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    International Journal of Energy and StatisticsVol. 1, No. 2 (2013) 143154c Institute for International Energy Studies

    DOI: 10.1142/S2335680413500105

    A REVIEW OF MATHEMATICAL OPTIMIZATION

    APPLICATIONS IN OIL-AND-GAS UPSTREAM &

    MIDSTREAM MANAGEMENT

    MAJID SHAKHSI-NIAEI, SEYED HOSSEIN IRANMANESH

    and SEYED ALI TORABI

    Department of Industrial Engineering,

    College of Engineering, University of Tehran, [email protected]

    Received 27 May 2013Revised 2 June 2013

    Accepted 3 June 2013Published 5 July 2013

    The growth of demand in developing countries has given rise to a constant increase inconsumption of most non-renewable resources, including oil and gas. In this regard, theimportance of planning activities rises because of the limited availability of oil and gasresources. Optimization techniques are tools that help upstream and midstream man-agers to decide optimally. The purpose of this review article is to provide a summary ofthe scientific literature on optimization applications in oil-and-gas upstream and mid-stream management. The main problems are described within a classification schemeand the most important contributions are summarized.

    Keywords: Mathematical optimization; Oil and gas; Upstream; Midstream.

    1. Introduction

    Economic development mainly relies on non-renewable resources [1]. The rapid

    growth of demand in developing countries has given rise to a constant increase

    in consumption of most non-renewable resources, including oil and gas [2]. Liquid

    fuels are expected to remain the major source of energy and their total consumption

    continues to increase despite rising prices [3]. Similarly, worlds total natural gas

    consumption is expected to increase by 1.6 percent per year on average. Figure 1

    shows the upward trend in consumption of all energy sources.A typical optimization problem consists of maximizing or minimizing

    one/several objective function(s) by systematically choosing input values from

    within allowed sets. The allowed sets of input variables are defined in forms of

    several constraints. Figure 2 represents a general form of mathematical optimiza-

    tion problems. As oil and gas resources have a limited availability, the importance

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    144 M. Shakhsi-Niaei, S. H. Iranmanesh & S. A. Torabi

    Fig. 1. World energy consumption by fuel, 19902035 (quadrillion Btu) [3].

    Minimize / Maximize {One or more objective function(s)}

    Subject to: Resource constraint(s)

    Structural constraint(s)Other constraint(s)

    Declaring variables and variable types

    Fig. 2. A typical mathematical optimization problem.

    of planning activities rises. Optimization techniques are important tools that help

    upstream and midstream managers to decide optimally.

    As an example, a basic form of exploration project selection problem can beformulated via the following equations:

    Max z=n

    i=1

    fixi (1)

    Subject to:n

    i=1

    cixi budget (2)

    x3+ x4 1, (3)

    x2 x1 1, (4)

    xi {0, 1}, (5)

    where, xi is the binary variable that denotes the selection (xi = 1) or not (xi = 0)

    of the i-th project, n is the number of projects, and fi is the utility of the i-th

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    A Review of Mathematical Optimization Applications 145

    project, e.g. net present value of the i-th project. Equation (1) maximizes the total

    utility achieved by selected projects.

    Equation (2) applies the budget constraint where parameter budger repre-

    sents the available budget. Equation (3) is an example of logical constraint whereprojects 3 and 4 are mutually exclusive. Equation (4) is another example of logi-

    cal constraint denoting if project 2 is elected then project 1 must be also selected.

    Finally, equation 5 declares the binary nature of variables x. Many researchers have

    added different considerations to this basic problem to meet real-world needs, e.g.

    considering interaction between projects, uncertainty, budget segmentation, poli-

    cies, and so on.

    The purpose of this paper is to provide a summary of the scientific literature

    on optimization applications in oil-and-gas upstream and midstream management.

    The rest of the paper is organized as follows. Upstream and midstream optimization

    problems have been categorized in Sec. 2. The literature on strategic optimization

    problems is reviewed in Sec. 3. Sections 4 and 5 review the literature on tactical

    and operational optimization problems, respectively. Finally, Sec. 6 concludes this

    paper.

    2. Categorizing Upstream and Midstream Optimization Problems

    Various researchers have tried to apply optimization tools and techniques in oiland gas planning area. Nygreen and Haugen [4] have surveyed applied mathe-

    matical programming models in Norwegian petroleum field and pipeline develop-

    ment. Hagem and Torgnes [5] have classified related optimization problems into four

    groups according to their time scale, i.e. operator optimization, real-time produc-

    tion optimization, field optimization, and strategic decisions as shown in Figure 3.

    Wang [7] reviewed the applications of optimization techniques to petroleum

    fields and categorized them into the following groups:

    Lift gas and production rate allocation

    Optimization of production system design and operations

    Optimization of reservoir development and planning

    Fig. 3. Time scale for exploration and production decisions (reproduced from [6]).

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    146 M. Shakhsi-Niaei, S. H. Iranmanesh & S. A. Torabi

    Table 1. Taxonomy of upstream and midstream optimization problems.

    Timeframe of

    decisions

    Scope

    Exploration & Development Production Transportation

    Strategic

    Project portfolio selection

    and scheduling

    (exploration, new facilities,

    pipelines, refineries,

    petrochemicals, etc.)

    Annual delivery planning

    (ADP)

    Vessel purchasing /leasing

    /chartering decisions

    Tactical Staffing Drilling optimization

    Production planning Cargo planning

    Operational

    Job assignment Production optimization

    and scheduling

    Well optimization

    Transport scheduling

    Vehicle routing

    Ulstein et al. [8] divided the related planning tools into operational, tactical, and

    strategic tools. This classification seems compatible with that of Wang [7].

    Herein, by adding production and planning scopes, we propose a mixed taxon-

    omy for upstream and midstream optimization problems based on their timeframeand scope of planning, as shown in Table 1.

    3. Strategic Optimization Problems

    Walls [9] and Orman et al. [10] endeavoured to implement Markowitz optimization

    method to exploration and production portfolio project selection, providing efficient

    set of portfolios via minimizing risk subject to a particular level of return. Some

    researchers have added some considerations to this problem, e.g. interdependencies

    among projects [11] or scheduling of the selected projects, as an integral part ofproject selection model.

    Bohannon [12] proposed a linear programming model for optimum drilling and

    facility expansion schedules for multi-reservoir pipeline systems.

    McFarland et al. [13] applied generalized-reduced gradient nonlinear program-

    ming methods to solve optimal control models for petroleum reservoir development

    planning and management. The decision variables include how many wells to drill

    in each time period, the production rates, abandonment time, and platform size

    while the objective function of their model is to maximize present value of profits.Aboudi et al.[14] proposed an integrated mathematical programming model for

    the development of petroleum fields and transport systems. Their work was the

    earliest integrated work which considers all of development, production, and trans-

    portation planning scopes at a strategic level. They considered only one product and

    fixed-production profiles for potential fields while later works have developed these

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    A Review of Mathematical Optimization Applications 147

    considerations into multiple products and variable production profiles. Jrnsten

    [15] proposed a model for sequencing offshore oil and gas field developments under

    uncertainty where the emphasis is on the field sequencing decisions and the trans-

    portation network is given in aggregate form. Haugen [16] and [17] tried to incor-porate uncertainties in filed development planning and used stochastic dynamic

    programming as the solution approach where the transportation decisions are at

    an aggregated level. Even some computational improvements in dynamic stochastic

    programming formulation have been suggested; the computational burden is still

    onerous. Johansen [18] discussed optimal development of an offshore natural gas

    field. Nygreen et al. [19] proposed a mixed-integer-programming model for infras-

    tructure planning. Although their model was formulated deterministically, it is used

    more than fifteen years by the Norwegian Petroleum Directorate and other major

    Norwegian oil companies. Nygreen and Haugen [4] pointed out that early stochas-

    tic modelling attempts did not survive in the companies as operative models. It

    is possibly because deterministic models are hard enough to solve while stochastic

    models add (stochastic) informational needs to them. Compared to the full-scale

    models, attempts to include uncertainty had to contain simplifications and signifi-

    cantly reduce the number of possible projects, time periods, and etc.

    Carvalho and Pinto [20] proposed an mixed-integer linear model and solution

    technique for the planning of infrastructure in offshore oilfields as well as the timing

    of extraction and production rates. Rahmawati et al.[21] evaluated optimal produc-tion strategies using several key control variables and field operational constraints

    in an integrated optimization model. Their integrated model consists of reservoir,

    surface facility, and economic models.

    Dutta-Roy et al. [22] analysed the compressor installation costs and operating

    strategy required to meet the production goals over the life of a gas field. Key ele-

    ments of the objective function which have been optimized include a time-dependent

    revenue stream based on the projected price of gas, capital costs associated with

    adding incremental compression at periodic intervals, and compressor fuel consump-

    tion costs that are typically a near-linear function of the operating horsepower.Lee and Aronofsky [23] proposed a linear programming model for scheduling

    crude oil production from five sources over an eight-year period subject to certain

    restrictions.

    4. Tactical Optimization Problems

    Dyer et al. [24] proposed a decision support system for prioritizing oil and gas

    exploration activities and then assigning personnel to the most promising ones.Lasdon et al. [25] investigated optimal production strategies for several optimiza-

    tion criteria and potential constraints on reservoir over 1 to 3 year(s) period. The

    strategies considered include different aspects of production and storage operations.

    Haugland et al. [26] proposed some models for an early evaluation of a petroleum

    field which suggest decisions concerning platform capacity, drilling program, and

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    148 M. Shakhsi-Niaei, S. H. Iranmanesh & S. A. Torabi

    Table 2. Several strategic optimization researches.

    Author(s) Scope(s)

    Exploration & Production Transportation RemarkableDevelopment consideration(s)

    Walls [9] Orman et al. [10] Brashear et al. [11] Interdependencies

    among projectsBohannon [12] McFarland et al. [13] One reservoirAboudi et al. [14] Fixed production

    profiles, singleproduct system

    Jrnsten [15] Uncertaintyin priceHaugen [16] Uncertainty in

    price anddemand

    Haugen [17] Uncertaintyin resource(field size)

    Johansen [18] One offshorenatural-gas field

    Nygreen et al. [19] Variable

    productionCarvalho and Pinto [20] Pressure in eachreservoir

    Rahmawati et al. [21] Surface facilitiesDutta-Roy et al. [22] Lee and Aronofsky [23]

    well production plan. Carroll and Horne [27], and Ravindran [28] used multivariate

    optimization to determine optimal recovery over a period of time while Fujii and

    Horne [29] also considered network parameters in determining optimum production

    rates, i.e. separator pressure, the diameters of tubing, pipeline, or surface choke, andthe length of pipeline. Owing to the nonlinearity of the model, they used Newton

    derivative-based methods, the polytope function-value-based method, and a genetic

    algorithm. Considering several test calculations, they suggested polytope method

    for low dimension problems and genetic algorithm for large systems with many

    variables. Zhang and Zhu [30] formulated a bi-level programming method for pipe

    network optimization. Their problem consists of a given pipe network where several

    available diameters can be selected for each pipe. Palke [31] proposed an integrated

    nonlinear model to optimize the gas-lift configuration. The numerical methods canfind the combination of production parameters that maximizes the net present

    value. The control parameters include tubing diameter, separator pressures, depth

    of gas injection, and volume of gas injected. Polytope and genetic algorithm opti-

    mization techniques have been used which are shown to be both stable and efficient.

    Barua et al. [32] used a non-linear sequential-quadratic-based network optimizer to

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    A Review of Mathematical Optimization Applications 149

    Table 3. Several tactical optimization researches.

    Scope(s)

    Author(s) Exploration & Production Transportation RemarkableDevelopment consideration(s)

    Dyer et al. [24] Lasdon et al. [25] Hauglandet al.[26] Carroll and

    Horne [27] Single-well system

    Ravindran [28] Decision variables canvary with time

    Fujii and Horne [29] Multi-well productionsystem

    Zhang and Zhu [30] Palke [31] Barua et al. [32] Dutta-Roy

    et al. [22] Compressor installation

    cost and operatingstrategy

    Bittencourt andHorne [33]

    Ulstein et al. [8] Disruptions, flowcomponents, chemicalprocessing, markets

    Hagem andTorgnes [5]

    Atkinson andIsangulov [34]

    Failure of a component

    solve some of the typical problems in the oil and gas production including tactical

    operation problems. Bittencourt and Horne [33] used a hybrid genetic algorithm for

    reservoir development decisions including reservoir properties, well locations, and

    production scheduling parameters. They applied their model on a real oil field devel-

    opment project with 33 new wells. The wells were allowed to be placed anywhere in

    the reservoir and could be vertical or horizontal. They reported a reduction of the

    total number of new wells as a result. Ulstein et al. [8] proposed a mathematical

    model to optimize a group of tactical decisions, i.e. Regulation of production levels

    from wells, splitting of production flows into oil and gas products, and further pro-

    cessing of gas and transportation in a pipeline network. They implemented their

    model in Norwegian production network and also analyzed possible shut-downs in

    one of its production fields. Hagem and Torgnes [5] proposed and evaluated different

    mathematical models for a petroleum production allocation problem and investi-gated the computational performance of a parallel Dantzig-Wolfe algorithm and

    Branch & Price applied to these problems. Atkinson and Isangulov [34] formulated

    a mathematical model for development of an oil and gas field. They considered

    completion of wells and production amounts as random processes.

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    150 M. Shakhsi-Niaei, S. H. Iranmanesh & S. A. Torabi

    5. Operational Optimization Problems

    Attra et al. [35] used linear programming to maximize daily income from a multi-

    reservoir producing field on a day-to-day basis. Lo and Holden [36] proposed two

    methods for maximizing field oil rate at every time step. In the first method, the

    problem of well management is formulated as a linear programming problem and

    solved by the standard Simplex method. The second method provides approximate

    results in close agreement with the LP results (within 5%) for most cases. Chris-

    tiansen and Nygreen [37] proposed a planning model for the management of approx-

    imately 130 petroleum-producing wells in the North Sea including decisions about

    which wells to produce from and which to shut down during a period. The well-

    management model is solved by means of a standard mathematical programming

    procedure. Nishikiori et al. [38] developed a new method to maximize the total oilproduction rate and to determine the optimum gas injection rates for a group of con-

    tinuous gas lift wells. They used a quasi-Newton nonlinear optimization technique

    to solve this problem. Fang and Lo [39] developed an integrated model to maximize

    oil production which considers reservoir performance, wellbore hydraulics, surface

    facility constraints, and lift-gas allocation. Dutta-Roy and Kattapuram [40] pro-

    posed an approach for simulation and optimization of the overall gas-lift allocation

    problem using pressure-balance-based multiphase flow network solving technique

    integrated with a robust sequential quadratic programming approach.

    Heiba et al. [41] formulated an integrated approach for management of cyclicstimulation programs. The approach combines the use of technologies to simulate

    the flow of steam in networks and wellbores with an industrially tested variant of

    the successive quadratic programming algorithm for process optimization. Vazquez

    et al. [42] developed an optimization procedure combining artificial intelligence

    techniques with operations research techniques to deal with oil production systems.

    Yeten et al. [43] proposed a methodology for optimization of nonconventional wells

    which are more complicated than other well optimization problems. Wang et al.

    [44] developed an optimization technique for allocating production rates and lift-gas

    rates to wells in large fields subject to multiple flow rate and pressure constraints.

    Neiro and Pinto [45] developed a complex multi-period mixed-integer-non-linear

    programming model for petroleum supply chain including some nodes representing

    refineries, terminals, and pipeline networks. Decision variables consist of stream

    flow rates, properties, operational variables, inventory, and facilities assignment.

    Huseby and Haavardsson [46] optimized the problem of determining produc-

    tion shares of different reservoirs in a multi-reservoirs field. Their model considers

    uncertainty about key reservoir parameters. However, the optimization problem is

    analysed deterministically.Gunnerud and Foss [47] proposed a mixed-integer-linear model for real-time

    optimization of production network. They used and tested two decomposition meth-

    ods in order to lower the computational complexity of the problem, i.e. Lagrange

    decomposition and DantzigWolfe decomposition. Herran et al. [48] formulated a

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    A Review of Mathematical Optimization Applications 151

    Table 4. Several operational optimization researches.

    Scope(s)

    Author(s) Exploration & Production Transportation Remarkable

    Development consideration(s)

    Attra et al. [35] Multiple reservoirsLo and Holden [36] Multiple flow rate

    constraintsChristiansen and

    Nygreen [37]

    Nishikioriet al.[38] Fang and Lo [39] Lift gas and production

    ratesDutta-Roy and

    Kattapuram [40]

    Flow interactions among

    wellsHeiba et al. [41] Vazquez et al. [42] Yeten et al. [43] Wang et al. [44] Flow interactions among

    wells when allocatingwell rates

    Neiro andPinto [45]

    Petroleum supply chain

    Huseby andHaavardsson [46]

    Multiple reservoirs withuncertain parameters

    Gunnerud andFoss [47]

    Herran et al. [48] Multiple petroleumproducts in amulti-pipeline system

    mathematical model for optimizing transportation of multiple petroleum products

    in a multi-pipeline system where multiproduct pipelines have been connected and

    formed a complex system.

    6. Conclusion

    The study of oil-and-gas upstream & midstream optimization problems is a rela-

    tively new and fast growing research area which should gain importance because

    in many situations, decisions are irreversible and have a significant impact on the

    industry. Moreover, it has been observed that optimization techniques, in a wide

    variety of models, have helped upstream and midstream managers in making opti-

    mal decisions.

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