European Gas Infrastructure Expansion Planning: An Adaptive Robust Optimization Approach

The European natural gas market is undergoing fundamental changes, fostering uncertainty regarding both supply and demand. This uncertainty is concentrated in the value of strategic infrastructure investments, e.g., projects of common interest supported by European Union public funds, to safeguard security of supply. This paper addresses this matter by suggesting an adaptive robust optimization framework for the problem of gas infrastructure expansion planning that considers long-term uncertainties. This framework confronts the drawbacks of mainstream methods of incorporating uncertainty in gas market models (i.e., stochastic scenario trees), in which the modeler predefines the probabilities and realization paths of unknown parameters. Our mathematical model endogenously identifies the unfortunate realizations of unknown parameters, and suggests the optimal investments strategies to address them. We use this feature to assess which infrastructure projects are valuable in maintaining system resilience amid cold-winter demand spikes, supply shortages, and budget constraints. The robust solutions point to consistent preferences for specific projects. We find that real-world construction efforts have been focused on the most promising projects from a business perspective. However, we also find that most projects of common interest are unlikely to be realized without financial support, even if they would serve as a hedge against stresses in the European gas system.

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