Track: Modeling and Simulation

Abstract

Reliable energy supply is a vital and crucial role of any country and affects its economic and social development. Energy subsidies in many countries, while enhancing welfare levels, cause over-consumption of energy, lead to supply insecurity and environmental effects. Energy pricing is a key factor in controlling energy demand on one side, and incentivizing supply, on the other side. This paper develops a mathematical model for natural gas supply and demand system to study how differential pricing of natural gas leads to an optimal allocation of it to various demand sectors. The consumer prices of natural gas in each sector affect the sectors’ demand according to its elasticity to the price. On the supply side, optimal pricings affects providing financial resources for natural gas development and supply. The optimal price path of each sector, which maximizes the net present value of net income, maximizes the net present value of underground resources value at the end of planning horizon, and minimizes CO₂ emission are proposed using a system dynamics model. The model is applied to a case study. The optimal price paths determine a different allocation of natural gas to demand sectors compared to the Business As Usual case.