Storage valuation Natural gas storage

1 storage valuation

1.1 cost-of-service valuation
1.2 least-cost planning
1.3 seasonal valuation
1.4 option-based valuation

storage valuation

to understand economics of gas storage, crucial able value it. several approaches have been proposed. include:

cost-of-service valuation
least-cost planning
seasonal valuation
option-based valuation

the different valuation modes co-exist in real world , not mutually exclusive. buyers , sellers typically use combination of different prices come true value of storage. example of different valuations , price generate can found in table below.

cost-of-service valuation

this valuation mode typically used value regulated storage, instance storage operated interstate pipeline companies. these companies regulated ferc. pricing method allows developers recover cost , agreed upon return on investment. regulatory body requires rates , tariffs maintained , publicly published. services provided these companies include firm , interruptible storage no-notice storage services. usually, cost of service pricing used depleted reservoir facilities. if used price, salt cavern formations, cost high, due high cost of development of such facilities.

least-cost planning

this valuation mode typically used local distribution companies (ldcs). based on pricing storage, according savings resulting not having resort other more expensive options. pricing mode depends on consumer , respective load profile/shape.

seasonal valuation

the seasonal valuation of storage referred intrinsic value. evaluated difference between 2 prices in pair of forward prices. idea being 1 can lock-in forward spread, either physically or financially. developers seeking study feasibility of building storage facility, typically @ long-term price spreads.

option-based valuation

in addition possessing intrinsic value, storage may have extrinsic value. intrinsic valuation of storage not take cycling ability of high-deliverability storage. extrinsic valuation reflects fact in such facilities, salt cavern formations, proportion of space can used more once, increasing value. such high-deliverability storage facility allows user respond variations in demand/price within season or during given day rather seasonal variations case single cycle facilities.