Shale gas investment decision-making: Green and efficient development under market, technology and environment uncertainties

• Published in: Applied energy 2022-01, Vol.306, p.118002, Article 118002
• Main Authors: Liu, Haomin, Zhang, Zaixu, Zhang, Tao
• Format: Article
• Language: English
• Subjects: Drilling and completion cost; Environmental benefit coefficients; Investment decision-making; Real option; Shale gas; Shale gas price
• ISSN: 0306-2619; 1872-9118
• DOI: 10.1016/j.apenergy.2021.118002

•Propose a new real option model for China’s shale gas investment decision-making.•Consider multiple uncertainties in market, technology and environment.•Explore investment values and optimal investment timings under different scenarios.•Study the impacts of changes in relevant factors on investment decision-making. The investment in shale gas green and efficient development in China faces many uncertain factors that affect the investment decision-making of enterprises, which contributes to China's low-carbon energy transformation and national energy security. Based on the characteristics of China's shale gas resource development and considering the uncertainties in the aspects of market, technology and environment, this paper proposes a real option model to evaluate investment decision-making of China’s shale gas development and uses the Least Square Monte Carlo simulation to solve the investment values and optimal investment timings of shale gas low, moderate, high and ultrahigh productivities under four combination scenarios of financial subsidy and/or carbon emission trading. The results show that the current investment environment in China is not suitable for immediate investment in shale gas development projects. Investors can invest immediately when the initial average daily production reaches at least 30 × 104 m3. And financial subsidy and carbon emission trading help advance the optimal investment timings. According to a sensitivity analysis, appropriate increases in financial subsidy, shale gas price, absolute value of the drift rate of drilling and completion cost and environmental external benefit coefficient are found to improve the investment value and advance the optimal investment timing, while drilling and completion cost and production decline rate have the opposite effect. Therefore, to stimulate the investment, the government and enterprises should adopt some measures such as addressing key problems on technology and equipment, flexibly adjusting subsidy policies and driving forward the carbon emission trading market.