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From Simulation to MarketingFrom Simulation to Marketing

10/17/200110/17/2001

Paul Towne and Blake BrookerPaul Towne and Blake BrookerMarketer and EngineerMarketer and Engineer

performanceperformanceraised to the power of El Pasoraised to the power of El Paso

epep

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2

From Simulation to MarketingFrom Simulation to Marketing

Traditional Hydraulic SimulationTraditional Hydraulic Simulation

Simulations for MarketingSimulations for Marketing

Physical / Financial ModelsPhysical / Financial Models

ConclusionsConclusions

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3

Traditional ApproachTraditional Approach

Cost focusCost focus

Measure hydraulic efficiencyMeasure hydraulic efficiency

Situational analysisSituational analysis

Capital analysisCapital analysis

Performance measurementPerformance measurement

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4

Marketing FundamentalsMarketing Fundamentals

Pressure = $$$Pressure = $$$

Assets = OptionsAssets = Options

Hydraulic Model = Risk ManagementHydraulic Model = Risk Management

Pipelines = Time machinePipelines = Time machine

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5

Simulation for MarketingSimulation for Marketing

Increase Market ShareIncrease Market Share

Satisfy Market DemandSatisfy Market Demand

Capital andCapital and OptionalityOptionality

Risk ManagementRisk Management

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6

Market ShareMarket Share

Convert Cost into RevenueConvert Cost into Revenue

Margin AnalysisMargin Analysis

Revenue Management approachRevenue Management approach

Asset Positioning and CompetitionAsset Positioning and Competition

Example:Example:

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7

Satisfying Market DemandSatisfying Market Demand

CommoditizationCommoditization and Interruptibleand Interruptible

Speculative facilitiesSpeculative facilities

Physical based Financial OptionsPhysical based Financial Options

NonNon--traditional approachtraditional approach

New ServicesNew Services

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8

Capital andCapital and OptionalityOptionality

Rationalizing efficiencyRationalizing efficiency

Selection criteriaSelection criteria

Asset deploymentAsset deployment

Asset reAsset re--deploymentdeployment

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9

Risk ManagementRisk Management

Spark SpreadSpark Spread

Physical / Financial modelingPhysical / Financial modeling

Expanded Cost modelingExpanded Cost modeling

Real time optionsReal time options

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10

Conclusions.Conclusions.

Physical modeling capability is criticalPhysical modeling capability is critical

Physical assets are financial optionsPhysical assets are financial options

Detailed physical simulation models areDetailed physical simulation models arerisk management tools.risk management tools.

Integration of physical and financialIntegration of physical and financialmodels will expand.models will expand.