1. GAS STORAGE
OPTIMIZATION
JULY 4, 2014
EKA SOFTWARE SOLUTIONS

2. 1
Eka Software Solutions – Gas Storage Optimization – A Smart Commodity Management Platform
Table of Contents
Business Case............................................................................................................................... 2
Storage facility......................................................................................................................... 2
Storage Contract..................................................................................................................... 2
Problem Statement..................................................................................................................... 3
Objective Function.................................................................................................................. 3
Decision Variables................................................................................................................... 3
Business Constraints ............................................................................................................... 3
Model Inputs............................................................................................................................... 4
Storage Contract..................................................................................................................... 4
Storage Facility....................................................................................................................... 4
Inventory Snapshot................................................................................................................. 4
Spot Prices.............................................................................................................................. 4
Forward Prices........................................................................................................................ 4
Model Outputs............................................................................................................................ 5
Assumptions ............................................................................................................................... 6
Out of Scope ............................................................................................................................... 6
Sampled Input Data:....................................................................... Error! Bookmark not defined.
Miscellaneous documents:............................................................... Error! Bookmark not defined.
Documents referred:....................................................................... Error! Bookmark not defined.
Email Communication and MoM: .................................................. Error! Bookmark not defined.
References:..................................................................................................................................6

3. 2
Eka Software Solutions – Gas Storage Optimization – A Smart Commodity Management Platform
Business Case
It has been observed and widely accepted that demand of natural gas follows seasonal pattern
with peak in winter and trough in summer. Production rate of natural gas is almost constant
and generally not agile enough to meet peak demand in winter. It is a known business practice
that gas is stored at storage facility to meet the demand in winter.
It has been observed in research literature that price of natural gas follows seasonal pattern with
peak in winter and trough in summer. A trade exploits the price differential using spot price
and forward market price information. The storage facility operator’s (owner or lessee)
objective is to inject gas into storage facility at low price and withdraw gas from storage facility
at high price, and benefit from price differential.
Storage facility
A storage facility has limited and known storage capacity. It requires threshold gas level to
maintain pressure required. Quantity of gas that can be stored in a storage facility is constrained
on both sides – minimum quantity to maintain the pressure and maximum quantity is limited
by storage capacity agreed for the use. Storage facility has a limitation on injection rate and
withdrawal rate. Generally, achievable injection/withdrawal rate is a function of available gas
in the storage facility. Operation of injecting gas into facility or withdrawing gas from facility
causes partial loss of gas.
Storage Contract
A storage contract between two parties is valid for a limited duration, generally for one year.
A storage contract has following attributes:
 Contract start date
 Contract end date
 Rented storage capacity (this will be referred as storage capacity in this document and
future discussions)
 Lowest gas level to be maintained in storage facility
 Available inventory at the start of contract
 Required inventory to be maintained at the end of contract.
 Cost of injection and withdrawal per unit

4. 3
Eka Software Solutions – Gas Storage Optimization – A Smart Commodity Management Platform
Problem Statement
Determine the optimal schedule of injection and withdrawal of natural gas during the storage
contract so that profit is maximized. The injection and withdrawal schedule depends on spot
price, future prices of upcoming months in contract, fuel loss during injection and withdrawal,
and operational constraints. Spot and future prices are of the location pricing group linked with
the contract. The injection and withdraw schedule should consist of injection and withdrawal
amount for remaining days of spot month (if user has selected this option), and upcoming
months in contract.
Note - Schedule is defined in model output tables below.
Objective Function
To determine an injection and withdrawal schedule that maximizes total profit from
storage contract by exploiting market price fluctuations while considering operational
and contractual constraints.
Decision Variables
 Whether to inject or withdraw or to do nothing in a decision horizon, and
 Quantity of injection and withdrawal.
Business Constraints
 Quantity of gas stored in storage facility should not exceed rented storage
capacity in a decision horizon.
 Quantity of gas left in storage should not be below threshold gas level in a
decision horizon.
 Injection rate cannot be higher than the maximum achievable injection rate in
a decision horizon.
 Withdrawal rate cannot be higher than the maximum achievable withdrawal
rate in a decision horizon.
 Injection and withdrawal should be such that storage facility has the agreed
level of gas (and pressure) at the end of contract. Generally, Contractual
agreement is such that it is required to bring the storage facility (at the end of
contract) to the level where it was at the start of contract.
 One cannot withdraw more than available gas subtracted by minimum
required gas in a decision horizon.
 User specifies certain months when injection or withdrawal can and cannot be
conducted.

5. 4
Eka Software Solutions – Gas Storage Optimization – A Smart Commodity Management Platform
ModelInputs
Storage Contract
 Storage contract start date
 Storage contract end date
 Rented storage capacity
 Injection cost per unit
 Withdrawal cost per unit
 Available inventory at contract start date
 Required inventory at contract end date
 Any additional cost as mentioned in the contract
 Delivery terms– Frequency of delivery
Storage Facility
 Storage location
 Available storage capacity for use
 Gas type/grade (if applicable)
 Threshold gas level to maintain minimum required pressure
 Highest injection rate
 Highest withdrawal rate
 Fuel loss during injection
 Fuel loss during withdrawal
Inventory Snapshot
 Observation/current date
 Inventory Quantity
Spot Prices
 Observation/current date (when model is run)
 location pricing group
 Price
 Publication/settlement schedule
Forward Prices
 Observation/current date (when model is run)
 location pricing group
 Remaining month
 Price
 Publication/settlement schedule
User-Defined Configuration
 User specified months where he intends to only inject or only withdrawal

6. 5
Eka Software Solutions – Gas Storage Optimization – A Smart Commodity Management Platform
ModelOutputs
 Decision Horizon – Daily for the leftover days in month (Current time)
 Injection quantity in that decision horizon
 Withdrawal quantity in that decision horizon
 Available Inventory at the end of decision horizon
 Decision Horizon – Remaining month (Current time)
 Injection quantity in that decision horizon
 Withdrawal quantity in that decision horizon
 Available Inventory at the end of decision horizon
NOTE: Above mentioned input and output variables are basic necessities for modelling storage
optimization problem (Do we need to include additional variables in input/output?). This is not
an exhaustive list of variables that will be required for traceability or reports.

7. 6
Eka Software Solutions – Gas Storage Optimization – A Smart Commodity Management Platform
Assumptions
 Supply/demand of gas for injection/withdrawal is instantaneous.
 Injection/withdrawal rate is independent of available inventory.
Out of Scope
 Not concerned with buy/sell decisions. It is primarily (or only) concerned with
inject/withdrawal decision.
 Derivative contracts or hedging are out of scope.
 Discounting on the future prices is out of scope.
 Demand/supply constraint are out of scope.
References:
• Alan Holland, Optimization of Injection/Withdrawal Schedules for Natural Gas
Storage Facilities
• Nicola Secomandi, Optimal Commodity Trading with a Capacitated Storage Asset
• Patrick Henaff, Ismail Laachir, Francesco Russom, Gas storage valuation and hedging
: A quantification of the model risk
• Hicham Zmarrou, Natural gas storage valuation reviewed
• Yun Li, Natural Gas Storage Valuation
• Christopher Athaide, A Primer on Natural Gas Storage Valuation
• Alexander Boogert, Cyriel de Jong, Gas Storage Valuation Using a Monte Carlo
Method
• John Breslin, Les Clewlow, Tobias Albert, Calvin Kwok, Chris Strickland, Daniel Van
Der Zee, Gas Storage : Rolling Intrinsic Evaluation