QUANTITATIVE

ENERGY
MODELS
Optimal Planning and Dispatch for
LNG Terminals:
How best to utilise exibility
offered by storage
Dr. Tristram J. Scott
tristram.scott@quantmodels.co.uk
Energy Consultant
Optimal Planning and Dispatch for LNG Terminals Tristram Scott June 2010 Revision: 1.4 p.1
QUANTITATIVE
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Outline
Introduction.
Process steps.
Cargo shipment and diversion.
Storage modelling
Typical results
Optimal Planning and Dispatch for LNG Terminals Tristram Scott June 2010 Revision: 1.4 p.2
QUANTITATIVE
ENERGY
MODELS
Liqueed Natural Gas
Produced by condensing natural gas.
Cleaned and then liquied at less than -160C.
Mostly (> 90%) methane, but also some
higher order alkanes.
Only a few production locations worldwide.
Shipped in tankers.
Several weeks lead time for shipping.
Stored in liquid form at destination terminal.
Re-gasied on demand for local gas network
Optimal Planning and Dispatch for LNG Terminals Tristram Scott June 2010 Revision: 1.4 p.3
QUANTITATIVE
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MODELS
Shipmemt process
Typical contracts will have regular shipments
leaving the production port(s).
In most cases these arrive at the destination
a few weeks later.
Some shipments will be diverted to
alternative markets.
When cargos arrive they are quickly ofoaded
into storage tanks.
LNG is re-gasied on demand to sell into
local market.
Optimal Planning and Dispatch for LNG Terminals Tristram Scott June 2010 Revision: 1.4 p.4
QUANTITATIVE
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Storage at the terminal
LNG terminals have large storage tanks.
Stored in liquid form, since
1 m
3
LNG = 570 m
3
gas.
Storage lets us choose when to send out the
gas.
Need to consider:
Physical constraints;
Expected prices;
Demand requirements;
Expected cargo arrivals.
Optimal Planning and Dispatch for LNG Terminals Tristram Scott June 2010 Revision: 1.4 p.5
QUANTITATIVE
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MODELS
Cargo diversions
Some shipments go to alternative markets.
Diversions undertaken based on expected
price differentials.
Model prices in alternative markets.
Diverted cargos leave gaps in arrivals at
the home market.
Use month ahead prices due to long lead
time from shipping.
Consider shipping costs and incidentals e.g.
legal fees, spot purchase of terminal access.
We allow diversions if clearly protable, and if
a threshold probability is exceeded.
Optimal Planning and Dispatch for LNG Terminals Tristram Scott June 2010 Revision: 1.4 p.6
QUANTITATIVE
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MODELS
Example conguration
10 bcm (billion cubic metres) annual
throughput capacity.
400 10
3
m
3
LNG storage tanks.
1.0 10
6
m
3
/h gas send-out.
140 10
3
m
3
LNG cargo every 7.5 days.
Convert everything to units of MWh.
2.5 10
3
MWh storage.
265 MWh/day release.
885 MWh cargo.
Optimal Planning and Dispatch for LNG Terminals Tristram Scott June 2010 Revision: 1.4 p.7
QUANTITATIVE
ENERGY
MODELS
Modelling steps
Choose / dene parameters.
Simulate month ahead prices for home and
alternative markets.
Simulate cargo diversions and hence arrivals.
Simulate day ahead (spot) prices for home
market.
Derive optimal operating rules for storage.
Simulate storage operation.
Optimal Planning and Dispatch for LNG Terminals Tristram Scott June 2010 Revision: 1.4 p.8
QUANTITATIVE
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MODELS
Diversion calculation
0 50 100 150 200 250 300 350
20
0
20
40
60
Day
M
.
A
.

p
r
i
c
e
Cargo diversions at threshold price of 5.0


Home
Alternative
Difference
D > 5.0
Delivery
Diversion
There is a cargo every 7.5 days.
Although many days have protable prices we
only divert on a few of these, due to random
factors.
Optimal Planning and Dispatch for LNG Terminals Tristram Scott June 2010 Revision: 1.4 p.9
QUANTITATIVE
ENERGY
MODELS
Diversion distributions
0 2000 4000 6000 8000 10000 12000 14000 16000
0
0.5
1
1.5
2
2.5
3
3.5
x 10
3
Diversion value
Diversion value, 01Jan2017 31Dec2017
Simulation yields distributions for:
Diversion value
Expected inow
01Jan2017 02May2017 31Aug2017 31Dec2017
0
100
200
300
400
500
600
700
800
I
n
f
l
o
w
Sample inflow trajectories, 01Jan2017 31Dec2017
Optimal Planning and Dispatch for LNG Terminals Tristram Scott June 2010 Revision: 1.4 p.10
QUANTITATIVE
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LNG storage
The LNG terminal has similar characteristics to
gas storage.
Maximum storage capacity.
Maximum release and injection rates.
Spot market to sell into.
But, we dont purchase gas from the spot market.
Instead, it comes from our cargo shipments.
We use the simulated cargo arrivals to
describe inow for a hydro storage problem.
Solve using favourite method, e.g. Stochastic
Dynamic Programming.
Optimal Planning and Dispatch for LNG Terminals Tristram Scott June 2010 Revision: 1.4 p.11
QUANTITATIVE
ENERGY
MODELS
Storage optimisation
max
r
t
Z
0
=

c
T
c
0
+

t=1, ,T

t
(r
t
)

(1)
s.t.
s
t
= s
t1
r
t
+ f
t
(2)
S
t
s
t
S
t
(3)
R
t
r
t
R
t
(4)
where
s
t
is the amount in storage at the end of period t,
r
t
is the amount released from storage during period t,
f
t
is the (stochastic) inow during period t,

t
(r
t
) is the benet of release decision r
t
c
0
, c
T
are the (given) starting and ending values of s
0
,s
T
Optimal Planning and Dispatch for LNG Terminals Tristram Scott June 2010 Revision: 1.4 p.12
QUANTITATIVE
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Dynamic Programming (DP)
DP is a recursive optimisation technique, rst
formulated by Richard Bellman in 1957. It aims
to break the solution of a large problem into a
recursive solution of a number of small problems.
Problems are broken into stages.
At each stage, the problem is dened by the
state variable(s).
Solution usually starts at the last stage and
works backwards.
Stochastic DP (SDP) involves one or more
stochastic variables.
Optimal Planning and Dispatch for LNG Terminals Tristram Scott June 2010 Revision: 1.4 p.13
QUANTITATIVE
ENERGY
MODELS
Recursive solution
max
r
t
z
t
(s
t
) =
t
(r
t
) + z
t+1
(s
t
r
t
) (5)
s.t.
s
t
= s
t1
r
t
+ f
t
(6)
S
t
s
t
S
t
(7)
R
t
r
t
R
t
(8)
We solve using backwards recursion, one period
at a time.

t
(r
t
) is (usually) a stochastic function of the ex-
pected price.
Optimal Planning and Dispatch for LNG Terminals Tristram Scott June 2010 Revision: 1.4 p.14
QUANTITATIVE
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MODELS
Steps for storage modelling
Simulate
spot prices
Stochastic
optimisation
Simulate
storage
01Jan2017 02May2017 31Aug2017 31Dec2017
0
5
10
15
20
25
30
35
P
r
i
c
e
Sample Price trajectories, 01Jan2017 31Dec2017
01Jan2017 02May2017 01Sep2017 01Jan2018
0
500
1000
1500
2000
2500
S
t
o
r
a
g
e
Sample Storage trajectories, 01Jan2017 01Jan2018
Optimal Planning and Dispatch for LNG Terminals Tristram Scott June 2010 Revision: 1.4 p.15
QUANTITATIVE
ENERGY
MODELS
Storage trajectories
01Jan2017 02May2017 01Sep2017 01Jan2018
0
500
1000
1500
2000
2500
S
t
o
r
a
g
e
Sample Storage trajectories, 01Jan2017 01Jan2018
Cargo of 885 units every 7.5 days.
Release rate 265 per day.
Strong seasonal shape (following prices) even
though storage has a very fast cycle time.
Optimal Planning and Dispatch for LNG Terminals Tristram Scott June 2010 Revision: 1.4 p.16
QUANTITATIVE
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Simulated release
01Jan2017 02May2017 31Aug2017 31Dec2017
0
50
100
150
200
250
R
e
l
e
a
s
e
Sample Release trajectories, 01Jan2017 31Dec2017
Peaks in mean release precede anticipated
cargo arrivals.
Very wide spread in release rates for any
given day.
Optimal Planning and Dispatch for LNG Terminals Tristram Scott June 2010 Revision: 1.4 p.17
QUANTITATIVE
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MODELS
Net prot
Prot before
purchase costs.
Net prot.
Purchase at
annual mean.
8.6 8.8 9 9.2 9.4 9.6 9.8 10 10.2 10.4 10.6
x 10
5
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
x 10
5
Total traded profiut
Simulated traded profit excluding inflow or ending, 01Jan2017 31Dec2017
5 6 7 8 9 10
x 10
4
0
1
2
3
4
5
6
7
x 10
5
Net Profit
Net profit, 01Jan2017 31Dec2017
Optimal Planning and Dispatch for LNG Terminals Tristram Scott June 2010 Revision: 1.4 p.18
QUANTITATIVE
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Effect of increased shipments
4 BCM / year
6 BCM / year
01Jan2017 02May2017 01Sep2017 01Jan2018
0
500
1000
1500
2000
2500
S
t
o
r
a
g
e
Sample Storage trajectories, 01Jan2017 01Jan2018
01Jan2017 02May2017 01Sep2017 01Jan2018
0
500
1000
1500
2000
2500
3000
S
t
o
r
a
g
e
Sample Storage trajectories, 01Jan2017 01Jan2018
Higher load factor
offers less choice.
Optimal Planning and Dispatch for LNG Terminals Tristram Scott June 2010 Revision: 1.4 p.19
QUANTITATIVE
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MODELS
Release rates
4 BCM / year
6 BCM / year
01Jan2017 02May2017 31Aug2017 31Dec2017
0
50
100
150
200
250
R
e
l
e
a
s
e
Sample Release trajectories, 01Jan2017 31Dec2017
01Jan2017 02May2017 31Aug2017 31Dec2017
0
50
100
150
200
250
R
e
l
e
a
s
e
Sample Release trajectories, 01Jan2017 31Dec2017
Higher load factor
leads to more
distress selling.
Optimal Planning and Dispatch for LNG Terminals Tristram Scott June 2010 Revision: 1.4 p.20
QUANTITATIVE
ENERGY
MODELS
Prot before purchase costs
4 BCM / year
6 BCM / year
8.6 8.8 9 9.2 9.4 9.6 9.8 10 10.2 10.4 10.6
x 10
5
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
x 10
5
Total traded profiut
Simulated traded profit excluding inflow or ending, 01Jan2017 31Dec2017
1.25 1.3 1.35 1.4 1.45
x 10
6
0
0.2
0.4
0.6
0.8
1
1.2
1.4
x 10
5
Total traded profiut
Simulated traded profit excluding inflow or ending, 01Jan2017 31Dec2017
Revenue / MWh
is much reduced.
Optimal Planning and Dispatch for LNG Terminals Tristram Scott June 2010 Revision: 1.4 p.21
QUANTITATIVE
ENERGY
MODELS
Price duration curves
0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1
0
5
10
15
20
25
30
S
p
o
t

p
r
i
c
e
Price duration curve and mean duration curve, 01Jan2017 31Dec2017


PDC
MDC
(0.439,25.13)
(0.726,23.19)
(885 MWh / 7.5 days) / 265 MWh / day = 0.44
Assumes gas can be sold in any future period not true
The PDC approach signicantly over-estimates value,
and is not appropriate in this case.
Optimal Planning and Dispatch for LNG Terminals Tristram Scott June 2010 Revision: 1.4 p.22
QUANTITATIVE
ENERGY
MODELS
Price duration curves
0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1
0
5
10
15
20
25
30
S
p
o
t

p
r
i
c
e
Price duration curve and mean duration curve, 01Jan2017 31Dec2017


PDC
MDC
(0.628,23.80)
(0.866,22.35)
(885 MWh / 3.75 days) / 265 MWh / day = 0.66
Optimal Planning and Dispatch for LNG Terminals Tristram Scott June 2010 Revision: 1.4 p.23
QUANTITATIVE
ENERGY
MODELS
Optimal Planning and Dispatch for
LNG Terminals:
How best to utilise exibility
offered by storage
Dr. Tristram J. Scott
tristram.scott@quantmodels.co.uk
Energy Consultant
Optimal Planning and Dispatch for LNG Terminals Tristram Scott June 2010 Revision: 1.4 p.24