A Modern Portfolio Theory Approach for Chemical Production with Supply Chain Considerations for Efficient Investment Planning

Commodity chemicals and energy supply chains are an essential part of the hydrocarbon industry in several countries. As these supply chains are susceptible to disruptions caused by various risks, the economies of countries that depend on the hydrocarbon sector as a major source of income might be negatively affected. One major risk is the price fluctuations of the resources used in the multiple stages of the supply chains. Investment decisions in this sector aim to secure the investment portfolio's financial returns against the risk of price fluctuations. This work introduces an adaptation of a portfolio optimization technique, the modern portfolio theory (MPT) to the case of commodity chemicals and energy supply chain investments by considering all supply chain stages in formulating the MPT framework. A case study considering four chemical commodities and three potential importing countries is presented with a sensitivity analysis that studies the impact of changing the costs associated with the several stages of the supply chain on the investment portfolio. Results show the importance of integrating both the chemical production and the shipping stages of the supply chain in developing a portfolio optimization framework and its impact on the optimal investment portfolios. The developed model guides investment planners to target the desired financial returns at a minimum risk.