China National Petroleum Corporation: Operations Research Models Enable Better Planning of Natural Gas Pipelines Resulting in Reduced Costs, Lower Budgets, and Enhanced Revenues

CNPC oil wells

From 2010 to 2015, China’s annual natural gas consumption increased from 107 to 193 billion cubic meters, while the total length of the pipeline network grew from 32,800 to 45,000 kilometers. With the demand for natural gas expected to continue rapidly increasing, and in view of the large scale, China recognized a need to be efficient in planning, constructing, and operating its pipeline network.

China National Petroleum Corporation (CNPC) is China’s largest oil and natural gas producer and supplier and one of the world’s top five players in the energy industry. CNPC now holds over 72 percent of China’s natural gas resources plus approximately 70 percent of national pipelines. Since its establishment in 1988, CNPC has integrated a series of upstream and downstream oil and gas businesses. Prior to 2015, all annual planning for gas production, importing, transmission, storage, and sales for CNPC was conducted by traditional methods using spreadsheets. Increasing complexity caused 
this to become no longer feasible. CNPC was named one of the finalists for the 2018 Franz Edelman Award for Achievement in Advanced Analytics, Operations Research, and Management Science.

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To pursue efficiency, and conquer complexity, CNPC turned to operations research. Researchers from CNPC, the University of California, Berkeley, and Tsinghua University (Beijing) partnered to develop and implement novel analytical models. CNPC’s approach changed from making simple production-pushing or demand-pulling decisions to profit maximization. Optimization models were developed to deal with the complex physical laws of natural gas pipeline transmission dynamics and to provide a unified way to handle different models. The research team worked to produce models that complete in seconds, generate solutions with satisfactory accuracy, are robust, and are user friendly.

The operations research team modeled the dynamic planning of natural gas transmission and usage as a nonconvex, deterministic optimization problem. They invented an innovative solution method to tackle both finding optimality and being sufficiently accurate. Specifically, they modeled the application as a nonconvex and nonlinear mixed-integer problem, then convexly relaxed and solved it. They proposed a three-stage framework to improve solution accuracy, and also developed implementing software.

Benefits of the operations research effort have been substantial. Implementation of the software saved more than $330 million for CNPC’s natural gas transmission in post-implementation years 2015 and 2016. In addition, efficiencies discovered within the existing pipeline network postponed the need for new pipelines, resulting in a budget reduction of over $18 billion. CNPC realized greater revenue from selling more natural gas than would have been possible without the efficiencies. Furthermore, the importance of optimization has been recognized by the entire corporation, while the modeling methods and the optimization software system have become core techniques for reducing operational costs at CNPC.

This project also favorably impacts China’s sustainable development. The new analytical software provides accurate evaluation of CNPC’s current transmission capacity, helps to make well-informed new investment decisions for its transmission system, and thereby facilitates more efficient operation of the gas network that increases the percentage of natural gas in China’s energy consumption, and thus has a positive impact on the sustainable development of China’s economy.


China National Petroleum Corporation (CNPC) and China Petroleum Planning and Engineering Institute (CPPEI)
CNPC is a Chinese oil and gas corporation and one of the largest integrated energy groups in the world. CNPC was ranked third in the 2016 Fortune Global 500. CNPC is the largest oil and natural gas producer and supplier in China, and is one of the world’s five major players in the energy industry. Since its establishment in 1988, CNPC has integrated 
a series of upstream and downstream oil and gas businesses and now holds approximately 72 percent of domestic natural gas resources and 70 percent of the domestic pipeline network.

CPPEI is the research and consulting division of CNPC. It is responsible for the technological and economic analysis of petroleum- and petrochemical-related construction projects. Since its foundation, CPPEI has played a key role in the design and technology development of many important projects, including the West-East natural gas transmission project, construction of gas transmission pipelines between China and Russia, and development of gas storage facilities in Kuwait.

Department of Industrial Engineering and Operations Research (IEOR), University of California, Berkeley
The Industrial Engineering and Operations Research Department (IEOR) at UC Berkeley invents, analyzes, and teaches tools and approaches for design, analysis, risk management, and decision making in
complex real-world systems like supply chains, energy systems, healthcare systems, and financial systems.

Department of Civil and Environmental Engineering at UC Berkeley
The Department of Civil and Environmental Engineering (CEE) is a worldwide leader in developing engineering solutions to societal-scale challenges. The Department conducts cutting-edge research in evolving and vital areas that address societal needs for well-designed and well-operated buildings, energy, transportation, and water systems. 
These critical systems must be reliable and resilient in the face of hazards such as earthquakes and flooding. Extensive efforts will be needed to adapt civil infrastructure to withstand adverse changes in weather and climate.

Department of Industrial Engineering at Tsinghua University
The Department of Industrial Engineering 
is the leading industrial engineering 
program in China. The Department has three institutes—Operations Research & Logistics, Production Engineering, Human Factors and Ergonomics—and has established a series of laboratories. The research of the faculty covers major sub-specialties in industrial engineering including engineering management, operations research, logistics and supply chain management, and system engineering.

Video of CNPC 2018 Edelman Finalist Presentation