E-World

In the rapidly evolving gas markets, market-oriented and stochastic valuation of natural gas storage facilities, contracts, and procurement portfolios is becoming increasingly important. Stochastic optimization allows for the mapping of market fluctuations. We offer solutions in the following areas, among others:

Gas procurement portfolio optimization

• Decision support for structured gas procurement on futures and day-ahead markets
• Flexibility to cover sales loads, even in partially illiquid markets, is ensured through flexible contracts or gas storage.
• Illustration of the full complexity of procurement portfolios: gas and oil market-indexed supply contracts, gas storage facilities, transport restrictions, various market areas, …
• Our solution: Optimization using stochastic market prices and sales load profiles, risk-adjusted management of open positions in futures markets

Evaluation of gas storage facilities and flexible gas supply contracts

• Intrinsic and extrinsic valuation of gas storage facilities and flexible gas supply contracts with highly complex volume restrictions and energy price formulas
• Modeling and scenario generation of forward and day-ahead natural gas markets
• Estimation of volatility, mean reversion, and correlation parameters from historical price movements
• Modeling the real-world marketing of storage and contracts – joint representation in the spot and futures markets
• Dynamic hedging – risk-free profits can be captured by rebalancing the futures market portfolio.
• Our solution: Joint stochastic optimization of spot and futures market management in all paths of a scenario tree.

Your advantages with stochastic optimization

The intrinsic value of a flexible asset, such as a gas storage facility or a gas supply contract, is the value that can be achieved given current market prices. Due to its flexibility, the asset’s future value, which can be generated by changing spot and futures market prices, is significantly higher. This extrinsic value is determined based on stochastic optimization. This can be performed for individual assets or for entire procurement portfolios.

In addition to the intrinsic and extrinsic valuation of assets or asset portfolios, stochastic optimization is used to determine more efficient decisions in the daily management of gas storage facilities, gas contracts, or procurement portfolios. This includes both day-ahead asset management and trading on spot and futures markets.

In practice, the stochastic optimization of natural gas portfolios has demonstrably led to higher profits or lower procurement costs.

The following steps are carried out for the stochastic evaluation and optimization of gas industry assets.

• Estimation of the volatility, mean reversion, and correlation parameters of all market prices (day-ahead and forward)
• Scenario generation of day-ahead market prices
• Scenario generation of futures market product prices (correlations between futures market products and with day-ahead markets are taken into account)
• Scenario generation of load profiles
• Joint stochastic optimization of gas industry portfolios
• Determination of profit distributions or procurement cost distributions
• Determination of shadow prices (valuation of gas in future management periods)
• Derivation of trade and management decisions

More detailed information about our modeling can be found in the  brochure .