Groupe d’études et de recherche en analyse des décisions

G-90-03

Toward a Contract Portfolio Management Model for a Gas Producing Firm

, et

This paper addresses the question of determining an optimal mix of gas contracts for a producer supplying the North American gas market. We first propose a model inspired from the classical portfolio management models in Finance. We illustrate its use on a set of realistic data representative of the global situation facing a Canadian producer. We then explore the possibility to link such a contract portfolio management system with the NARG model. We conclude that a decision support system could be developed, which would use data obtained from scenarios produced e.g. through the use of the NARG model. The report examines the scope of the gas contract portfolio management problem, the market segmentation and the modeling aspects. A numerical illustration shows the kind of trade-offs between increased returns and decreased risks which are typical of the current situation on the North American gas market. This work provides the methodological background for a decision support system, linked with the planning tools used by a gas producing firm to assess the valuation of natural gas on different market segments over the long term. This work results from a joint research effort of a team from GERAD and CORE undertaken after a round table discussion at the International Workshop on Modeling and Analysis of Natural Gas Markets, held at HEC in March 1988. Several meetings and discussions with executives from Shell Canada helped us in getting acquainted with the North American gas market specificities.

, 29 pages