Investment-borrowing decisions in natural gas transmission

The investment problem in natural gas transmission in a static sense as analyzed by Chenery [1] and Lehn [3] is reconsidered as a discrete time control problem using a formulation developed by Thompson and George [6]. In the model, the objective is to maximize, subject to constraints, the terminal value of the investment in transmission pipe and pumping capacity plus the sum of the terminal value of the net savings and the capitalized value of the dividends paid over a decision-making period of fixed length. The state variables are: pumping capacity, indebtedness outstanding, depreciated value of the transmission pipe, depreciated value of the pumping capacity, and savings. The control parameters are: the inside diameter of the transmission pipe (pipe size), the wall thickness of the pipe (thickness), initial pumping capacity, initial borrowings, and initial savings. The control variables are: investments in pumping capacity and borrowings during the period.