Re: working gas price model

Vince-

I have a simplified version of Brad's model in mind.

The "no arbitrage" condition equates trading margins across the country.
Costs of transmission rise with congestion on the network. Wellhead supply is
almost completely price- elastic, while burner-tip demand is almost
completely price inelastic. Storage is rationalized as a perpetual call
option.

The least time-variant parameters are the costs of injecting and withdrawing
gas from storage to the pipeline, followed by the costs of delivering gas
from the wellhead to the pipeline. The intermediate-variant parameters are
the capacity-dependent costs paid to the pipeline (above shrinkage) for
transmission. The most time-variant parameters are the trading margins and
the valuations of the storage option.

There are 8 parameters to be estimated at each major node of the betwork.
They are identifiable in either of two straightforward ways: using a short
time series of the last 3 days prices based on the assumed variability
mentioned above, or point-estimates ("calibrations") using only today's data
based on a node-based model of competition between pipelines where pipes with
the same region of origination, albeit markedly different terminus, price
versus capacity similarly, "competing" for outflows.

I will write this up for you in Scientific Word and present it to you at your
earliest convenience.

Clayton