Overview
This version of the pay-as-bid algorithm is used in LNG auctions. According to this procedure bids are ranked from the highest to the lowest price offered by shippers and capacity is allocated in that order. Each shipper then pays the price they offered. Though the LNG pay-as-bid algorithm is similar to the storage pay-as-bid algorithm, the former differs from the latter in one important respect: no pro-data calculation is done for bids at the same price point and, instead, priority is given to bids that were placed first.
General Rules
1. The LSO may create a pay-as-bid auction any time;
2. The auction may last as long as the LSO desires;
3. The auction may include one or more of the following services: storage, transport, regaseification or unloading;
3. The lowest possible bidding price is the reserve price;
4. The reserve price (minimum capacity price) is always visible to users with valid LSO assignments;
4. Shippers may request additional services beyond those initially offered in the auction.
Explanation
The publication and duration of a pay-as-bid LNG auction are defined by the LSO. Once the auction starts, shippers can create bids, stipulating the maximum capacity amount they want, the minimum amount they are willing to buy and the price they would like to pay.
When the auction ends, the bids are ranked from the highest to the lowest price. The LNG capacity will then be allocated in descending order so long as the maximum request of bidders can be fulfilled. If the maximum request cannot be fulfilled, the subsequent bidder in the price ranking will receive the remaining capacity provided there is enough to supply for their minimum request.
In case there isn't enough capacity to supply that shipper's minimum demand, another shipper who offered a lower price will take their place. Now, if more than one shipper offers the same price, priority will be given to the shipper who places a bid first.
In the end, each shipper will pay the amount they offered in their bids: hence the name of the algorithm, pay as you bid.
I) Kill Procedure: as explained above, if the minimum a shipper requests in their bid is too high, they are excluded from allocation.
In this case, Shipper C will not receive any capacity since A and B offered a higher price and the remaining capacity would not be sufficient to supply for their minimum request. Shipper D will, therefore, take their place and receive the remaining capacity:
II) Time Priority: if there are two or more bids at the same price point, priority in allocation is given to the bid placed first.
In the case illustrated above, shippers C and D offered the same price for the capacity. Suppose, however, that shipper D placed their bids at 14:59 and shipper C placed their bid at 15:00. Shipper D, would therefore receive the remaining capacity.
