Abstract
We present a combined framework for modelling the technological issues of gas transportation and analysis of natural gas markets. In our framework we model the optimal dispatch of supply and demand in natural gas networks, with different objective functions, i.e., maximization of flow, and different economic surpluses. The models take into account the physical structure of the transportation network, and examine the implications it has for economic analysis. More specifically there are externalities in pipeline networks due to pressure constraints and system effects. Incremental increase in production in one part of the network may cause significant reductions elsewhere. The proposed network flow model for natural gas takes into account pressure drops and system effects when representing network flows. Pressure drops are modeled by the Weymouth equation. The Weymouth equation is linearized such that it is possible to perform economic analysis in large networks within our framework. The importance of combining economics with a model for pressure drops and system effects is illustrated by small examples.