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Multi-objective bi-level optimization problem for the investment in new gas infrastructures

A. Valle, S. Wogrin, J. Reneses

While there is a huge uncertainty in the gas sector and its role in the future energy mix is not clear, in order to adapt to the new challenges in the energy use, to achieve the 2020, 2030 and 2050 objectives and to continue building a fully internal market (i.e. market integration) whilst providing additional sources of gas (i.e. security of supply), the European Union (EU) needs to be sufficiently connected. Therefore, the current infrastructure across the EU is being updated to prevent bottlenecks, to ensure an efficient transmission to achieve a European physical gas market and to enable EU countries to diversify their energy sources. In order to complete the internal gas market, the European Commission (EC) has banked on more investments in infrastructure, presenting a list of common interest energy infrastructure projects (Projects of Common Interest - PCIs), that might benefit from financial support. The requirements that a project needs to fulfill to become a PCI are: the project must have a significant impact on energy markets in at least two EU countries, favor market integration, enhance competition, contribute to the EU's energy security of supply (i.e. by diversifying sources), and help to achieve the EU's climate goals. The aim of this work is to provide a tool for assisting the investment decision making process to determine EC support, analyzing the different investment options. Therefore, we propose a model whose objective is to represent a realistic decision-making process for analyzing the optimal infrastructure investments (in natural gas pipelines and regasification terminals) within the EU framework under a market perspective. Thus, in order to represent that expansion and operation decisions are taken sequentially, the different interest of market participants and the multiple criteria that need to be achieved simultaneously (i.e. market integration, security of supply, competition), we propose a multi-objective bi-level optimization model for representing the investment decision process in the European natural gas market (GASMOPEC). We assume the EC, performs the tasks of a system network planner investing in new pipeline and regasification capacity. The network planner chooses capacities that maximize its preferences in the upper-level while the lower level is defined as a generalized Nash-Cournot equilibrium modeled as a two-stage-game of successive natural gas trade (i.e. traders representing the upstream and marketers the downstream), where the gas market players (i.e. traders, marketers and consumers), the network infrastructure (i.e. pipelines and liquefaction and regasification terminals) are explicitly represented. The model is used for the assessment of the optimal infrastructure investment in the North-South Gas Interconnections in Western Europe under a market price perspective, drawing as main conclusions that: first, Western Europe is well interconnected; second, the investment in two regasification terminals (i.e. in France and the United Kingdom) enhance the utility of the demand; and third, pipeline capacity with incumbent major gas suppliers (i.e. Algeria and Russia) increases.

Keywords: Natural gas, market, multi-objective bi-level optimization problem, infrastructure investment

Registration date: 2018-01-30


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