Economic and environmental co-benefit of natural gas supply chain considering the risk attitude of designers

Highlights

• The integrated economic evaluation of the natural gas supply chain is proposed.

• The environmental performance based on the economic supply scheme is analyzed.

• The relationship between economic and environmental performance and supply risk is considered.

• The feasibility and effectiveness of the model are verified by a real supply chain in China.

Abstract

Nature gas plays a fundamental role in promoting cleaner production worldwide. Given this, evaluation of the natural gas supply chain from the perspective of both economic and environmental-friendly should be considered simultaneously while proposing a comprehensive estimation model remain a challenge in the performance improving study. What’s more, the inherent uncertainty and strong variation associated with natural gas demand attach difficulty in precise analysis and make an impact on the stable gas supply. This paper proposes an integrated mathematical model to estimate the economic and environmental (2-E) performance, where multiple natural gas products and transportation modes are considered in economic section, and the major carbon emission from upstream production to downstream users are given in the environmental part. An index is formulated to indicate the supply risk caused by the uncertain gas demand. Considering the risk attitude of supply chain designers may have a significant impact on the final 2-E performance, three scenarios namely Risk Neutral Scenario, Risk Aversion Scenario, and Risk-taking Scenario are applied to quantify the impact. The case study result demonstrates that 1) In comparison to the neutral scenario model which is commonly used in the literature, the annual economic profits and total carbon dioxide emission in this paper have a 6.78 million CNY and 2.06 kiloton variation, respectively. 2) The pipeline layout and location of functional stations are coincident within three scenarios, while the detailed transportation scheme in the operation period changed a lot. 3) The reliability varies from 99.88% to 89.37% within three scenarios, and the supply chain designers can make a tradeoff between the 2-E performance and supply risk according to the proposed relationship between theme.

Introduction

Given continuous focus towards low carbon-oriented transition for energy structure, increasing attention has been paid to fuel featured with better environmental performance. Therefore, natural gas, which is characterized by lower carbon emission and high combustion efficiency, is widely used in recent years. It is predicted that the global demand for natural gas will grow until at least 2030 (IEA-Bioenergy, 2019). With the most robust growth in demand expected among the developing countries, natural gas consumption is forecasted to be doubled between 2020 and 2040 (BP 2019). In the natural gas industry, Natural Gas Supply Chain (NGSC) is a complex and indispensable sector that the process from upstream production in the oil and gas field to the downstream consumers all involved and it consists of four major sections which are production, transmission, storage and distribution, respectively. What’s more, the entire supply system contains not only the natural gas but also products like Liquefied Natural Gas (LNG), Compressed Natural Gas (CNG) and accessory facilities such as underground gas storage (Zhang et al., 2017a, Zhang et al., 2017b). The design and operation management of NGSC is a mega project, and it involves high expenditure and vast greenhouse gases which has a significant impact on the economy and environment (Gong et al., 2020; Zarei et al., 2020). Moreover, the natural gas demand is a key parameter characterized by strong uncertainty. The uncertain demand will cause the unmet needs of users and unstable supply in some circumstances which will give rise to the supply risk (Zhang et al., 2019a, Zhang et al., 2019b). Given the importance of NGSC, factors such as economic performance, environment influence, and supply risk should be all considered during the design stage. Since the growing demand makes the current capacity of NGSC incompatible with future scenario any longer, the improvement study of NGSC based on 2-E performance & supply risk becomes more imperative. In the case that no quantitative analysis on this scope is done, this research will proceed for the performance improvement of NGSC.

At present, researches on the NGSC are focusing on the life-cycle economic production optimization like improving profitability and the environmental factors analysis while few studies estimate the impacts of supply risk on the 2-E performance (Buse et al., 2019). Natural gas demand is a necessary factor during the NGSC design; a high precision prediction of demand will contribute to a better operational performance. However, the demand is characterized by inherent uncertainty and strong variation, which makes it hard to predict with a robust confidence coefficient. The uncertain gas demand will increase construction investment and operation cost mostly, moreover, it will cause the mismatch between supply and demand, which will undermine the reliability of the supply system. An excellent and robust supply chain can fulfil the supply task based on the demand of users while operates in an economic and environmental situation (Daneshvar et al., 2019; Shen et al., 2019). Therefore, the evaluation of the relationship between 2-E performance and supply risk together should be proposed because various supply risk could impact the entire supply chain from the macro-perspective. E.g. In the economic part, various acceptable supply risk will produce different effects on the parameters such as the number of tankers in the design period or the supply volume in the operation period. In the environmental part, various acceptable supply risk will contribute to the distinct carbon dioxide emission.

The economic cost is the key factor considered during the design and operation period of NGSC. Many existing researches made for the optimization of the economic performance of NGSC are significative but not integrated. Zarei et al. (2019) formulate a Mixed Integer Linear Programming (MILP) model for the optimization of NGSC, this model minimizes total cost and optimizes gas flow between different locations, however, this study is limited to the optimization in operation stage. Wang et al. (2018) propose a mathematical model to optimize the NG transmission network, which concludes the optimal pipeline connections but not give the optimal operation scheme. Zhang et al. (2019a) take different natural gas products and four transportation approaches into consideration; it’s the first time to consider multiple natural gas products. In the study of (Attia et al., 2019), the supply chain of oil and gas are modelled in the first time. However, the model is established based on the framework of the supply chain without giving detailed information. Xu et al. (2018), Yuan et al., 2019a proposed an integrated optimization for the multi-products oil with a similar principle of NGSC, the optimal scheme can give some insights into the natural gas industry. What’s more, Azadeh et al. (2015) optimize NGSC using a multi-objective multi-period fuzzy linear programming model considering economic and environmental objectives. Still, all its economic optimization is limited rather than the optimization of the entire supply chain. The study on the economic performance of NGSC concentrates primarily on the design or operation period with a single transportation mode while few studies have been made to the integrated stages of the supply chain. During the period of design, whether the natural gas pipeline and accessory facilities have the optimal layout is influencing on the cost of the supply chain. For the same reason, the logistic scheme during the period of operation also has a great impact on economic performance. Therefore, both the design and operation scheme with multiple natural gas products should be optimized by the designers.

Despite the economic optimization, more attention should be focused on the environmental performance of NGSC. Since the excessive emission of carbon dioxide has caused widespread concern for its contribution to climatic and ecological issues like global warming and glacial ablation, many studies are focused on the reduction of carbon emission during the supply chain where carbon dioxide will emit from the first pre-production stage to the final natural gas distribution stage. Several studies on carbon emission of NGSC from different aspects can offer some insights into this research. Balcombe et al. (2018) formulated the methane and carbon emissions from different supply period and identified the contribution from each stage. Brandt et al. (2014) shows the leaks from North American natural gas systems, this research contributes to the carbon emission study caused by leakage in this paper. Littlefield et al. (2017) shows different ground-level carbon emission from the different stage with the data augmented. Lyon (2016) review, summarize the recent and previous carbon emission estimation. The paper concludes methane emission information during different sources across NG supply chain, which do some statistical help to carbon emission data analysis in this paper. Except for the natural gas system, some studies have a focus on the oil supply system, which has a similar principle in some aspects, especially for carbon emission caused by fuel consumption (Yuan et al., 2019; Zhou et al., 2020). E.g. Yan et al. (2019) quantified the carbon emission information of distributed energy system, while the carbon reduction potential analysis are given, this method in the environmental and economic optimization help the study in this paper. In the study of carbon emission during the NGSC, it is notable that emissions from the pre-production phases are relatively low in general. Some studies find that the dominant emissions are from the transmission and storage phases (Littlefield et al., 2017; Balcombe et al., 2018), and the major carbon emission in the transmission system is compressor station energy consumption, compressor ventilation and pipeline leak (Lyon, 2016; Balcombe et al., 2018). Some studies conclude that despite the storage and transmission, more attention should be paid on road transportation and natural gas processing (Gadalla et al., 2006; Lyon, 2016). Generally, researches mentioned above help the evaluation of environmental performance in this paper.

Both the economic optimization and environmental estimation are based on the key parameter of natural gas demand. However, the demand is hard to make a high precision prediction, and the uncertain demand can’t be fully considered in the design period. According to the central limit theorem, the natural gas demand of an entire city is the summation of every uncertain demand of individual or commercial users (Liu et al., 2018) which means the probability of demand can be treated as normal distribution theoretically. Some researchers have proposed novel methodologies to quantify the gas supply reliability considering the uncertainty of demand, and the reliability indicators in these papers can enlighten the reliability index in this paper (Su et al., 2018; Yu et al., 2018; Yu et al., 2018a, Yu et al., 2018b). Different mathematical programming methods are proposed based on various treatment to the uncertain parameter of demand. Stochastic programming models of natural gas industry based on Monte Carlo sampling are often used to convert the model into an equivalent deterministic solvable format (Fattahi et al., 2018; Zhang et al., 2019a, Zhang et al., 2019b; Zhou et al., 2019). Be different from stochastic programming; some researches are based on chance-constrained programming (Zhang et al., 2017a, Zhang et al., 2017b, J.-Sharahi et al., 2019; Zhang et al., 2019a, Zhang et al., 2019b). Yuan et al. (2020) proposes a fuzzy mixed integer linear programming model to quantify the energy-environmental efficiency of the pipeline networks. What’s more, some studies about elasticity and distribution of natural gas prices in China (Zhang et al., 2017a, Zhang et al., 2017b; Li et al., 2018; Zeng et al., 2018; Zhang et al., 2018) also help our research because the changeable price is considered in this paper. Given the certain demand such as the mean value will cause the dissatisfaction of natural gas in some high-demand circumstances. Therefore, this paper takes the supply risk with three levels as an indicator to describe the unsatisfied demand; different supply risk will contribute to different economic optimization plan and various environmental influence. Three scenarios namely Risk Neutral Scenario (RNS), Risk Aversion Scenario (RAS), and Risk Taking Scenario (RTS) are proposed to model the three levels of supply risk.

The framework of this paper is shown in Fig. 1. The economic optimization model and environmental performance estimation are based on three scenarios of different supply risk. Carbon emission amount versus supply risk is concluded in the environmental part. The carbon emission is calculated from processing, storage, transmission to road transportation. NGSC is optimized in the economic part where the maximum annual profit is set as the objective. Multiple gas sources and transportation mode are considered in this section. What’s more, the pipeline layout, location of different functional stations, transportation scheme and the profits versus supply risk are given in the economic part. Based on the treatment method of natural gas demand, different mathematical types are proposed within three scenarios. The mathematical type of Risk neutral scenario is MILP (Mixed Integer Linear Programming), and the type of risk aversion scenario is MIQP (Mixed Integer Quadratic Programming) while the MINLP (Mixed Integer Nonlinear Programming) method is used in risk taking scenario. The specific programming method will be discussed in the risk attitude estimation part.

This research attempts to contribute to the flowing aspects:1) Optimizing the economic performance of the NGSC integrally. The NGSC studied in this paper contains three natural gas products which are natural gas, compressed natural gas and liquefied natural gas, respectively. Pipeline and road tankers transportation are considered as the transportation mode while the detailed optimal supply scheme in the design stage and operation stage is concluded. 2) Analyzing the environmental performance of the supply chain based on the supply scheme from the economic optimization model. The carbon dioxide emission from the transmission, road transportation, storage and processing are formulated in this paper. 3) In order to handle the uncertain parameter of natural gas demand, three scenarios with different supply risk, named Risk Neutral Scenario (RNS), Risk Aversion Scenario (RAS), and Risk Taking Scenario (RTS) are used. 4) The feasibility and effectiveness of the model are verified by a real supply chain in China. The relationship between economic profits, carbon emission and the reliability of the supply chain are concluded, and some suggestion is recommended to the designers.

The rest of this paper proceeds as follows: Section 2 proposes the methodology where the economic and environmental performance is evaluated in section 2.1 and section 2.2, respectively. The risk attitude estimation are presented in section 2.3. Then Section 3 provides results and discussion from two aspects, and section 4 concludes this paper with future directions.