Energy 246 (2022) 123421

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Energy
journal homepage: www.elsevier.com/locate/energy

Stochastic cost-benefit analysis to assess new infrastructure to

improve the reliability of the natural gas supply
Sergio Cabrales a, *, Carlos Valencia a, Carlos Ramírez a, Andre

s Ramírez a, Juan Herrera b,
Angela Cadena c
a
Centro para la Optimizacio
, Colombia

n y Probabilidad Aplicada (COPA), Departamento de Ingeniería Industrial, Universidad de los Andes, Bogota
b
Facultad de Derecho, Universidad de los Andes, Bogota
, Colombia
c
Departamento de Ingeniería El

, Colombia

nica, Universidad de los Andes, Bogota
ectrica y Electro

a r t i c l e i n f o a b s t r a c t

Article history: The reliability of a natural gas system involves the capacity of the supply, transportation, storage and
Received 23 September 2021 distribution system to provide service without short-term interruptions in the event of contingencies.
Received in revised form Typically, increasing the gas supply reliability implies diversification of gas sources, transportation re-
17 January 2022
dundancies or larger gas storage capabilities. In addition, the combined operative uncertainty of the
Accepted 5 February 2022
Available online 9 February 2022
transportation pipeline and gas supply are not considered when assessing the impact of new infra-
structure seeking to increase the gas supply reliability. To overcome these deficiencies, we propose: (i) a
stochastic cost-benefit analysis; (ii) a pipeline contingency model using topographical, societal (violence)
Keywords:
Natural gas reliability
and pipeline information; and (iii) a supply contingency model of scheduled and unscheduled mainte-
Natural gas nance. Moreover, we consider both the gas supply and transportation uncertainties using a Monte Carlo
Reliability simulation and an optimization model; furthermore, the expected cost-benefit is estimated. Our
Cost-benefit analysis methodology is applied and calibrated to the Colombian natural gas system to estimate the expected
cost-benefit of a new pipeline: Jobo - Medellín. The results show that the expected benefit-cost ratio
(BCR) of this pipeline is 2.02 and that the probability of having an economic benefit greater than the cost
is equal to 99.0%.
© 2022 The Authors. Published by Elsevier Ltd. This is an open access article under the CC BY-NC-ND
license (http://creativecommons.org/licenses/by-nc-nd/4.0/).

1. Introduction led to rationing in the supply of natural gas in significant areas of

In the last 46 years, natural gas has increased its participation in
the total primary energy supply (TPES) from 16% in 1971 to over
22% in 2017 [1]. This source of energy has a relatively high calorific
value, and its combustion emits fewer pollutants than other fossil
fuels [2]. Among all fossil fuels, natural gas represents 28% of the
world energy consumption, with an average annual growth of 3%
since 2000 [3]. This increase in consumption has caused several
important economic and social activities to depend on a constant
natural gas supply. As a consequence of this dependency, in-
terruptions of the natural gas supply generate catastrophic conse-
quences. For instance, in the 1970s, the severe winter of 1976e1977
* Corresponding author.
E-mail addresses: s-cabral@uniandes.edu.co (S. Cabrales), cf.valencia@uniandes.
edu.co (C. Valencia), cg.ramirez2513@uniandes.edu.co (C. Ramírez), af.ramirez12@
uniandes.edu.co (A. Ramírez), j.herrerap@uniandes.edu.co (J. Herrera), acadena@
uniandes.edu.co (A. Cadena).
the west-central region of the United States [4]. In the winter of
2006, Russia stopped the supply of natural gas due to its political
and commercial disputes with Ukraine, affecting a significant
number of member countries of the European Union [5]. Similar
political and economical disputes occurred in 2007 between
Belarus and Russia, and in 2009 again between Ukraine and Russia.
In the last decade, several unexpected natural gas supply in-
terruptions have occurred, with severe consequences [6]. There-
fore, there is an increasing importance of understanding the
behaviour of the reliability of the natural gas system to exogenous
and endogenous factors, as well as, the creation of policies to
minimize the risk of service interruptions [7,8].
The reliability of natural gas systems involves the capacity of the
supply, transportation, storage, and distribution system to provide
service without short-term interruptions in the event of contin-
gency or failure in the systems infrastructure. Typically, increasing
the gas supply reliability implies diversification of natural gas
sources, transportation redundancies or larger gas storage [9,10].

https://doi.org/10.1016/j.energy.2022.123421
0360-5442/© 2022 The Authors. Published by Elsevier Ltd. This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/).
S. Cabrales, C. Valencia, C. Ramírez et al.
The effect of new infrastructure on natural gas supply reliability is
commonly analyzed using the following criterion: (i) The reliability
of the system in the event of unavailability of the most critical gas
unit infrastructure also known as a (N
1) analysis, (ii) The reli-
ability of the system under extreme temperatures during a peak
period of seven days, (iii) The presence of any 30-day period of
exceptionally high gas demand, and (iv) The reliability of the sys-
tem during a period of 30 days in the event of unavailability of the
largest gas unit infrastructure [11e13]. These criterion determine
the ability of the gas system to respond to demand requirements.
For example, the N
1 standard assumes a normal operation of the
gas system under a single contingency or failure. However, the
deterministic approach of the criterion-methodology neglects the
stochastic nature of supply, transportation, storage, and distribu-
tion systems.
Although reliability criteria based on the deterministic N-1
approach has been commonly used in supply networks, such as
electrical grids, or gas transportation; during the last years some
studies have proved the importance of using probabilistic ap-
proaches that may consider simultaneous incidents in the system,
allowing decisions based and expected value of cost (i.e. Heylen
et al. [14] for a methodology comparison, or Yu et al. [15] for the
case of natural gas transmission). In addition, incorporating the
stochastic nature of the behaviour of components, also opens the
possibility to measure the risk associated with some strategic,
operative or preventive decisions. Considering, for example, fail-
ures of crucial components, interruptions on production, or varia-
tions of demand, would provide enough element to evaluate
alternatives based on cost, benefit and risk dimensions.
The cost-benefit analysis (CBA) is an analytical tool used to
assess a potential project in order to assess the change in welfare
attributable to such a project [16]. The purpose of the CBA is to
facilitate the most efficient allocation of resources, demonstrating
the convenience for society to undertake a project in exchange for
other alternatives [12,13,17,18]. Estimating the benefits associated
with a project requires comparing two scenarios, with and without
a project [13]. Usually, the CBA only includes a deterministic sce-
nario of all variables that affect the benefit-cost ratio (BCR).
Although, some authors from other fields have raised stochastic
cost-benefit analysis [19e22].
For the correct assessment of natural gas supply reliability, the
methodologies need to include the uncertainty of the demand,
supply, operative restrictions, and maintenance of the system [15].
Several methodologies for gas supply reliability assessment have
been developed over the years, and many approaches exist for
modeling the stochastic properties of complex natural gas systems,
e.g., Monte Carlo-based methods [15,23e25,27,28]; Latin hyper-
cube sampling with the Cholesky decomposition method [29];
graph theory and stochastic process [30]; Monte Carlo simulation
and graph theory [31,32]; central moments of uncertainties [33];
and integration of the stochastic processes, graph theory and
Monte Carlo simulation [15].
For natural gas systems, a robust methodology of CBA would
require the inclusion of stochastic contingencies based on historical
reports of interruptions in the supply system and transportation
pipelines. This stochastic methodology should be supported by an
optimization model that minimizes the total cost of supplying gas
at the wellhead, transportation, and natural gas rationing. A natural
way of incorporating stochasticity on CBA is the use of scenarios, or
Monte Carlo simulations. Having several possible outcomes of the
optimal solutions, allows to estimate the expected value of the
solutions and incorporate the statistical confidence on the ranges of
the cost-benefit ratio.
The aim of this paper is to propose a stochastic cost-benefit
analysis to assess new infrastructure to increase natural gas
2
Energy 246 (2022) 123421
supply reliability. We combined the operative uncertainty of the
transportation pipeline and gas supply using (i) a pipeline contin-
gency model with topographical, societal (violence) and pipeline
information and (ii) a supply contingency model of scheduled and
unscheduled maintenance. In addition, we developed a Monte
Carlo optimization model using as an input the official demand,
production, pricing, and pipeline capacity projections to conduct an
expected BCR of the proposed alternative.
The remainder of this paper is structured as follows: Sections 2
and 3 present our methodology developed to asset the supply
reliability of a natural gas system. A case study to illustrate the
feasibility of this methodology is presented in Section 4. Finally,
Sections 5 and 6 conclude this paper.
2. Methodology
We propose a stochastic cost-benefit analysis to assess new
infrastructure to increase the natural gas supply reliability. Our
analysis uses a stochastic optimization algorithm that seeks to meet
the gas demand of a proposed network while minimizing the total
costs of supplying gas at the wellhead, transport, and natural gas
rationing. The proposed method differs from previous approaches
since it is not focused on analyzing the failure of the most critical
component of the system (N
1), but considers the stochastic
modeling of contingency for several main components of the sys-
tem (supply sources and transport pipelines). A sequential Monte
Carlo simulation is then used to analyze the benefit of the proposed
infrastructure, such as an additional pipeline or gas storage. Fig. 1
illustrates the operation of this methodology.
The central part of the methodology is a module that performs a
comparison among alternative designs of the natural gas system
(including supply, transportation and storage instances). This
comparison is made through the generation of probabilistic in-
stances, in which stochastic inputs are simulated to create scenarios
with stochastic contingencies. Each scenario is solved through an
optimization model that decides how much gas is sent from each
source (node) and how the gas is sent through the transportation
system to meet the demand. Then, a Monte Carlo study is per-
formed to evaluate the distribution of the optimal cost. The selec-
tion of the best option is based on a stochastic cost-benefit analysis.
When comparing a new alternative against the current state of
the system (all components in the gas network are in good working
order), all inputs required for the simulation, both stochastic and
deterministic, are presented to the optimizer. That is, the gas de-
mand, the gas supply, and the capacity of the transportation curves
are presented to the optimizer for two systems: the base (current)
and alternative cases. Both the gas demand and supply are gener-
ated stochastically from estimated distributions for the entire study
period. The curves for the capacity of transportation are scenarios
of the real capacities considering possible failures and shutdowns
for maintenance. Other deterministic information, such as the to-
pology of the terrain and socio-demographic variables (e.g.,
violence index), are necessary to generate interruptions in
transportation.
A random number generator is used in combination with pre-
defined probability functions to model the occurrence of contin-
gencies or incidents in the components of the system. This allows
us to quantify the risk associated with a shortage of end customers.
Interruptions in the gas system are classified as supply failures or
transportation (pipeline) contingencies subdivided into scheduled
or unscheduled maintenance. These incidents are modeled
assuming three independent stochastic processes: the process of
occurrence of incidents where the time between incidents (ti) is
randomly modeled, the duration of each incident (di), and the
impact on the production or transportation capacity (ii) during the
S. Cabrales, C. Valencia, C. Ramírez et al.
Fig. 1. Stochastic cost-benefit methodology.
incident. The generation of random values is performed for the
entire time horizon of the optimization model. A particular
component could theoretically fail and be repaired multiple times
over a time horizon.
Once the contingency rates of components, the supply avail-
ability and the demand for a single Monte Carlo iteration are
determined, they are presented to the optimizer that minimizes the
objective cost function for the entire time horizon. The marginal
benefit of the alternative system is evaluated regarding the base
case. The Monte Carlo simulation then checks if the maximum
number of iterations is reached. In the case that the simulation has
not reached this maximum, the simulation repeats itself (next
iteration) and runs the model with new probabilistic data. When
the maximum number of Monte Carlo iterations is reached, the
3
Energy 246 (2022) 123421
simulation stops and the cost/benefit analysis is performed.
For the simulation of the gas system, the following assumptions
are made:
 The thermo-hydro-dynamic behavior of the gas pipeline system
is not considered. The gas supply capacity used corresponds to
the pipeline nominal values.
 The heating value for all gas sources is equivalent to 1000 British
thermal units (BTUs) by cubic feet (CF) of natural gas.
 The supply contingencies are generated using a Poisson process
with rate failures for scheduled and unscheduled maintenance
estimated from historical data (Section 3.1).
 The transport contingencies are generated using Poisson pro-
cesses with rate failures for scheduled and unscheduled
S. Cabrales, C. Valencia, C. Ramírez et al. Energy 246 (2022) 123421

maintenance estimated from historical data (Section 3.2). The supplied to node i(di) and must be a positive quantity less than or
estimation of unscheduled maintenance uses exogenous vari- equal to the projected demand (di). With this constraint, the opti-
ables as topographical and violence indexes (Section 3.2.2). mization model considers the presence of gas rationing when a
 The transport incidents are independents. difference between the gas supplied and demanded exists (di
di).
Finally, the third and fourth restrictions are related to the limits for
 The duration of each incident is conditionally independent of gas production ðkO T
i Þ and transport ðkij Þ, respectively. A graphical
the previous incidents. For each type of incident k, an inde-
representation of these model variables in the network structure
pendent random variable is generated. This variable represents
are displayed in the Fig. 2.
the duration of the service interruption dk, where a parametric
The optimization model was formulated using the R Optimiza-
distribution of the type dk ~log-normalðmk ; s2k Þ was selected tion Infrastructure package (ROI, Theubl et al. [34], which provides
using goodness-of-fit tests on the historical data. It is assumed an extensible infrastructure to model linear, quadratic, conic and
that every time a type k incident occurs in any component of the general nonlinear optimization problems. The subpackage for
system, the duration is an independent replica of the variable dk. linear programming glpk was used to minimize the objective
The parameters mk and s2k are estimated by the maximum function (Eq. (2)) over the entire time horizon.
likelihood:
2.2. Benefit-cost ratio (BCR)
Pnk Pnk
logðdki Þ ^ k 2
½logðdki Þ
m
m^ k ¼ i¼1
; s^2k ¼ i¼1
(1) The expected benefit of a new infrastructure is estimated from
nk nk
the expected present value (PV) of the difference between the total
cost of the natural gas supply of the current system (PCurrent) and
 The annual discount rate (r) is 12.75% the total cost with the proposed infrastructure to increase the
natural gas supply reliability (PNew):
" #
XT PCurrent
PNew
2.1. Optimization model E½Benefit ¼ E (4)
t¼1 ð1 þ rÞt
The optimization model minimizes the total supply cost (P),
which includes the cost of supplying gas at the wellhead, the total where T is the analysis horizon and r is the discount rate.
cost of transportation and the cost of rationing for the national gas The total cost of an alternative is composed of two main ele-
system: ments: (i) the capital expenditure (CAPEX), which includes such
infrastructure as compression equipment, pipes, valves, electrical
Xn Xn Xn
minqO ;qT Pt ¼ i¼1
p O O
i qi þ i¼1
cT qT
j¼1 ij ij
systems, abandoned oil/gas wells, salt mines or wells with water-
i ij
Xn drive reservoirs; and (ii) the operating expenses (OPEX), which are
þ i¼1
pR ðdi
di Þ (2) related to the additional electricity to operate the natural gas sys-
tem, maintenance and staff payments:
which is solved subject to the following restrictions:
XT OPEXt
Xn Xn Cost ¼ CAPEX þ (5)
qT þ qO ¼ di þ qT ; ci
t¼1 ð1 þ rÞt
j¼1 ji i j¼1 ij

0  di  di ; ci Finally, the expected benefit-cost ratio (BCR) of an alternative is

(3) defined as:
0 qO
i  kO
i ; ci
E½Benefit
0 qTij  kTij ; ci cj E½BCR ¼ (6)
Cost
where:

pO
i is the gas price in the wellhead for node i
qO
i is the gas produced in node i
cTij is the transport tariff from node i until node j
qTij is the transported volume from node i until node j
pR is the nationally weighted demand rationing cost per unit
volume. It is defined as a measure of the economic and social
damage caused by the interruption of natural gas services.
di is the required demand in node i
di is the supplied volume for the demand in node i
kO
i is the maximum production capacity of node i
kTij is the maximum transport capacity from node i until node j

The first restriction is a balance equation where the gas flow

P
arriving at node i from any node j ð nj¼1 qTji Þ and the gas production
at node i ðqO
i Þ must be equal to the supplied demand to node i(di)
and the gas flow leaving node i for any of the j nodes of the gas
P
network ð nj¼1 qTij Þ. The second restriction is related to the gas Fig. 2. Graphical representation of the proposed model and the network structure.

4
S. Cabrales, C. Valencia, C. Ramírez et al.
The basic criteria used to evaluate the infrastructure scenarios,
defined as E[BCR]  1, allow us to prioritize the alternatives eval-
uated. In addition to these criteria, we might estimate the proba-
bility (a) of having an economic benefit greater than the cost:
 
Benefit
a¼P 1
Cost
3. Modeling sources of uncertainty
3.1. Supply node
The risk of incidents in each source of the gas supply system is
classified into two independent categories: scheduled or un-
scheduled maintenance. A homogeneous Poisson process is
assumed for the occurrence of events for each supply source and for
each type of maintenance (scheduled or unscheduled). The con-
tingency rate type k for source i(lik) does not depend on the
exogenous variables, and is estimated using historical data of the
annual average incidents that have been reported for each supply
node. The shortages are adjusted to uniform distributions (mini-
mum percentage, maximum percentage) based on historical
interruption information.
3.2. Pipeline
The risks of contingencies in each component of the trans-
portation system are classified into two independent categories:
scheduled or unscheduled maintenance. Unscheduled mainte-
nance presents three subcategories:
 Landslide incidents/weather events: contingencies due to
landslides, ground movements or displacement of channels due
to weather events.
 Incidents due to human interference: contingencies due to
external human interference. For example: illegal valves,
terrorist attacks, damages for inappropriate use of construction
machinery or civil damages.
 Corrosion incidents: contingencies due to corrosion and/or
deterioration of the pipes.
For each section of pipe i in the system and for each type of
incident or failure k, we assume a process of occurrence of events
over time with a constant rate lik over time per kilometer. The
shortages for all types of transport incidents are adjusted to a beta
distribution with parameters a and b estimated based on historical
interruption information.
3.2.1. Scheduled maintenance
The occurrence of these interruptions is similar to unscheduled


ðb^0 ; b^1 ; …; b^p Þ ¼ arg maxb0 ;b1 ;…;bp Lðb0 ; b1 ; …; bp Yikj ; i ¼ 1; 2; …; I; j ¼ 1; 2; …; AÞ
maintenance in the transportation system. However, their sto-
chastic nature is completely different. Given that most mainte-
nance is scheduled, we propose the following:
Energy 246 (2022) 123421
1. Find G groups of pipe sections (within the 18 available) by
means of a cluster statistical methodology using suitable exog-
enous variables as variables of similarity: X1, X2, …, Xp, which
represent physical and environmental characteristics.
2. For each of the G groups, a Poisson process with a constant
(7)
annual rate is estimated using:
^ N
lg ¼ G (8)
ty *lG
Where NG is the number of programmed interruptions in G group
pipes, ty are the observation years and lG is the sum of the pipe
lengths in the G group. The statistical methodology to find the
groups is known as k-means, where the objective is to find groups
of observations whose means in 1, X2, …, Xp are as far apart as
possible.
3.2.2. No-scheduled maintenance
The natural estimator of lik from historical data is ^
lik , the
maximum likelihood estimator, defined for an observation period
(in years) as:
^ N
lik ¼ f (9)
ty *li
where Nf is the number of contingencies observed in the i
component, ty are the observation years and li is the i pipe length. In
this case, the index k ¼ 1, 2, 3 represents the three types of failures
considered (landslides, human interference, and corrosion/deteri-
oration). The estimation of the rates lik requires long periods of
information; therefore, when sufficient historical information is not
available, it is preferable to use models in which the rates lik are
explained from exogenous variables that affect their value. In this
way, it is possible to unite the information of the different sections
into a single sample, allowing more consistent estimators.
For the Poisson generalized model with exogenous variables,
the data are divided into the incident categories described. For each
of them, the variables are created in such a way that Yikj is the
number of k type fails in component i during year j, which follows a
Poisson distribution with the rate lik*li.
Since this rate depends on exogenous variables, the logarithm is
used as a link function to relate the rate to a linear function of the
form lik ¼ exp(b0 þ b1X1 þ / þ bpXp), where p is the number of
variables considered in the model (p may vary for each type of
incident k, but this dependency is omitted for ease of notation). The
parameters of interest are b0, b1, …, bp, which can be estimated by
maximum likelihood as:
(10)
where I is the number of components in the system and A is the
number of years in the sample. L is the likelihood function of the
parameters given the observations Yikj for a fixed k. Since the rates
are relative to the length of each pipe, the number of kilometers of
5
S. Cabrales, C. Valencia, C. Ramírez et al. Energy 246 (2022) 123421

Fig. 3. Methodology for altitude extraction data for a pipeline: a) A pipeline is selected; b) the pipeline is simplified in straight paths; c) each straight path is subdivided in 100 m
subsections and the geographical coordinates of the extremes of each subsection are determined in terms of longitude (lonn) and latitude (latn); d) the altitude is extracted for each
coordinate and the altitude profile is obtained.

each pipe is used as the exposure variable (offset). the section crosses (Fig. 4), where the weights correspond to the
To consider the effects of landslides and human interference on proportion of the total length that belongs to that municipality:
incident rate estimation, the exogenous variables topographic in- PM
dex (T) and the violence index (V) are created to represent these m¼1 li;m Hi;m
Vi ¼ PM (12)
phenomena. The estimation of T for each pipeline i is made using
m¼1 li;m
the altitude for 100 m sections; then the altitude change is calcu-
lated between each partition, and this value is standardized (Fig. 3): where H is the homicide rate per 100,000 inhabitants, the subscript
m represents the municipality, and M is the number of munici-
PP   palities that the section crosses.
 
p¼2 Hp
Hp
1 
Ti ¼ (11)
li
4. Case study
where H is the altitude, the subscript p represents the sequence of
partitions in 100 m, P is the number of total partitions of the In Colombia, the share of natural gas in the total primary energy
pipeline, and li is the total pipe length. supply was 24% in 2018, with an average consumption of 1.26
The violence index (V) for each pipeline i is calculated as a billion cubic feet per day (bcfd). All indigenous production (1.25
weighted average of the homicide rates of each municipality that bcfd) is dedicated to national consumption, and only 0.01 bcfd of

Fig. 4. Methodology for homicide rate data for a pipeline: a) A pipeline is selected, b) the municipalities that are crossed for the pipeline are identified and the corresponding
distance is calculated, c) the homicide rate of each municipality crossed is obtained and the homicide rate is obtained.

6
S. Cabrales, C. Valencia, C. Ramírez et al.
natural gas is imported as liquidized natural gas (LNG) [35]. How-
ever, this tendency will most certainly change in the coming years,
since the total proven Colombian reserves are limited to 8.2 years
(3.78 trillion cubic feet) [36]. This limitation will imply importation
of LNG through the regasification plants located in Cartagena and/
or Buenaventura [37].
The Colombian gas system has presented several issues related
to the security and reliability of the natural gas supply. During the
2000s, the national gas market experienced several short-lived
shortages and rationing episodes. Some of these shortages were
caused by seasonal demand spikes in the power sector associated
with the El Nin ~ o phenomenon and by planned upgrades on some
gas treatment plants [38]. The Colombian gas natural sector had
two main problems: (i) the country could not supply the natural gas
demand during failures of the supplier plants or transport system;
and (ii) the gas sector did not present reliability criteria, method-
ology or services for gas consuming sectors [39] (see Fig. 4).
The implemented nodal model for the Colombian gas system
(Fig. 5) was built using the segments indicated at the transport tariff
resolutions of the Colombian Energy and Gas Regulation Commis-
sion (CREG). This model has 29 nodes, which include producers,
consumers and compression stations. The simulation was
Fig. 5. Simplified Colombian natural gas network with the reference scenario (only
pipelines represented with continuous lines) and the alternative scenario (including a
pipeline represented with a red dashed line).
7
Energy 246 (2022) 123421
performed for a 10-year period, which corresponds to the avail-
ability of the projection data for demand, transport capacity, pro-
duction and gas prices. The description and sources of these data
are depicted in Table 1.
The reference (base) scenario consists of the current pipeline
network represented by continuous lines in Fig. 5, while the
alternative scenario includes a new pipeline between the Jobo and
Medellín nodes. Apart from the inclusion of this pipeline, the two
scenarios are identical: both scenarios use the mean demand pro-
jection for each consumer node and the supply projections for each
producer node depicted in Fig. 6. The import capacity of the LNG
nodes was established at 400 million cubic feet per day (mmcfd);
however, the Buenaventura node was not enabled to supply gas
until January 2023 [37].
The contingency rates and shortage volume parameters used for
constructing log-normal distribution probability functions for the
duration for supply incidents are given in Tables 2 and 3 in the
Appendix, respectively. For transportation contingencies, the vol-
ume shortages for all failure types were generated based on a Beta
distribution with parameters a ¼ 0.587 6 and b ¼ 0.663 0, while the
mean and standard deviations used for each type of incident are
given in Table 4.
In Table 5, the regression results are shown for each type of
unscheduled maintenance. The p
values associated with the
topographic index are less than 1%, which shows the statistical
significance of this variable to explain the landslide and corrosion
incidents. Additionally, the p
value for the violence index is be-
tween 1% and 5%, which also confirms its statistical significance in
the explanation of the external incidents. The contingency rates
generated for external and landslide incidents for each pipeline are
shown in Fig. 7, and the corrosion incidents are shown in the left
map in Fig. 8.
Finally, the scheduled rated maintenance was generated using
two clusters determined by the k-means method, whose centroids
were Tm,1 ¼ 0.033, Vm,1 ¼ 26.264 and Tm,2 ¼ 0.133, Vm,2 ¼ 12.150. The
right map in Fig. 8 shows the rates for each pipeline.
4.1. Results of the case study
The reference and alternative scenarios were simulated using
stochastic benefit-cost analysis, and the results are described as
follows.
The probability density function of the present value for the
total cost of the entire time horizon is shown in Fig. 9. The base
scenario has a higher average optimal cost than the proposed
scenario (system with Jobo-Medellin pipeline). The reduction in the
optimal cost can be explained for three main reasons: (i) the in-
clusion of the Jobo-Medellín pipeline significantly reduces the
unsatisfied demand for Medellín and Cali (Table 6); (ii) in the case
of Medellín, the new gas pipeline has been used from the beginning
(2019), supplying the demand and taking advantage of the gas from
Jobo for Medellin; and (iii) the gas from Cusiana and Ballena to be
used in Cali and other nodes, like Neiva, Gualanday, Pereira and
Armenia, until the LNG import from Buenaventura is available in
2023 (see Fig. 10).
Additionally, the gas from Jobo has a lower cost than that from
Ballena or Cartagena (LNG import); therefore, Medellín consumes
less expensive natural gas, reducing the optimal cost. Finally, the
transportation costs are sensibly lower using the proposed pipeline
compared with the original loops (Ballena-Medellín and Cusiana-
Medellín).
The expected benefit of the proposed alternative is equal to $
S. Cabrales, C. Valencia, C. Ramírez et al. Energy 246 (2022) 123421

Table 1
Input parameters.

Variable Description Reference

Geographical Municipal: Colombian official geographical information (GIS shape-files) for municipalities. DANE [40]
Information Topographical: Altitude data for a requested coordinate. Google
Developers [41]
Violence: Homicide rate per 10,000 inhabitants for each municipality in 2017. Medicina Legal
[42]
Demand Aggregated natural gas demand time series of each node corresponds to three projected scenarios (high, mean, low). The gas UPME [43]
demand consists of the sum of residential, com-mercial, industrial, petrochemical, compressors, vehicle transport (NGV), oil and
thermoelectrical sectors.
Supply The natural gas offer time series of each node are the production declarations for ten years for each oil/gas field (Fig. 6). The LNG MINMINAS [44]
import capacity is assumed to be constant for the entire time horizon according to UPME estimates. UPME [37]
Pipeline Geographical location, length, diameter, and transportation capacity information for the system pipelines. UPME [37]
Information TGI [45]
Historical Information and uncertainty parameters for the supply shortages. CREG [46]
Information Transport interruptions and maintenance data for 4000 km of gas pipelines. TGI [45]
Prices Supply: Since there are no historical series or price projections for each oil/gas field, three wellhead prices are proposed: Cusiana, CONCENTRA [47]
Ballena and other fields. Prices are cal-culated as the weighted averages by contractual modality. These prices are projected using EIA [48]
the percentage changes of the projections of Henry Hub international price.
LNG imports: These prices are the aggregation of the Henry Hub international gas price, marine transport, liquefaction, EIA [49]
regasification and commercialization costs (Table A.8). The liquefaction cost was calculated as the average of the difference EIA [50]
between the Price Liquefied U.S. Natural Gas Exports and Price of U.S. Natural Gas Pipeline Exports reported by U.S. Energy FRED [51]
Information Administration since January 2016. Gas costs are adjusted with the annual average of the Producer Price Index (PPI) -
Industrial Gas Manufacturing and the marine transport costs are adjusted with the annual average of the Producer Price Index (PPI).
Transport: The transport tariffs are based in the CREG resolutions and are adjusted with the average of the last 10 years of the FRED [51]
Producer Price Index (PPI).
Costs Rationing: This cost is defined as the measure of the economical and social damages caused by the interruption of natural gas Econometría [52]
service. This value is assumed in 32 USD/kCF in 2019 and it is adjusted with the Producer Price Index (PPI).
CAPEX & OPEX for new pipelines: These estimations consider the cost, operation and maintenance of compressor station ACI SANIG [53]
machinery and pipelines considering variables as the topographic index, pipeline length, diameter and cost-related parameters.

Fig. 6. Production declarations of natural gas Colombian fields. (Data from MINMINAS [44].

Table 2
Failure rates and shortage volume parameters for supply incidents. The “Others” group includes the following nodes: Apiay, Barrancabermeja, Barranquilla, Cogua, Valledupar,
Gibraltar, Gualanday, Jobo, La Creciente, Medellín and Neiva.

Node Unscheduled maintenances Scheduled maintenances

Failure rate (failures/ Minimum shortage volume Maximum shortage Failure rate (failures/ Minimum shortage volume Maximum shortage
year) [%] volume [%] year) [%] volume [%]

Ballena 67 20 26 4 44 67
Cusiana 12 5 59 4 6 51
Others 6 15 100 1 8 100

1054.8 million, as a result of the direct use of the Jobo-Medellín
pipeline (Fig. 10). The total cost of the gas pipeline between Jobo
and Medellín is equal to $ 521.6 million, as described in Table 7.
The benefit-cost ratio (BCR) of the Jobo - Medellín pipeline
alternative to increase the reliability of the gas system is 2.023,
which implies a benefit ratio that is much higher than the total cost
of the new pipeline. The probability of having an economic benefit
greater than the cost is equal is:

8
S. Cabrales, C. Valencia, C. Ramírez et al. Energy 246 (2022) 123421

Table 3
Probability density function parameters for the duration of supply incidents. The “Others” group includes the following nodes: Apiay, Barrancabermeja, Barranquilla, Cogua,
Valledupar, Gibraltar, Gualanday, Jobo, La Creciente, Medellín and Neiva.

Node Unscheduled maintenances Scheduled maintenances

Mean Duration (hours) Standard Deviation Duration (hours) Mean Duration (hours) Standard Deviation Duration (hours)

Ballena 11 39.36 120 90

Cusiana 46.93 73.6 91 92
Others 46.93 73.6 360 204

Table 4
Probability density function parameters for the duration of transportation incidents.

Incident Type Mean duration (hours) Standard deviation duration (hours)

Scheduled Maintenance 35.548 56.153

Landslide/weather events 55.094 64.790
Human interference/external 38.004 27.344
Corrosion/Deterioration 75.135 156.975

Table 5
Regression results for the failures rates of unscheduled maintenances for trans-
portation incidents. Note: *p-value < 0.1; **p-value < 0.05; ***p-value < 0.01
 
log[llandslide] log[lexternal] log[lcorrosion] B
a¼P 1 ¼ 99:0% (13)
Topographic Index 17.375*** 13.430*** C
(std. error) (2.928) (3.729)
Violence Index 0.029** The results suggest that the Jobo-Medellín pipeline has a posi-
(std. error) (0.016) tive effect on the reliability of the natural gas supply. The evaluation
Intercept
8.383***
7.631***
8.458*** of investment in gas transportation assets should go beyond a
(std. error) (0.477) (0.460) (0.558)
deterministic cost-benefit analysis and should attempt to balance
Observations 126 126 133 the risk and cost of interruptions (societal effects) with the cost of
Log Likelihood
59.563
43.703
47.398 capital infrastructure (CAPEX) and the operation of the gas system
Akaike information criterion (AIC) 123.126 91.406 98.795
(OPEX).

Fig. 7. Failure rates per year for each pipeline for external (left) and landslide (right) incidents.

9
S. Cabrales, C. Valencia, C. Ramírez et al. Energy 246 (2022) 123421

Fig. 8. Failure rates per year for each pipeline for corrosion incidents (left) and scheduled maintenance (right).

Fig. 9. Probability density function of the present value of the total cost for the entire time horizon. Comparison between the current system (red) and the system with the Jobo-
Medellin pipeline (blue).

Table 6
Unsatisfied demand comparison for 2019e2028.

Region Base (% Total unsatisfied demand) Alternative (% Total unsatisfied demand)

Bogota
a 3.62 3.58

Medellínb 7.91 2.29
Calic 10.27 5.34
Rest of the countryd 0.212 0.226
a
t ¼
1.11, df ¼ 510, p-value ¼ 0.267 5.
b
t ¼
131.25, df ¼ 343.74, p-value < 2:2  10
16 .
c
t ¼
73.558, df ¼ 510, p-value < 2:2  10
16 .
d
t ¼
74.855, df ¼ 496.63, p-value < 2:2  10
16 .

10
S. Cabrales, C. Valencia, C. Ramírez et al. Energy 246 (2022) 123421

Fig. 10. Present value of Benefit of the Jobo - Medellín pipeline.

Table 7
Costs for the alternative scenario: CAPEX and OPEX for the Jobo-Medellín pipeline.

Cost Type Description Value (2019

Million USD)

CAPEX Pipeline: Length of 266 km and diameter of 2000 241.0

Compression: 45,000 hp 157.5
OPEX O&M NPV for the pipeline of 10 years (5% investment cost, 12.75%) 123.1
Total 521.6

5. Discussion which as defined by Pe
rez-Arriaga and Linares [55] comprises the

Guaranteeing a reliable supply of energy, in this case natural gas,
at competitive prices has been one of the main objectives of energy
policy. In the natural gas market, in addition to adequately fore-
seeing the supply sources and infrastructure level to meet the ex-
pected demand for energy, it is necessary to coordinate the
operation to satisfy consumption. Expansion planning and reliable
operation require the use of tools for evaluating the benefits and
costs of operating alternatives, considering the different un-
certainties that may arise. As mentioned before, increasing the gas
supply reliability implies diversification of gas sources, trans-
portation redundancies or gas storage capabilities.
Decisions to expand the natural gas transportation network or
to increase the number of different sources of supply are frequently
taken in a decentralized manner by midstream or upstream com-
panies. This practice has led to re-optimization of the network in
operating stress situations that threaten price efficiency and supply
reliability [54]. The main problems of decentralized expansion
decisions refer to: (i) the lack of coordination between the short-
run operation planning and the long-run expansion decisions; (ii)
the best combination of natural gas procurement from available
sources; (iii) the best operating conditions of compressor stations
in different periods of each year of the long-run horizon; and (iv)
the optimal timing to build pipelines and storage capacities and to
install new compressors.
In countries where markets operate, indicative planning is used,
characterization of the relevant features of a future energy model,
the identification of the major required strategic measures; and the
definition of the regulatory instruments that will make all this
possible. In this way, the indicative planning aims to provide agents
(in this case, natural gas market agents) with additional signals to
guide their decisions, based on a long-term vision, and without
interfering with efficient market allocation mechanisms.
In Colombia, the expansion planning of the gas network is
performed by the Energy and Mining Planning Unit (UPME)
through an indicative plan. Information is provided on the infra-
structure requirements to meet the demand for natural gas at
competitive prices, considering different sources of entry for this
energy. As can be deduced, there are multiple uncertainties that
must be considered: the growth of demand in the different con-
sumption segments, the available supply at different times of the
planning horizon, and the failures that can alter the reliable de-
livery of energy at each moment of use [37].
UPME uses a deterministic mathematical model to determine
the supply and the needed infrastructure to meet the expected
demand at the minimum cost [56]. The natural transport network
interconnects a set of supply nodes corresponding to the supply
sources and a set of demand nodes corresponding to consumption
centers. The UPME model replicates a centralized operation of the
natural gas transport system based on minimizing the production,
transport and shortage costs and satisfying specific physical and
technical limits of the network. As a result of this formulation, the

11
S. Cabrales, C. Valencia, C. Ramírez et al. Energy 246 (2022) 123421

model gives [56]: (i) the costs of natural gas transport and tariffs on
the end user; (ii) the production program of each available source
and the flows in the transport lines; and (iii) the demand supplied
and not supplied in each of its nodes. In summary, the model used
by the UPME calculates the benefit-cost ratio of each new infra-
structure under a specific scenario, but does not simultaneously
model the sources of uncertainty.
Alternatively, we proposed a stochastic cost-benefit analysis to
assess the new infrastructure, considering the uncertainties due to
failures in the gas supply or in the operation of the natural gas
transport network caused by landslides, human intervention or
corrosion problems. The methodology was tested in the Colombian
natural gas system with a new pipeline, Jobo - Medellín, which
improves redundancy in transport. For this pipeline, the expected
benefit is $ 1, 054 million, the expected benefit-cost ratio (BCR) is
2.02, and the probability of having an economic benefit superior
than the cost is 99.0%. In 2020, UPME estimated the benefit as USD$
1871 million, but not the BCR [37]. Using our stochastic cost-benefit
analysis, the expected benefit of this pipeline is $ 43.6% less than
using the UPME deterministic model.
It is important to note that historical failure information is
essential for achieving good analysis results. For future jobs, de-
mand and cost uncertainty can also be considered. In this way, if, in
addition to the operational problems that landslides can cause, the
greater demands for natural gas in periods of low hydrology are
taken into consideration, an important analysis would be made to
see the effects of climate change on the Colombian energy sector.
6. Conclusion
with a new pipeline in the Colombian natural gas system.
The results highlighted the value of analyzing the reliability of a
natural gas system in a single probabilistic framework given un-
certain variables. In the Colombian case, the application of the
methodology permitted quantifying the impact when a pipeline is
added to the current system. This inclusion was shown to increase
the reliability of the gas system under consideration through the
use of closer and cheaper gas sources for critical consumption
nodes.
A stochastic cost-benefit analysis allows for quantifying and
establishing metrics that could be used to facilitate decision-
making for policy makers to support investment decisions and
improve the natural gas supply reliability. If policy makers mandate
such investments without considering the stochastic nature of the
system, they would increase the risk of unintended consequences.
Funding
This research did not receive any specific grant from funding
agencies in the public, commercial, or not-for-profit sectors.
Credit author statement
Sergio Cabrales: Conceptualization, Methodology, Investiga-
tion, Writing- Reviewing and Editing. Carlos Valencia: Methodol-
ogy, Formal analysis, Writing- Reviewing and Editing. Carlos
Ramírez-Ruiz: Data curation, Visualization, Software. Andre
s
Felipe Ramírez: Data curation, Visualization. Juan Herrera: Formal
analysis, Investigation. Angela Cadena: Supervision, Investigation.

We proposed a stochastic cost-benefit analysis that includes a

Declaration of competing interest
pipeline contingency model using topographical, societal (violence)
and pipeline information, as well as a supply contingency model of
The authors declare that they have no known competing
scheduled and unscheduled maintenance. A sequential Monte
financial interests or personal relationships that could have
Carlo optimization model was described and implemented. The
appeared to influence the work reported in this paper.
optimization part of the model was formulated and compiled with
the R Optimization Infrastructure package (ROI), minimizing the
costs related to gas supplies, transportation tariffs and rationing Acknowledgements
costs for each Monte Carlo iteration.
Key uncertainties related to the gas supply and transportation We thank the Transportadora de Gas Internacional (TGI) for
were modeled using historical data and proxy variables, such as the transport contingencies and scheduled maintenance data of its gas
Topographic Index and Violence Index. Assets such supply nodes pipelines. We would like to express our special thanks of gratitude
and pipelines were modeled with respect to their failure and repair to George Alexander Prieto Carranza (TGI) and Luis Alfredo Serrato
rates. The explanation of the failure rates depending on exogenous Salazar (TGI) for their useful discussions.
variables permitted the modeler to extrapolate these conditions to
new units in the natural gas supply system. For example, whether Appendix A
or not a pipeline is considered to increase the system reliability. The
application of the stochastic cost-benefit analysis was illustrated

Table A.8
Imported natural gas prices projections for Cartagena and Buenaventura.

Prices and Costs 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

Natural gas spot price

at Henry Hub (EIA) 3.10 3.25 3.24 3.33 3.56 3.84 4.20 4.39 4.52 4.72
Liquefaction 1.92 1.98 2.05 2.12 2.19 2.26 2.34 2.42 2.50 2.58
Regasification (UPME) 0.69 0.71 0.74 0.76 0.79 0.81 0.84 0.87 0.90 0.93
Commercialization (UPME) 0.16 0.17 0.17 0.18 0.18 0.19 0.20 0.20 0.21 0.22
Marine transport -
Cartagena (UPME) 0.38 0.38 0.39 0.39 0.40 0.40 0.41 0.41 0.42 0.42
Marine transport -
Buenaventura (UPME) 0.88 0.89 0.90 0.91 0.92 0.93 0.94 0.96 0.97 0.98

Natural Gas Price -

Cartagena 6.25 6.49 6.59 6.78 7.12 7.51 7.99 8.29 8.54 8.87
Natural Gas Price -
Buenaventura 6.75 7.00 7.10 7.30 7.64 8.04 8.52 8.83 9.09 9.42

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S. Cabrales, C. Valencia, C. Ramírez et al. Energy 246 (2022) 123421

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