Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/103274
Authors: 
Felix, Bastian
Woll, Oliver
Weber, Christoph
Year of Publication: 
2009
Series/Report no.: 
EWL Working Paper 5 [03/09]
Abstract: 
Natural gas storages may be valuated by applying real options theory. However it is crucial, not to ignore that most evolving gas spot markets, like the German spot market, lack of liquidity. In this context, considering storage operators as price takers does not account for interdependencies of storage operations and market prices. This paper offers a novel approach to storage valuation taking into account the effect of management decisions on market prices. The within this paper proposed methodology determines the optimal production schedule and value by determining the stochastic differential equation describing the storage value and then applying a finite difference scheme. We find that limited liquidity lowers the storage value and reduces withdrawal and injection amounts. Further, we observe decreasing reservation prices for injection and withdrawing for growing illiquidity resulting in a left shift of injection and withdrawing threshold prices.
Subjects: 
natural gas valuation
limited liquidity
JEL: 
D52
Q40
Q41
Document Type: 
Working Paper

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