Seasonal fluctuations of demand and optimal inventories of a non-renewable resource such as natural gas

Abstract

This paper considers the effects of underground gas storage in an integrated model of extraction, storage and distribution of a non-renewable resource. In addition to the provision of supply-security in cases of delivery shortfall, the installment of a storage unit for the resource may provide cost reducing production smoothing as demand fluctuates seasonally between trough and peak. In this paper we investigate social optimality w.r.t. production smoothing, both within the cycle of a year and over the span of several years until shut-down of operations.