Theory for optimizing capacitated commodity storage with case studies in natural gas

Cliff Parsons

Journal of Energy Markets

Abstract: We develop theoretical concepts of optimal injecting and withdrawing for a capacitated commodity storage and give case studies in natural gas. We start with the concept of spot price thresholds, which represent the expected value of future opportunities forgone or created by currently injecting or withdrawing any commodity. Comparison of the spot price with the spot price thresholds dictates when current trading is optimal. Under certain conditions these thresholds decrease monotonically in inventory level, and thus they relate to and extend previous work under a similar setup to ours. That work proves the existence of two critical inventory levels such that injecting, withdrawing or doing nothing, respectively, is optimal for current inventories less than, greater than or between those levels, all else being equal. We find that the current spot price in relation to the thresholds both causes these results and can be used to calculate the critical inventory levels. Also, the gap between the two critical inventory levels is driven mainly by transaction costs.

References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.risk.net/journal-of-energy-markets/790 ... udies-in-natural-gas (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:rsk:journ2:7902586

Access Statistics for this article

More articles in Journal of Energy Markets from Journal of Energy Markets
Bibliographic data for series maintained by Thomas Paine ().