Cost-benefit evaluation of investment in natural gas distribution

Investment in the distribution of natural gas must be assessed by combining a technical analysis of the investment and an assessment of the social costs and benefits, to evaluate the impact of the project on social welfare in monetary terms. This paper describes how such an analysis can be conducted, by developing a methodology for the evaluation of investment in the distribution of natural gas. Once the net social benefit (NSB) of the investment has been evaluated, it is also important to assess the degree of reliability of such an estimate. This assessment can be conducted through two types of tests: sensitivity analysis and risk analysis. The critical variables are identified in sensitivity analysis as those that have a significant impact on the predicted outcome when they change. To address any uncertainties in the critical variables, a risk analysis quantifies the probability that the NSB is less than that estimated when using modal values for the critical variables. This type of analysis, combined with a technical evaluation, can be effectively used to assess the social consequences of an investment.