Robust Management and Pricing of Liquefied Natural Gas Contracts with Cancelation Options

V. Guigues, C. Sagastizábal, J. P. Zubelli

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5 Scopus citations


Liquefied Natural Gas contracts offer cancelation options that make their pricing difficult, especially if many gas storages need to be taken into account. We develop a valuation mechanism from the buyer's perspective, a large gas company whose main interest in these contracts is to provide to clients a reliable supply of gas. The approach combines valuation with hedging, taking into account that price-risk is driven by international markets, while volume-risk depends on local weather and is stage-wise dependent. The methodology is based on setting risk-averse stochastic mixed 0-1 programs, for different contract configurations. These difficult problems are solved with light computational effort, thanks to a robust rolling-horizon approach. The resulting pricing mechanism not only shows how a specific set of contracts will impact the company business, but also provides the manager with alternative contract configurations to counter-propose to the contract seller.

Original languageBritish English
Pages (from-to)179-198
Number of pages20
JournalJournal of Optimization Theory and Applications
Issue number1
StatePublished - Apr 2014


  • CVaR
  • Risk aversion
  • Rolling horizon
  • Stochastic Programming


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