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Analysis and Design of Interruptible Gas Contract in China under Energy Market Reform

Author

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  • Jian Chai

    (International Business School, Shaanxi Normal University, Xi’an 710062, China
    School of Economics and Management, Xidian University, Xi’an 710071, China)

  • Liqiao Wang

    (International Business School, Shaanxi Normal University, Xi’an 710062, China)

Abstract

Under the background of economic development, energy security and environmental demands, the development of clean and low-carbon energy has promoted natural gas and non-fossil energy to become the main direction of world energy development. China’s natural gas consumer market has wide seasonal peaks and valleys. Because China’s natural gas peak shaving practices have some problems, we concluded that interruptible gas management has become a viable short-term emergency peak shaving method for natural gas systems in the transition period. In this paper, we take Shaanxi Province as an example. From the perspective of option pricing, this paper explains the method of using interruptible gas management to deal with the short-term supply and demand imbalance of natural gas. Therefore, we propose an interruptible gas contract trading mode, discuss the content of the interruptible gas contract and the relevant market organization form, and try to use the Black–Scholes model to calculate the option price of the interruptible gas contract. Finally, based on the price of interruptible gas and the option price of the interruptible gas contract to meet the maximum capacity shortage constraint, a provincial natural gas pipeline network company’s optimal purchase model for the interruptible gas was established, and the model was solved using the dynamic queuing method. The results show that the interruptible gas contract can not only reduce the market risk of the provincial natural gas pipeline network company and maintain the stable operation of the gas pipeline, but also reduce the cost of the interruptible users and make up for gas shortage losses.

Suggested Citation

  • Jian Chai & Liqiao Wang, 2020. "Analysis and Design of Interruptible Gas Contract in China under Energy Market Reform," Sustainability, MDPI, vol. 12(2), pages 1-15, January.
    • Handle: RePEc:gam:jsusta:v:12:y:2020:i:2:p:506-:d:306830
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    References listed on IDEAS

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