inter-month and intra-month operational flexibilities and price volatility. In the fourth part of this work, we develop a continuous-time formulation for power plant valuation in infinite time horizon. We propose a real-option-based model for a power plant to account for the embedded operational flexibility. This model incorporates start-up and shut-down costs as two major operational constraints. Under this continuous valuation model, spark spread is modeled directly as a continuous stochastic process to take account of the long term co-integration relationship between electricity and fuel prices. Instead of discretizing the stochastic process, we preserve continuity of the stochastic spark spread process and work directly with the value function. Closed-form of value function under threshold policy is obtained. The corresponding optimal operational strategy can then be solved. The advantage of this approach is that it reduces computational complexity while incorporates major operation characteristics. It enables fast computation of a power plant value that approximates the real market value and sensitivity analysis of the asset value with respect to the cost parameters of a power plant and the distribution parameters of spark spread.

Orientadores: Antonio Carlos Luz Lisbôa, Aparecido dos Reis Coutinho / Tese (doutorado) - Universidade Estadual de Campinas, Faculdade de Engenharia Química / Made available in DSpace on 2018-08-25T22:28:23Z (GMT). No. of bitstreams: 1 Mendez_ManoelOrlandoAlvarez_D.pdf: 8886603 bytes, checksum: 23381b4592620a30fa07c0e7366d50c1 (MD5) Previous issue date: 2014 / Resumo: Gás natural (GN) é uma fonte de energia de origem fóssil, encontrado em formações rochosas subterrâneas ou associados em reservatórios de petróleo. O consumo anual de gás natural no Brasil em 2013 foi de 36,8 bilhões de metros cúbicos, equivalente a 1,1% do consumo mundial de 3,35 trilhões de metros cúbicos. Segundo o Ministério de Minas e Energia do Brasil, em 2013 o GN apresentou aproximadamente 12% da oferta interna de energia, com aumento em torno de 16% de 2012 para 2013. Porém o aumento nesta oferta enfrenta problemas devido aos elevados custos de transporte e armazenamento do GN, devido sua baixa densidade energética em condições de temperatura e pressão padrão, quando comparado com combustíveis líquidos derivados do petróleo. Os dois métodos convencionais de armazenamento e transporte de GN é a liquefação (GN Liquefeito ¿ GNL) e compressão (GN Comprimido ¿ GNC). O GN Adsorvido (GNA) é uma alternativa promissora aos métodos convencionais, pois em pressões moderadas, em torno de 4,0 MPa, um tanque com adsorvente possui capacidade de armazenamento superior a de um tanque vazio, devido à adsorção do gás natural nos microporos no adsorvente, que permite utilização de reservatórios mais leves e seguros. No presente trabalho foi realizado a produção de carvões ativados (CA) à partir de resíduos ou subprodutos de baixo valor agregado de setores industriais, com objetivo de avaliar a aplicabilidade destes CA em sistemas GNA, e de avaliar a influência de suas características na transferência de calor do leito adorvente. Coque de petróleo e biomassa foram ativadas física e/ou quimicamente, resultando em materiais adsorvente. Estes materiais foram caracterizados por meio de adsorção de nitrogênio gasoso a 77 K para identificar quais materiais e condições de produção são mais adequadas para o uso em sistemas GNA. Medidas de armazenamento de metano foram realizadas para avaliar a capacidade dos CA em função da pressão e temperatura. Os resultados de armazenamento foram analisados por meio de relações viriais, modelo de adsorção de Toth, potencial de adsorção e modelo de Dubinin-Stoeckli, permitindo obter parâmetros de adsorção, tais como, distribuição de poros e energias de adsorção. Modelo de transferência de calor em leito de armazenamento de gás natural foi desenvolvido considerando simultaneamente a transferência de calor e equilíbrio de adsorção. A resolução deste modelo permitiu avaliar parâmetros relativos aos efeitos da evolução térmica do leito e como esta afeta a operação de armazenamento. Perfis de temperatura no interior do leito de armazenamento em função da posição radial e tempo de armazenamento foram obtidos considerando diferentes cenários de troca térmica pela parede do tanque / Abstract: Natural gas (NG) is a energy source found in underground rock formations or associated with petroleum reservoirs. Brazil's annual natural gas consumption in 2013 was 36.8 billion cubic meters, equivalent to 1.1% of world consumption of 3.35 trillion cubic meters. According to the Ministry of Mines and Energy of Brazil, in 2013 the NG was approximately 12% of the domestic energy supply, an increase of around 16% from 2012 to 2013. However this offer is facing increasing problems due to high cost of transportation and storage, and because of its low energy density in standard conditions of temperature and pressure when compared to petroleum-derived liquid fuels. The two conventional methods of storage and transportation of natural gas is the liquefied natural gas (LNG) and compressed natural gas (CNG). The Adsorbed NG (ANG) is a promising alternative to conventional methods because at moderate pressures around 4.0 MPa, the adsorbent has a higher storage capacity than an empty storage tank, due to the adsorption of natural gas in the micropores of the adsorbent, which allows the use of lighter and safer tanks. In the present work production of activated carbon (AC) was made from waste or by-products of low cost from industries, in order to evaluate the applicability of these AC in ANG systems, and to evaluate the influence of their characteristics on the heat transfer of the asdorbent bed. Petroleum coke and biomass were activated physically and/or chemically. These materials were characterized by nitrogen gas adsorption at 77 K in order to identify wich materials and wich production conditions are better suited for use in ANG systems. Measurements of methane storage were carried out to evaluate the methane adsorption capacity of the AC as a function of pressure and temperature. The methane storage results were analyzed by adsorption virial relations, Toth adsorption model, potential adsorption model and Dubinin-Stoeckli model, allowing to obtain adsorption parameters such as pore distribution and adsorption energies. A heat transfer model in the adsorbent bed was developed considering heat transfer and adsorption equilibrium. The data obtained ny this model allow evaluate parameters related to the termal effects of the adsorbent bed and how this parameters affects the storage operation. Temperature profiles within the bed storage as function of the radial position and time of storage were obtained considering different scenarios by heat exchange through tank wall / Doutorado / Engenharia de Processos / Doutor em Engenharia Química

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Improving methods of hydrocarbon production and developing new techniques for the creation of natural gas storage facilities are critically important for the petroleum industry. This dissertation focuses on two key topics: (1) mechanisms of sand production from petroleum reservoirs and (2) mechanical characterization of caverns created in carbonate rock formations for natural gas storage. Sand production is the migration of solid particles together with the hydrocarbons when extracted from petroleum reservoirs. It usually occurs from wells in sandstone formations that fail in response to stress changes caused by hydrocarbon withdrawal. Sand production is generally undesirable since it causes a variety of problems ranging from significant safety risks during high-rate gas production, to the erosion of downhole equipment and surface facilities. It is widely accepted that a better understanding of the mechanics of poorly-consolidated formations is required to manage sand production; which, in turn, enables the cost effective production of gas and oil resources. In this work, a series of large-scale laboratory experiments was conducted in fully saturated, cohesionless sand layers to model the behavior of a petroleum reservoir near a wellbore. We directly observed several key characteristics of the sand production phenomenon including the formations of a stable cavity around the wellbore and a sub-radial flow channel at the upper surface of the tested layer. The flow channel is a first-order feature that appears to be a major part of the sand production mechanism. The channel cross section is orders of magnitude larger than the particle size, and once formed, the channel becomes the dominant conduit for fluid flow and particle transport. The flow channel developed in all of our experiments, and in all experiments, sand production continued from the developing channel after the cavity around the borehole stabilized. Our laboratory results constitute a well constrained data set that can be used to test and calibrate numerical models employed by the petroleum industry for predicting the sand production phenomenon. Although important for practical applications, real field cases are typically much less constrained. We used scaling considerations to develop a simple analytical model, constrained by our experimental results. We also simulated the behavior of a sand layer around a wellbore using two- and three-dimensional discrete element methods. It appears that the main sand production features observed in the laboratory experiments, can indeed be reproduced by means of discrete element modeling. Numerical results indicate that the cavity surface of repose is a key factor in the sand production mechanism. In particular, the sand particles on this surface are not significantly constrained. This lack of confinement reduces the flow velocity required to remove a particle, by many orders of magnitude. Also, the mechanism of channel development in the upper fraction of the sample can be attributed to subsidence of the formation due to lateral extension when an unconstrained cavity slope appears near the wellbore. This is substantiated by the erosion process and continued production of particles from the flow channel. The notion of the existence of this surface channel has the potential to scale up to natural reservoirs and can give insights into real-world sand production issues. It indicates a mechanism explaining why the production of particles does not cease in many petroleum reservoirs. Although the radial character of the fluid flow eventually stops sand production from the cavity near the wellbore, the production of particles still may continue from the propagating surface (interface) flow channel. The second topic of the thesis addresses factors affecting the geometry and, hence, the mechanical stability of caverns excavated in carbonate rock formations for natural gas storage. Storage facilities are required to store gas when supply exceeds demand during the winter months. In many places (such as New England or the Great Lakes region) where no salt domes are available to create gas storage caverns, it is possible to create cavities in limestone employing the acid injection method. In this method, carbonate rock is dissolved, while CO₂ and calcium chloride brine appear as products of the carbonate dissolution reactions. Driven by the density difference, CO₂ rises towards the ceiling whereas the brine sinks to the bottom of the cavern. A zone of mixed CO₂ , acid, and brine forms near the source of acid injection, whereas the brine sinks to the bottom of the cavern. Characterization of the cavern shape is required to understand stress changes during the cavity excavation, which can destabilize the cavern. It is also important to determine the location of the mixture-brine interface to select the place of acid injection. In this work, we propose to characterize the geometry of the cavern and the location of the mixture-brine interface by generating pressure waves in a pipe extending into the cavern, and measuring the reflected waves at various locations in another adjacent pipe. Conventional governing equations describe fluid transients in pipes loaded only by internal pressure (such as in the water hammer effect). To model the pressure wave propagation for realistic geometries, we derived new governing equations for pressure transients in pipes subjected to changes in both internal and external (confining) pressures. This is important because the internal pressure (used in the measurement) is changing in response to the perturbation of the external pressure when the pipe is contained in the cavern filled with fluids. If the pressure in the cavern is perturbed, the perturbation creates an internal pressure wave in the submerged pipe that has a signature of the cavern geometry. We showed that the classic equations are included in our formulation as a particular case, but they have limited validity for some practically important combinations of the controlling parameters. We linearized the governing equations and formulated appropriate boundary and initial conditions. Using a finite element method, we solved the obtained boundary value problem for a system of pipes and a cavern filled with various characteristic fluids such as aqueous acid, calcium chloride brine, and supercritical CO₂ . We found that the pressure waves of moderate amplitudes would create measurable pressure pulses in the submerged pipe. Furthermore, we determined the wavelengths required for resolving the cavern diameter from the pressure history. Our results suggest that the pressure transients technique can indeed be used for characterizing the geometry of gas storage caverns and locations of fluid interfaces in the acid injection method.

Even though the theory of storage is historically a popular view to explain commodity futures prices, many authors focus on the oil price link. Past studies have shown an increased futures price volatility on Mondays and days when natural gas storage levels are released, which could both implicate that storage levels and temperature data are incorporated in the prices. In this thesis, the U.S. natural gas storage level change is studied as a function of the consumption and production. Consumption and production are furthered segmented and separately forecasted by modelling inverse problems that are solved by least squares regression using temperature data and timeseries analysis. The results indicate that each consumer consumption segment is highly dependent of the temperature with R2-values of above 90%. However, modelling each segment completely by time-series analysis proved to be more efficient due to lack of flexibility in the polynomials, lack of used weather stations and seasonal patterns in addition to the temperatures. Although the forecasting models could not beat analysts’ consensus estimates, these present natural gas storage level drivers and can thus be used to incorporate temperature forecasts when estimating futures prices.

Thesis (MScEng)--Stellenbosch University, 2014. / ENGLISH ABSTRACT: South Africa presently faces a serious and much-acknowledged energy capacity deficit. The Department of Energy are determined to address this capacity crisis by creating several new power plants between 2010 and 2030, as stipulated in the “Integrated Resource Plan 2010”. A Combined Cycle Gas Turbine (CCGT) power plant is proposed to add 2370 MW of capacity to the national grid. The “new-build” CCGT plant will use natural gas as a feedstock for energy generation. The plant is destined to begin energy generation by 2019, and will ramp up to full capacity by 2030. Following a review of the existing natural gas sources and the nascent gas network in South Africa, Liquefied Natural Gas (LNG) has been identified as the most suitable immediate source of natural gas feedstock for the CCGT. LNG fuel must be imported into South Africa aboard large, special purpose LNG Carrier (LNGC) vessels. LNGC vessels require a designated marine import terminal in order to offload the super-cooled and potentially flammable cargo. Saldanha Bay, located on the South West coast of South Africa, has been selected by Transnet as a preferred location for LNG terminal development. A review of LNG technology reveals the need for mandatory onshore LNG storage and regasification facilities, land area requirements, demands of different LNGC types and the characteristics of dedicated LNG jetties and terminals. Floating, offshore and traditional LNG terminals are discussed. The objective of this thesis is to review potential terminal sites and conceptual layouts in Saldanha Bay, and via a Multi Criteria Analysis, to present three distinct LNG terminal layout options for further consideration. The conceptual layouts will address technical concerns such as berth orientation and layout, safe navigational access to the terminal, mandatory onshore infrastructure and optimisation of berth operations. Saldanha Bay as a port location is studied and the importance of local environmental features is highlighted. Potential terminal development sites are identified following a review of nautical and terrestrial restrictions. Four conceptual site layouts are proposed, providing jetty locations and orientations in the Bay. The sites are located in North Bay, Hoedjiespunt, and two in Big Bay. Several Key Design Parameters (KDP’s) are identified as having a critical bearing on the ultimate layout, operation and feasibility of an LNG terminal in Saldanha Bay. The sensitivity and influence of the KDP’s at each of the four conceptual sites is investigated. Analysis of KDP effects leads to the development of design variation options at the sites. Twelve terminal layout schemes are ultimately derived. A Multi Criteria Analysis (MCA) is performed to rank the 12 terminal layout schemes in terms of technical efficacy. A sensitivity study is conducted to justify the selection of MCA parameter weights. The three top-scoring schemes are recommended for more detailed pre-feasibility investigation. The three terminal layout schemes, located in Big Bay and Hoedjiespunt, make use of both standard trestle jetties and floating LNG technologies. The thesis has shown that a number of viable sites and layouts for LNG terminals exist in Saldanha Bay and demonstrates a systematic analysis of design issues leading to preferred options. The thesis concludes by outlining the next steps in the process towards a final terminal scheme selection. / AFRIKAANSE OPSOMMING: Suid-Afrika ervaar huidig ‘n drastiese energie kapasiteit verlies. Die Departement van Energie is vasbeslote om die energie krisis aan te spreek deur verskeie nuwe kragstasies tussen 2010 en 2030 op te rig, soos beskryf in die “Integrated Resource Plan 2010”. ‘n Gekombineerde Siklus Gas Turbine (GSGT) kragstasie is voorgestel om ‘n verdere 2370 MW by te voeg tot die nasionale krag netwerk. Die “nuut-geboude” GSGT kragstasie sal natuurlike gas as brandstof vir kragopwekking gebruik. Die kragstasie is beplan om teen 2019 krag op te wek, en sal teen 2030 volle kapasiteit loop. Na ‘n ondersoek van die bestaande natuurlike gas bronne en gas netwerke in Suid Afrika, is Vloeibare Natuurlike Gas (VNG) geïdentifiseer as die huidiglike beskikbare bron van brandstof vir die GSGT. VNG moet ingevoer word aanboord spesiaal geboude VNG vaartuie. VNG vaartuie benodig ‘n spesifieke mariene invoer terminaal om die vlambare vloeistof mee af te laai. Saldanhabaai, aan die Suid-Westerlike kus van Suid Afrika, is as verkose area vir die VNG terminaal ontwikkeling geïdentifiseer deur Transnet. ‘n Oorsig van VNG tegnologie bevind dat VNG stoorplek en vergassings fasiliteite, land area, verskeie VNG vaartuie en karakteristieke van VNG terminale benodig word. Verskeie VNG terminale word bespreek in hierdie studie. The doel van hierdie tesis is om die potensiële terminaal bou-terrein en konseptuele ontwerpe in Saldanhabaai, deur middel van ‘n multi-kriteria analise (MKA), in drie verskillende ontwerp moontlikhede voor te stel. Saldanhabaai, as hawe, is bestudeer en belangrike omgewings aspekte is geïdentifiseer. Potensiële terminaal bou-terrein is geïdentifiseer na aanleiding van seevaart en land beperkings. Vier konseptuele bou-terreine is voorgestel wat jetty posisies en orientasies aandui. Die bou-terreine is in Noordbaai, Hoedjiespunt, en twee in Big Bay. Verskeie Sleutel Ontwerp Parameters (SOP’s), wat ‘n kritieke rol speel in die uiteindelike orientasie, werking en effektiwiteit van die VNG terminaal in Saldanhabaai, is geïdentifiseer. Die sensitiwiteit van die SOP’s by elk van die vier voorgestelde moontlikhede, is ondersoek. ‘n Ontleding van die effek van die SOP’s het variasie in die ontwerp moontlikhede by die verskillende bouterrein tot gevolg. Twaalf terminaal orientasie skemas is voorgestel. ‘n MKA is uitgevoer om ‘n ranglys van opsies te produseer in terme van tegniese effektiwiteit. Dit is voorgestel dat die top drie opsies verder ondersoek moet word. Die drie terminaal orientasie skemas, wat voorgestel word vir die Big Bay en Hoedjiespunt areas, maak gebruik van standaard jetties en drywende VNG tegnologie. Hierdie tesis bevind dat ‘n aantal uitvoerbare bouterreine en orientasies in Saldanhabaai moontlik is. ‘n Sistematiese analise van ontwerps kwessies wat na verkose opsies lei, word ook in die tesis ge-adresser. Die voorgestelde stappe in die besluitneming van ‘n finale terminaal skema vorm die slot van die tesis.