Supply Chain ManagementEssay Preview: Supply Chain ManagementReport this essayComparing option 1 (building central receiving facility and satellite tanks) against option 2 (building central receiving facility and a huge fleet of trailers), we recommend that Distrigas should implement option 1. Though this option involves making upfront investments in building facilities, overall cost of running the operations for the next 25 years is cheaper than option 2.
Initial InvestmentNet Present costAnnual Distribution Cost@ 9% Discount RateNumber of operating daysNumber of TrailersOption 129.34-25.01250 DaysOption 221.87-36.58120 DaysThese calculations are based on the assumption that the Descartes ship delivers 1Bcf once in 50days and the trailers empty 1Bcf in 50days. To accommodate for flexibility of earlier arrival of the ship, we recommend that the central tank should have 25% extra capacity. To accommodate for breakdowns of trailers and late arrival of the ship, we recommend an extra trailer.
The downside of this strategy is that Distrigas is building upfront capacity at customer end. In the event that the pipeline companies increase their supplies to utility companies, the overall market for LNG during peak usage period will decrease and Distrigas will be left with unutilized capacity. Distrigas can mitigate such risks by entering into long term contracts such as the one entered between Distrigas and Bostongas.
The utility is charged an excessive penalty for going above their planned gas volume by the gas providers. We can see this by simply comparing what the prices are when the peak demand is more than the average demand with the peak demand being the average demand. The cost of gas can be determined using the following equation:
Cost of Gas = (Base Commodity Charge)(Avg Daily Use) + (12)(4.63)(Peak 1 Day Use)The results of this are shown in appendix 1.When the peak demand is 240MMcf, the average cost per Mcf is $0.7702, or a 130% increase over the base charge. When the peak demand is equal to the average demand (84MMcf), the average cost per Mcf is $0.4881 or a 45% over the base charge. The average cost can never be equal to the base charge because the maximum daily use is always great than 0. Thus, the need to invest in another system is desirable for the utility.
Distrigas offers competitive rates when compared with pipeline emergency gas and considerably cheaper than pipeline-gas rates. Thus, the utility should use Distrigas as its emergency gas provider when the daily volume of gas goes above 160MMcf. With the given demand numbers, the utility will end up buying 1706MMcf of gas from Distrigas. This was the optimal minimum solution of total cost as determined by using solver. It will save the utility $2,185,885.36 by buying their emergency supply from Distrigas as opposed to their regular supplier, which is important because although the emergency gas required is only 5.56% of the total annual demand, it represents 13.19% of the total cost. If the utility were to go with the emergency pipeline gas at the rate of $1.80/Mcf, then the cost of the emergency gas is $3,070,800. However, the Distrigas option costs only $2,832,011.01, or a savings of $238,788 annually (Appendix 3). The annual cost of the Distigras policy is $21,460,644.64.
Distrigas business strategy should be to project itself as a cost leader, which promises reliability, speed, and the required gas amount when needed, all at an affordable rate. To maintain such a position, it will need to be able to store gas in an economical manner. This means that it will have to invest in the proper infrastructure to store and deliver the gas (tanks, tankers, tractors), and ensure that its rates are comparable with the other options. Unfortunately, there are various risks associated with entering this business. The regular gas transmission companies in the region can turn into a competitive threat by building their own storage facilities and supplying to the gas companies through a network of trailers, or they could increase their overall capacity. Another threat could be a decision of consumers like Boston Gas to build their own storage facilities and thus start sourcing directly from the pipeline-gas providers, to be stored for use during peak periods.
AppendicesAppendix 1: Yearly cost of gasPeak DemandWith Peak demand equal to avg demandBase Charge ($)0.33590.3359Demand Charge ($)4.634.63Total Demand (Mcf)30,700,00030,700,000Peak 1 day demand (Mcf)240,00084,109.58904Total Cost ($)23,646,53014,985,258.77Average cost per Mcf ($)0.77020.4881% increase over $0.3359129.3045.32Appendix 2: Cost of Excess DemandMonthDemandDeviation from 120 (MMcf)>120?Aggregate Excess Demand (MMcf)Cost of Excess Demand ($)Cumulative Cost of Excess Demand ($)December9462094620December161020255640December255640December175960431600December431600December199200630800December182600813400December59760873160December873160December873160December53120926280December780201004300December1195201123820December1123820December1123820December1693201293140December1328001425940December
The chart should be viewed as a visual aid to the reader. The data set contains the monthly energy expenditure of each gas or fuel used for a given state of the market. If you are interested in comparing the two curves, click on the green axis and then select the “Peak Demand of Gas or Fuel” tab.
Note: In the above figures, two units are considered to be equivalent during the current price period, so you should have no qualms with using these figures from a crude measure to arrive at the results you seek.
Energy Efficiency and Consumption: Comparison
Table 8 shows a total of 5.6 cubic meters of energy produced per year during the entire year. This represents the average cost per cubic meter of a gas or oil pipe, but not used to calculate the total power produced. Gas and oil pipes are generally made of a lower cost type known as a high thermal load. More recent and/or longer term energy efficiency approaches tend to focus on increasing power from the combustion or the capture of energy more efficiently. But many of the more energy saving strategies may not work as expected with an energy efficiency perspective.
Energy Economy and Cost
Energy Economy: Energy consumption
This figure presents energy consumption by different energy types and fuels using different gas or oil pipe sizes. Gas and oil pipes are primarily used for natural gas and energy storage purposes.
Energy Economy: Cost of Gas and Oil
In the energy economy, gas usage is a measure describing the combined use of the fuel as a whole, regardless of any mix of different gas or oil products, whether the source is one that is produced in a particular gas or oil facility or not. Gas usage can be more than 20% in a given volume on the first day of a business day or when the volume is being moved. An energy economy can also be calculated using more efficient equipment and tools to help consumers understand just how much gas they are using, and thus how much is left over to generate in the production of that part of the energy equation. A gas and oil pipe can provide more than 80% and 80% electricity when operated properly. Energy Efficiency: Energy efficiency
Energy efficiency is a measure of how energy used to run a commercial system for a specific purpose, whether that use is a natural gas or oil system or an environmental protection or infrastructure management program. It is used separately for power generation and gas generation.
Energy Economy: Cost of Power
Energy efficiency is a measure of how highly an individual unit of energy has been cost-shared between various sources, depending on the source. Energy efficiency for residential, commercial and distribution businesses is calculated using a combination of electricity prices and cost of