Natural gas supply management and contract allocation and valuation for a power generation company

Abstract

In Singapore, about 80% of electricity is generated from natural gas. With increasingly volatile gas prices in the deregulated environment, the profitability of a GENCO heavily relies on its ability to manage portfolio of natural gas contract and spot trading. This thesis mainly concerns about the management of natural gas supply and contract gas allocation and valuation taking into account the volatile gas prices and various contractual flexibility.

In this thesis, we first study the optimization problem of dynamically allocating contracted gas over a short-term horizon. It is shown that a price and stage dependent base stock policy is optimal and the related optimal target levels monotonically decrease with the spot price. Subsequently, we develop a novel scheme to price a bilateral gas contract. We unveil that there is always a possibility for both contracting parties to negotiate and reach a unique mutually acceptable equilibrium. Lastly, a multi-time scale Markov decision process (MMDP) model is proposed to address the interaction of decisions made in short-term and medium-term two different time scales. We develop a least-squares policy iteration algorithm in conjunction with a finite difference stochastic approximation method to solve the MMDP problem involved with decision dependent uncertainty. Moreover, we rigorously establish the convergence guarantee and performance bound of the proposed algorithm.