Pioneering the Energy Resource Economic Future

1 © 2013 Deloitte Development LLC. All rights reserved. Member of Deloitte Touche Tohmatsu Limited

Pioneering the Energy Resource Economics Future Generalized Equilibrium Modeling System (GEMS)

A 40th Anniversary Report by Deloitte MarketPoint


Introduction

Deloitte LLP acquired MarketPoint1 in 2011 seeing value from its pioneering heritage in general equilibrium modeling system (GEMS). Today Deloitte MarketPoint is making an investment in updating and refreshing MarketBuilder software---a direct descendent of GEMS---to incorporate a new generation of energy resource economic changes anticipated in global markets.

Pioneering Energy Resource Economics: A 40th Anniversary Report on the Generalized Equilibrium Modeling System (GEMS) is a short history of GEMS and how Deloitte MarketPoint is leveraging one of the most important 20th century energy resource economics intellectual properties into a compelling 21st century energy and commodity resource economics future.

We recognize the work of Dr. Dale Nesbitt and Dr. Edward Cazalet, Silicon Valley pioneers, who turned the theory behind GEMS into one of the most important and enduring energy resource economics contributions of the 20th century at Stanford Research Institute. The use of GEMS grew from their perseverance to produce the global scale, highly configurable yet granularly detailed solutions that are still used today—everyday---by some of the world largest and most influential oil and gas, energy and resource, utility and strategic commodity companies.

1 Deloitte MarketPoint LLC, the result of Deloitte’s acquisition of substantially all the assets of MarketPoint Incorporated and Altos Management Partners (MarketPoint/Altos) in 2011, combines the global strength and quantitative experience of Deloitte and the member firm network of Deloitte Touche Tohmatsu Limited with the market-leading software and time-tested energy market success of MarketPoint/Altos. Deloitte MarketPoint is located within the Deloitte Center for Energy Solutions.


Figure 1

SOURCE: Deloitte MarketPoint

The North American configuration of the Multi-Fuel Integrated Energy Markets Model depicted above is the newest release of this pioneering descendent from the SRI-Gulf Energy Model---the first full scale applications of GEMS---the model that changed energy resource economics 40 year ago.

This newly updated Multi-Fuels Integrated Markets Energy Model solution brings together the fundamental analysis of demand for power generation while simultaneously solving the trade-offs between fuel and technology choices, the growth of renewable energy in regional markets and the challenge of greenhouse gas emissions reduction in a set of integrated modeling simulations.

The modeling solution is designed to assist clients with least cost, best fit utility integrated resource planning as well as profit maximizing portfolio analysis conducted by merchant generators.


From GEMS to MarketBuilder: A Pioneering History

Milestone Date Significance Stanford Research Institute

1970 Generalized Equilibrium Modeling System (GEMS) research in economics and applied mathematics developed at Stanford Research Institute (SRI).2

CFE Mexico 1972 The first rudimentary application of GEMS was an electric power planning model for the national electric company of Mexico (Comision Federal Electricidad or CFE) and Gulf Chemical Co.3

SRI-Gulf Energy Model

1973 First full-scale application of GEMS at Gulf Oil used to mitigate losses in synthetic fuels in the 1970s and 1980s. The SRI-Gulf model was integrated into Gulf's internal forecasting, strategic planning, and decision support.

SRI World Energy Model

1976 Multi-fuel, multi-model topology was expanded worldwide in 1976. National Science Foundation commissioned a 1977 peer reviewed methodological comparison of major energy models including the SRI-Gulf model validating GEMS.4

Long Term Energy Analysis Program (LEAP)

1977 US DOE and EIA sponsored a second generation GEMS project called "Long-term Energy Analysis Program" or LEAP to overcome limitations of the SRI-Gulf model. The EIA spent $1 million (in 1981$) with Oak Ridge National Labs to validate LEAP and used it at the EIA until 1982.

GRI North American Regional Gas Model

1982 Second generation GEMS commercialized at the Gas Research Institute (GRI) to assess gas-on-gas competition. The North American Regional Gas (NARG) Supply-Demand Model, helped GRI members and regulators better understand how price signals through the gas system would transmit benefits from one region to all contiguous regions.5

MarketPoint World Gas Trade Model

1992 Concerns about global gas supply, demand and prices of LNG resulted in development of the WGTM, a multi-region, network-oriented, supply-demand GEMS representation of world natural gas markets in a multi-client project involving Amoco, ARCO, California Energy Commission, Chevron, Enron, Exxon, Fina, Phillips, Shell and Texaco.

MarketBuilder Development

2002 The original GEMS was converted to a new software language to take advantage of multi-processor technology and enhanced with a state-of-the-art Graphical User Interface (GUI) and renamed MarketBuilder.

Deloitte MarketPoint

2011 Deloitte LLP acquired MarketPoint for the GEMS-derived MarketBuilder IP to leverage the technology to support Deloitte Consulting practices and customers worldwide. .

2See Cazalet, E. G., Decomposition of Complex Decision Problems with applications to Electric Power System Planning, Ph. D. dissertation, Stanford University, Stanford, California, 1970. 3See Braunstein, Terry J., "A Decision Analysis of a Petrochemical Expansion Study," in The Principles and Applications of Decision Analysis, Howard, R., and Matheson, eds., Strategic Decisions Group, 1983. 4See Brock, H. and Nesbitt, D., Large Scale Energy Economic Models: A Methodological Analysis, Stanford Research Institute report to the National Science Foundation, 1977. 5The commercial version of the model was called the North American Regional Gas (NARG) Supply-Demand Model, the global version was called the World Gas Trade Model. Today the integrated modeling solution is called World Gas Markets by Deloitte MarketPoint.


Figure 2

Figure 3


Fast Forward to 2013---The pioneers are still leading the way.

In 2013 as we marked the 40th anniversary of the first full scale application of the GEMS, the first fruits of Deloitte MarketPoint’s R&D roadmap investment came to market as updated Deloitte MarketPoint MarketBuilder software products and services:

• MarketPoint World Oil Markets and World Gas Markets modeling solutions were updated to reflect changes in shale development and LNG exports.

• MarketPoint Multi-Fuels Integrated Energy Markets model has a new North American configuration to assess competitive fuels and technology trade-offs, growth of renewable energy, and reductions in greenhouse gas emissions ---all in one integrated model simultaneously solving for projected power demand.

• MarketPoint Natural Gas Liquids configurations added to MarketBuilder models to capture the full value of liquid credits and its impact of natural gas drilling economics in the simulation analysis.

• MarketPoint Strategic Commodity Supply Chain models reflect changes in global trade flows, manufacturing, export opportunities and risks and volatility.

• MarketBuilder Interactive Managed Analytics Services offers customers choices from traditional in-house models to interactive online services often with a lower total cost of ownership than internal models.

The search for the sweet spots of market equilibrium where supply and demand intersect and where profitability and growth accelerate is the same today as it was when that first SRI-Gulf energy model helped to change the way energy resource analytics was done 40 years ago.

Deloitte MarketPoint and its clients still benefit from the inheritance of that pioneering energy resource economics. Today Deloitte MarketPoint provides energy resource economics decision support solutions based on our SRI-Gulf Oil Energy Model heritage to many of the world’s largest and most influential oil and gas, energy and utility, and strategic commodity companies.

From super majors, to shale and LNG champions, to utilities and strategic commodities from ammonia to zinc, GEMS-inspired Deloitte MarketPoint software and managed analytics services deliver market fundamental analysis, expected price projections, strategic analysis of issues and trends and their implications with the global reach of the Deloitte Touche Tohmatsu Limited member firms across fuels, technologies and competitive global markets. At Deloitte MarketPoint we are still pioneers leading change in energy resource economics---join us----you can be part of making history too.


About Deloitte MarketPoint

Deloitte MarketPoint is a leading provider of energy resource economics, market fundamental analysis and strategic insight for the global oil, gas and power markets. MarketPoint helps clients frame the uncertainty in their economic future. Using cutting-edge technologies, we offer actionable decision support solutions that capture the way world markets actually work. MarketBuilder is Deloitte MarketPoint’s microeconomic simulation software which enables companies to analyze energy resource and commodity market fundamentals. It comes preloaded with one or more Deloitte MarketPoint Reference Cases providing a high quality starting point for analysis right out of the box. MarketBuilder software is available today as an enterprise in-house solution and online as MarketPoint Interactive, a Platform-as-a-Service.

Deloitte MarketPoint LLC, combines the global strength and quantitative experience of Deloitte and the member firm network of Deloitte Touche Tohmatsu Limited with its market-leading MarketBuilder software. Deloitte MarketPoint is located within Deloitte Consulting Innovation.

www.deloittemarketpoint.com

www.deloittemarketpoint.com

Pioneering the Energy Resource Economic Future

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