A stochastic programming approach to planning of offshore gas field developments under uncertainty in reserves

In this work we consider the optimal investment and operational planning of gas field developments under uncertainty in gas reserves. The resolution of uncertainty in gas reserves, and hence the shape of the scenario tree associated with the problem depends on the investment decisions. A novel stochastic programming model that incorporates the decision-dependence of the scenario tree is presented. A decomposition based approximation algorithm for the solution of this model is also proposed. We show that the proposed approach yields solutions with significantly higher expected net present value (ENPV) than that of solutions obtained using a deterministic approach. For a small sized example, the proposed approximation algorithm is shown to yield the optimal solution with more than one order of magnitude reduction in solution time, as compared to the full space method. "Good" solutions to larger problems, that require up to 165,000 binary variables in full space, are obtained in a few hours using the proposed approach. (C) 2003 Elsevier Ltd. All rights reserved.