Construction And Applications Of Gas Storage Valuation Model Based On Real Option Theory

With the increasing demand of natural gas,fluctuations of seasonal demand between summer and winter have become several times,and even more than ten times in some areas.The role of gas storage in the gas supply chain,which ensures the supply of natural gas,becomes more and more important.Therefore,efficient and reliable natural gas storage has become vitally important for optimizing the balance between gas supply and demand.This paper summarizes the current status of natural gas storage in the world,the reasons for the status quo of underground gas storage in China,and lessons from the market-oriented reform process in Europe and America.Then,I use real option theory to build the valuation model of gas storage,which incorporates mean-reverting and seasonality of the natural gas spot price.I illustrate the impact of changes in gas pricing policies and subsidies for gas storage market valuation and industrial development,with a numerical example of a gas storage facility.Meanwhile,I also analyze the impact of the construction and operating costs for gas storage operations and earnings.This research shows that valuation of natural gas storage is mainly decided by the fluctuation range of natural gas price,investment costs and operating costs of the construction caused by the environment.The liberalization of natural gas price control can effectively increase the value of gas storage and profits of operators.Meanwhile,appropriate preferential policies can also reduce the investment cost of gas storage,and increase initiative of investors in the construction of gas storage,which will promote market activity.This research provides a support for investment,operation and management of natural gas storage project and improves the gas storage operator's decision-making capacity,which makes them get a better balance between risk and return.The paper also considers the changes of value in gas storage under the macro-control gas price,which has a positive the practical significance for natural gas development and enacting strategic reserve policies.