EfD Discussion Paper,
Environment for Development, University of Gothenburg

Abstract: Developing the abundant shale gas in China is a potential means to address the country’s challenges in air pollution and carbon emissions. The purpose of this paper is to evaluate the production potential of the most promising shale gas play—the Wufeng-Longmaxi Formation (WL) in China. We use a Difference-Index analogy method and well-level U.S. shale gas drilling data to estimate the production potential and use a scenario simulation method to propose optimal drilling plans. The results show that the Wufeng-Longmaxi Formation has the potential to produce 70 billion cubic meters of natural gas per year (Bcm/yr), which is 60% of the gas imported into China in 2018. With technology improvement and drilling of more wells, the target of 80–100 Bcm/yr set by the government can be achieved solely by extraction from WL. We find that shale gas drilling is profitable with a well-head price of 1.5 Chinese Yuan per cubic meter. The study indicates that a shale gas boom in China is possible, depending on a more competitive market both upstream and downstream. The successful development of shale gas will change the country’s energy mix to become cleaner and lower-carbon.

Keywords: shale gas boom; Longmaxi; analogy method; drilling plan; natural gas market

JEL-codes: Q33; Q35

Language: English

30 pages, June 1, 2020

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