Planning a novel regional methane network: Demand forecasting and economic evaluation

Planning the use of non-renewable energy resources is a crucial issue for social and environmental development, both at global and local scales. Although fossil fuel depletion is still far in time, their rational use is essential to prevent energy shortages and avoid economic and political crises. Natural gas (NG) is one of the preferable sources since it is comparatively clean and cheap, and its energetic power covers a wide range of purposes, especially in domestic heating and electric generation. This paper aims to design and evaluate a novel methane infrastructure in the insular region of Sardegna, which has not yet an NG network. We provide a statistical methodology to forecast gas demand at the municipal level in the absence of historical data on gas consumption, by using spatial autoregressive (SAR) models with exogenous (X) variables. Specifically, the model identification is performed by fitting various SARX systems on the data of the main cities of continental Italy, for which data on gas consumption and its covariates (X) are available. Next, the most suitable model is selected by optimizing the out-of-sample prediction performance on a subset of continental cities which are similar to those of Sardegna from the environmental and social viewpoint and are held outside of the estimation. Then, the coefficients of the model with the smallest prediction errors are applied to the spatial covariates of Sardegna cites, obtaining the predicted per-capita gas demand. Finally, using the global demand and its spatial diffusion, the entire gas network, at central and peripheral levels, is designed and its economic sustainability is evaluated. This analysis considers several categories of fixed and variable costs, together with the revenues of the private companies of gas transportation and distribution, that are involved in the realization of the project. The analysis demonstrates the economic viability of gas infrastructure for Sardegna under 70 % of the market penetration rate, as it allows a break-even point within 15 years.