Exploring the future of shale gas in China from an economic perspective based on pilot areas in the Sichuan basin-A scenario analysis

Although there have been discussions regarding the commercial prospect of shale gas in China, no quantitative and convincing analysis regarding its economic viability has been reported. This research aims to explore the future of the shale gas industry in China using a single-well model. This model is established with the DCF (Discounted cash flow) method aiming at getting an average or representative reflection of the economic viability of shale gas. In the model based on data mainly from pilot areas in Sichuan Basin, three scenarios are conducted to discuss the current economy, the short-term prospect, and the future of the shale gas industry. Under the current technological and economic conditions, China's shale gas resources are not worth an investment. However, in the near future, several sweet-spots are promising, particularly with the expectation of higher gas prices and lower drilling and completion costs (D&C costs). Although the sweet-spots are promising, it is difficult to achieve the goal of large-scale development according to the known information if mainly relying on current policy, unless there are sufficient sweet-spots. Hence, we hold a cautiously optimistic attitude towards the future of the shale gas industry. We suggest that the government should spend more on supporting resource surveys and exploration in the initial stages. After identifying the resource status, a more comprehensive development plan with systemic policies conformed to the resource status is warranted, including encouragement of technical innovations, a system for mature shale gas technical service markets, and a market-oriented price. (C) 2015 Elsevier B.V. All rights reserved.