Auction design for capacity allocation in the petroleum pipeline under fair opening

Abstract

Auction is a dominant way to allocate transport capacities for the aim of profit, fairness, and transparency. Previous related work focuses on the natural gas pipeline and cannot be applied to the petroleum pipeline for its special technique of transporting multiple batches. This paper designs a bi-level model for capacity auction of the petroleum pipeline, which facilitates fair competition and free flow of petroleum products in market. The upper-level model simulates the decision-making process of pipeline company, and the lower-level one determines if shippers bid up prices for capacities somewhere. A real-world pipeline is taken as a case to explore the impact of different auction designs and proration on capacity allocation. New shippers obtain all the nominations of 18,700 m3 by auction but lost the capacities of 3,523 m3 by proration. Compared to proration, auction leads to a profit growth of 181,545 CNY and 150,019 CNY to pipeline company and new shippers respectively but a decrease of 4,586 CNY to regular shippers. Different orders of offering price lead to different outcomes regarding fairness and revenue. Letting new shippers offer price first is suggested as a base to design auction for capacity allocation since it generates a reduction of 0.2% to regular shippers but an increase of over 12% to others.