Analysis of the optimal policy for managing strategic petroleum reserves under long-term uncertainty: the ASEAN case.

Oliveira, F.S.; Zahur, Nahim B.; Wu, Fulan

Abstract

We examine the issue of petroleum stockpiling in the Association of Southeast Asian Nations (ASEAN), computing the optimal build-up and draw-down policies under different conditions. We study, in detail, the properties of petroleum prices, oil imports and production, and GDP, analyzing the impact of the planning horizon, discount rate and price elasticity of demand on the optimal policy. We use a finite horizon stochastic program (with varying branching) in which the policymaker minimizes the negative impacts of oil price increases on the GDP and the cost of holding the strategic petroleum reserve. We propose an inter-generational equity rule to compute the level of inventory in the final states of the decision tree. We find that ASEAN countries would benefit significantly from developing a strategic petroleum reserve, with net benefits ranging from US$25–125 billion. Our suggested target stockpile is consistent with the International Energy Agency's recommendation of holding stocks equal to 90 days of net imports.

Citation

OLIVEIRA, F.S., ZAHUR, N.B. and WU, F. 2023. Analysis of the optimal policy for managing strategic petroleum reserves under long-term uncertainty: the ASEAN case. Computers and industrial engineering [online], 175, article number 108834. Available from: https://doi.org/10.1016/j.cie.2022.108834

• Journal Article Type: Article
• Acceptance Date: Nov 18, 2022
• Online Publication Date: Nov 24, 2022
• Publication Date: Jan 31, 2023
• Deposit Date: Oct 21, 2023
• Publicly Available Date: Oct 30, 2023
• Journal: Computers and industrial engineering
• Print ISSN: 0360-8352
• Electronic ISSN: 1879-0550
• Publisher: Elsevier
• Peer Reviewed: Not Peer Reviewed
• Volume: 175
• Article Number: 108834
• DOI: https://doi.org/10.1016/j.cie.2022.108834
• Keywords: Inventory management; Stochastic programming; Uncertainty; Petroleum
• Public URL: https://rgu-repository.worktribe.com/output/2078490