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Application of the Analytical Hierarchy Process (AHP) to determine gas allocation under shortage condition

Proceedings Title : Proc. Indon. Petrol. Assoc., 31st Ann. Conv., 2007

PERTAMINA Western Java Region has committed gas sales contract to supply 473 MMSCFD of natural gas to their customers located in Western Java Region but in 2006 we were able to supply only 359 MMSCFD of gas (76% of contracted volume), resulting in a shortfall situation. In total we have 26 customers in the region, most of whom are located in West Java, DKI Jakarta and Banten province. We have specific terms and conditions applied to each gas contract for example volume, price, time period and number of offtake. How to maximize value for the company under shortfall situation while taking into consideration customers needs, companys reputation and its short and long term perspective on the business is the focus of this paper. It is not appropriate if all customers received gas based on the percentage of the contracted volume when price, contractual volume and loyalty are different from one customer to the other.To solve this problem we applied The Analytical Hierarchy Process (AHP), an approach to decision making that involves structuring multiple choices criteria into a hierarchy, assessing the relative importance of each criteria, comparing alternatives for each criterion, and determining an overall ranking of the alternatives. AHP was developed by Prof Thomas Saaty, an American mathematician, in 1994. In this case AHP is used to determine priority ranking for each customer relative to PERTAMINA stakeholder interest. From the detailed analysis of the problem, we came up with six criteria which are gas price, cost, payment, operational complexity, volume and loyalty. Then a mathematical manipulation was employed to convert the score obtained from AHP into gas quota. This manipulation was based on each contract condition.

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