1

Energy Infrastructures Modeling:

Gas Pipelines System in Gas Pipelines System in EurasiaEurasia

Arkadii KryazhimskyArkadii Kryazhimsky

Oleg NikonovOleg Nikonov

Yaroslav MinullinYaroslav Minullin

2

Russian NMO*-SponsoredEnergy Group

Oleg Nikonov, Yaroslav MinullinOleg Nikonov, Yaroslav Minullin

Urals State Technical UniversityUrals State Technical University

Yurii Kononov, Dmitry KononovYurii Kononov, Dmitry Kononov

Energy Institute of Siberian Branch of RASEnergy Institute of Siberian Branch of RAS

Olga GolovinaOlga Golovina

Moscow State UniversityMoscow State University

** NMO – National Members Organization NMO – National Members Organization

3

Contents

Research HistoryResearch History Turkey’s Gas MarketTurkey’s Gas Market China’s Gas MarketChina’s Gas Market Supply GameSupply Game Game of TimingGame of Timing ConclusionConclusion

4

Research History

2000 – Great Caspian Pipeline 2000 – Great Caspian Pipeline Game, IGOR modelGame, IGOR model

2001 – Game of Timing (G-TIME) 2001 – Game of Timing (G-TIME) modelmodel

2002 – G-TIME China model2002 – G-TIME China model

5

Four-level Dynamic Optimization

Assessment of the market Assessment of the market potential innovationpotential innovation

Selection of innovation scenarios Selection of innovation scenarios Regulation of the future supplyRegulation of the future supply Optimization of theOptimization of the current current

investments investments

6

Turkey’s Gas Market

Blue StreamBlue Stream

BulgarpipeBulgarpipe

EkarumEkarum

TranscaspianTranscaspian

7

Turkey’s Gas Market

From country

Name Startyear

Partfinish

edin

1998(%)

Capacity

(bcm/

year)

Length

(miles)

Invest-

ment(billio

n US$)

O&M costs(US$/1000 cm)

Distri-

bution

Costs($/

1000 cm)

Transit-fees((US$/

1000 cm)Turkmeni

stanTrans-caspian

2002 0 31.15

1696 2-3 8 33 16.9

Iran Iranpipe 2010 58 28 2400 3.9-4.1

30 33 0

Turkmenistan

Ekarum 2009 54 28.3 2172 3.8-4 30 33 21.6

Russia Blue stream

2002 0 14.16

1220 4-6 14.1 33 0

Russia Bulgar-pipe

exists

100 10.2 3500 Exists

30 33 10

8

IGOR Model

Gas field 1(overall costs of delivering gas to

the market)

Gas field 1(overall costs of delivering gas to

the market)

Gas marketGas market

Price of gas

GDP

Price elasticity of

demand

GDP elasticity of

demand

Investment into pipeline 1

Investment into pipeline 1

Investment into pipeline N

Investment into pipeline N

Investment into pipeline 2

Investment into pipeline 2

Gas field 2(overall costs of delivering gas to

the market)

Gas field 2(overall costs of delivering gas to

the market)

Gas field N(overall costs of delivering gas to

the market)

Gas field N(overall costs of delivering gas to

the market)

supply supply supply

9

IGOR Model

Trans-Balcan

Iranpipe

EkarumBlue Stream

TranscaspianLNG

10

IGOR Model

Trans-Balcan

Iranpipe

EkarumBlue Stream

Transcaspian

11

G-TIME Model

ai t( )

bi1 t( )

bi2 t( )

t- t+ t

12

G-TIME Model

13

China’s Gas Market

14

China’s Energy SectorSpecific Features

Not quite market conditionsNot quite market conditions Lack of econometric dataLack of econometric data Low correlation between GDP and Low correlation between GDP and

sector’s incomessector’s incomes

15

Price formation

16

Gas Market Model

deposit 1deposit 1 project 1project 1

extractionextraction

transportationtransportation

deposit 2deposit 2project 2project 2

extractionextraction

transportationtransportation

natural gas marketnatural gas market

supplysupply

priceprice

p=p(dp=p(d00,p,p00,e,epp,y),y)

liquidliquidnaturalnatural

gas (LNG)gas (LNG)priceprice

forecastedforecasteddemanddemand

forecastedforecastedpriceprice

forecastedforecastedprice elasticityprice elasticity

17

Supply Game (a player occupies market solely)

ymin Mi d0

maximal payoff

yi

i

i max t - fixed

At each instant of time the player maximizes his payoff:At each instant of time the player maximizes his payoff:

ii(y,y(y,yii) ) max max yyiiDD

and gets an optimal value for supplyand gets an optimal value for supply

D

ii(y,y(y,yii)= [p(d)= [p(d00,p,p00,e,epp,y)-c(y,y)-c(yii)]y)]yii

18

M1

M2

y1

y2

ymin

d0

best response y2 (y1)

best response y1 (y2)

Nash equilibrium point (y1 (y2) ; y2 (y1))

Supply Game (both players are on the market)

D

19

Supply Game

20

Supply Game in time

t

yi

Mi

yi2(t)

yi1(t)

d0(t)

ymin(t)

Each player gets an optimal supply plan in time:Each player gets an optimal supply plan in time:

yyi1i1(t) and y(t) and yi2i2(t)(t)

21

Supply Game benefits

Substituting optimal supply the player gets:Substituting optimal supply the player gets: upper benefit rate, bupper benefit rate, bi1i1(t) =(t) = ii(t,y(t),y(t,y(t),yi1i1(t))(t))

and lower benefit rate, band lower benefit rate, bi2i2(t) =(t) = ii(t,y(t),y(t,y(t),yi2i2(t))(t))

t, t-i

bi1(t)bi2(t)

t-i

Bi(t,t-i)

upper benefit rate, bi1(t)

lower benefit rate, bi2(t)

22

ti0

ti

return of investments

tiROI

Pi(t)

t, ti

Game of Timing

tt11ROI ROI (t(t11

00 ,, tt22

00) – t) – t00 min min tt11

00

tt22ROI ROI (t(t22

00 ,, tt11

00) –t) –t00 min min tt22

00

Nash equilibrium point of starting construction times :Nash equilibrium point of starting construction times :

(t(t**11

00 ; t; t**

2200))

start of operation

start of making investments

Ci

23

Simulations

Player Player no.no.

TitleTitle Length, Length, km.km.

ExpecteExpected year d year to startto start

Marginal Marginal capacitycapacity

, , bcm/yeabcm/yea

rr

Capital Capital investinvest--ments, ments,

bln USD.bln USD.

Fixed Fixed costs, costs, USD/USD/

1000m1000m33//

yearyear

Variable Variable costs,costs,

USD/USD/10010000mm33

11 IrkutskIrkutsk 30003000 20092009 3030 66 55.855.8 5757

22SakhaliSakhali

nn21502150 20092009 1515 33 6868 6060

24

Natural Gas Demand Forecast:Base case

0

20

40

60

80

100

120

140

160

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

2022

2024

2026

2028

2030

25

Natural Gas Price and LNG Price Forecast: Base case

130135140145150155160165170175180

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

2022

2024

2026

2028

2030

26

Gas Demand Price Elasticity Forecast: Base case

-0.8

-0.75

-0.7

-0.65

-0.6

-0.55

-0.520

0020

0220

0420

0620

0820

1020

1220

1420

1620

1820

2020

2220

2420

2620

2820

30

27

Results of Simulations base case

0

5

10

15

20

25

30

35

0 10 20 30 40

Best 2 -> 1

Best 1-> 2

28

Results of Simulations base case

-7000

-6000

-5000

-4000

-3000

-2000

-1000

0

1000

2000

4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34

Irkutsk Sakhalin

TitleTitle Start of Start of constructionconstruction

Commercia-Commercia-lizationlization

Return of Return of investmentsinvestments

IrkutskIrkutsk 20042004 20072007 20252025

SakhalinSakhalin 20062006 20092009 20252025