A Mixed Complementarity-Based Equilibrium Model of Natural Gas Markets

Abstract

We present a new multiseasonal, multiyear, natural gas market equilibrium model based on the concept of a competitive equilibrium involving the market participants: producers, storage reservoir operators, peak gas operators, pipeline operators, marketers, and consumers. The first three classes are depicted as price-takers consistent with perfect competition. The pipeline operations are described with regulated tariffs, but also involve “congestion pricing” as a mechanism to allocate scarce pipeline capacity. The marketers are price-takers in all markets except in sales to consumers, in which they compete as Nash-Cournot players. Finally, consumers are described by demand curves for each of the four sectors: residential, commercial, industrial, and electric power. We show that the equilibrium model is an instance of a mixed nonlinear complementarity problem (NCP) and provide sufficient detail not generally seen in previous complementarity models of natural gas. The NCP formulation is derived from considering the Karush-Kuhn-Tucker optimality conditions of the optimization problems faced by these participants. Under mild conditions, we show that this NCP has a solution, and under additional reasonable conditions, we show that the market prices are unique. We also validate the model on a representative sample network with nine market participants and three seasons, using four scenarios.

A complementarity model for the European natural gas market

“…While complementarity models of natural gas markets have been formulated and developed with real or realistic data before, e.g., [13], [37], [34], [1], [26], [29], [4], [50], [38], the one presented in this paper distinguishes itself by its level of detail relative to the number and variety of players, the number of seasons (three seasons: low demand, high demand, and peak), as well as the number of countries modeled (52). In this respect, the model we present is approaching the level of detail of the Rice University World Gas Trade model [36], or the Gas Systems Analysis Model (GSAM) for North America ( [28], [27]).…”

“…The modeling of the regasi…ers is similar to the concept of the peak gas operator in the North American market as presented in [26] and [29]. There, the peak gas operators are modeled with production bounds and are active only in the peak demand season.…”

“…Hence, we model the regasi…ers as being active in every season. They are the downstream interface with the lique…ers and are a new player compared to previous models ( [26], [29], [4], [13], [38]). Modeling both types of players allows us to represent the entire LNG value chain, with the LNG tankers activity represented by the arcs between the lique…ers and the regasi…ers.…”

“…The storage operators are modeled similarly to the equivalent players in [26] and [29] with the exception that they are now supplied by regasi…ers, too. The storage operators buy gas from the transmitters (P U RCH S T sy ) or regasi…ers (P U RCH S R sy ) and inject it into storage in the low demand season.…”

“…The pipeline operator's problem is similar to the one described in [26] and [29]. We consider a pipeline operator for each pipeline (n; m); (n; m) 2 A (with A the set of pipeline arcs).…”