Optimizing Iran's natural gas export portfolio by presenting a conceptual framework for non-systematic risk based on portfolio theory

Abstract

Remarkable proven reserves of approximately 1200 trillion cubic feet of natural gas, with an unprecedented growth in global demand, have led Iranian policymakers to look for optimal natural gas export programs. This paper attempts to provide a novel conceptual framework to evaluate the natural gas export portfolio. In this regard, the present study develops the concept of non-systematic risk based on both the natural gas dependency risk index and the geopolitical risk index. Furthermore, it presents an aggregated quantitative index using entropy-based index aggregate method by providing appropriate sub-indicators toward natural gas transmission via pipeline and LNG. By introducing the non-linear mathematical programming model of Iran's optimal gas export portfolio and proposing four export scenarios, the efficient frontier is obtained for each scenario. Finally, the results show that the minimum risk level can be attained when the gas export portfolio constitutes a significant share of LNG transmission method. Keywords: Optimal portfolio, Iran's gas exports, Non-systematic risk, Entropy-based aggregate method