Long-Term Petroleum Product Supply Analysis Through a Robust Modelling Approach

LoyolaEcon Working Paper 3/2016

Posted: 26 Jul 2016 Last revised: 27 Jul 2016

See all articles by Umed Temursho

Umed Temursho

University of Central Asia (UCA)

Frederic Lantz

Institut Francais du Petrole (IFP)

Date Written: March 20, 2016

Abstract

Linear programming approach to economic modelling of petroleum refining has important shortcomings that make it less useful and less robust for the purposes of impact assessments of related policies. These have to do with its natural inability to calibrate observed data and obtaining jumpy responses of the decision variables to smooth exogenous shocks due to the large number of substitutions between the refining processes. Relying on positive mathematical programming literature, in this paper we propose a method that solves these issues. The main idea is that a refining model has to have a non-linear objective function via inclusion of an implicit total cost function that captures the aggregated impact of all other relevant factors that are not explicitly modelled. We discuss in some detail the issues relevant for practical implementation of the proposed approach for interested practitioners.

Keywords: Petroleum refining industry, perfect calibration, positive mathematical programming, robust analysis

JEL Classification: C60, L71

Suggested Citation

Temursho, Umed and Lantz, Frederic, Long-Term Petroleum Product Supply Analysis Through a Robust Modelling Approach (March 20, 2016). LoyolaEcon Working Paper 3/2016, Available at SSRN: https://ssrn.com/abstract=2813708

Umed Temursho (Contact Author)

University of Central Asia (UCA) ( email )

138 Toktogul Street
Bishkek, 720001
Kyrgyzstan

Frederic Lantz

Institut Francais du Petrole (IFP)

228 Avenue Napoleon Bonaparte
Rueil Malmaison 92852
France

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