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a b s t r a c t
Article history:
Received 23 April 2014
Received in revised form
12 November 2014
Accepted 19 January 2015
Available online 9 February 2015
In order to ease environment pressure and alleviate the scarce problem of energy, Chinese government has
begun to exploit and develop shale gas (SG) since 2009. However, the formation of competitive market is
bristled with difculties, due to its infancy, imperfect and lack of standardization. This paper rstly analyzes the
status quo of technology, policy, cost, and competition of SG industry in China. Then a system dynamics (SD)
model is built to show various trends of Chinese SG industry under different scenarios, which shows that
technology, policy and cost all have effects on competitiveness. At last, the simulations reveal that the number
of competitors in Chinese SG industry will arrive at its peak from 2019 to 2020. The corresponding
recommendations have been presented: Chinese government should pay more attention on the perfection
of laws and regulations of SG industry. And competitors should focus on increasing R&D investment.
& 2015 Elsevier Ltd. All rights reserved.
Keywords:
Shale gas
China
System dynamics model
Competition
Contents
1.
2.
3.
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236
System dynamics method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236
System dynamics model of SG industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236
3.1.
Structure analysis of competition system . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236
3.2.
Model assumption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 237
3.3.
Variables and parameters of SD model. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 237
4. Case study and data collection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239
4.1.
Exploitation cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239
4.1.1.
Cost estimation of drilling process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239
4.1.2.
Cost estimation of well completion process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239
4.1.3.
Cost estimation of well cementation process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239
4.1.4.
Cost estimation of logging process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239
4.2.
Government policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239
4.3.
Competition situation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240
5. Simulation results analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 241
5.1.
Simulation software. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 241
5.2.
Result analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 241
5.2.1.
Technology scenarios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 241
5.2.2.
Cost scenarios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 241
5.2.3.
Subsidy scenarios. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 242
5.2.4.
Combined inuence of technology, cost and policy on market competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 242
6. Conclusions and suggestions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 242
Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243
http://dx.doi.org/10.1016/j.rser.2015.01.060
1364-0321/& 2015 Elsevier Ltd. All rights reserved.
236
1. Introduction
As a coal-dominated energy structure country, China is suffering from serious environmental problems. It has become a
signicant energy strategy for China to develop clean energy.
Natural gas, a type of clean energy, is becoming increasingly
popular. Gas consumption increases year after year. However,
China's conventional natural gas reserves fail to meet the increasing demand of gas. Therefore, reliance on imported natural gas
poses a great energy security threat to China. More than 31.6% of
the gas consumption relied on foreign supplies according to
statistics in 2013 [1]. Energy security in China will become more
serious over time. Fortunately, China has huge reserves of shale
gas (SG) which is a type of unconventional natural gas [24]. It will
be expected to effectively alleviate above problems when SG
begins to be commercially exploited to a certain extent. Many
scholars having studied the SG industry believed that SG development is an energy revolution which will have a great inuence
on the world energy landscape [57]. Many regions around the
world like European countries, Australia and China begin to
research or exploit SG after the US.
Chinese SG industry has been in the forming stage since 2009
and SG market is easily monopolized, which is unfavorable for
technology progress, cost reduction and market competition.
Competition benets to realize efcient use of energy resources
and low extraction cost. Therefore, healthy and competitive SG
market is particularly important to China energy strategy. In fact,
SG market is affected by complex technology, cost and policy
factors in China because of deeper burial depth and more complex
geological conditions [811] and further, these factors have signicant inuence on the competition of SG market [12]. Some
scholars qualitatively listed several key factors affecting the SG
industry competition: technology, cost and policy [1319]. Hu and
Xu [15] advocated that the increase of researches on SG exploitation and government subsidy might benet SG industry development. However, the inuence mechanism between these factors
and their inuence on SG market is lack of quantitative research in
detail. This paper aims to analyze these factors affecting the
competition of SG market and corresponding inuence on competition. Qualitative and quantitative methods are applied to
ensure comprehensive and sufcient argumentation.
We try to choose a system-analysis model that can analyze
complex system to study the above issues. Estimating the inuencing mechanism in an industrial section is a complex problem due
to the presence of multiple technological limitations, feedback
processes among subsystems, and various kinds of delays. System
dynamics is a suitable approach to such a complex model. System
dynamics (SD) approach, established by Forrester [20], has been
wildly used in socio-economic studies. Many researchers developed
SD models to analyze industry in various districts all over the world
[2224]. SD also has wide application in energy eld. Feng, Chen
and Zhang developed a model to study the energy consumption
and CO2 emission trends of Beijing from 2005 to 2030 [25]. Naill
presented an SD model of gas industry dynamics in the United
States. He demonstrated technological, physical, economic and
political factors that might alter the gas industry [26]. Movilla,
Miguel and Blzquez[27] used SD to analyze the behaviors of the
photovoltaic sector in Spain and its expectations in some possible
scenarios. Ansari and Sei studied energy consumption and CO2
emission in Iranian cement industry under various production and
export scenarios based on SD model [28]. Kiani and Ali presented a
system dynamic model which considers the feedback between
supply and demand and oil revenue of the existing system in Iran
considering different sectors of the economy [29].Chyong, Nuttall
and Reiner presented an SD model of the indigenous natural gas
industry in the UK [24]. Therefore, advantages of using SD model to
analyze the inuences of complicated factors on industry competition are obvious from the published literatures mentioned above.
In conclusion, it is very important to form a healthy market in
an orderly and efcient way because of the strategic importance of
SG. Through literature comparison, we nd that SD model is a
feasible method to analyze the competition of SG industry. In this
paper, we build the SD model and analyze the inuence of
technology, cost and policy on the SG industry. The results and
conclusions will be helpful for government to formulate policies,
and for enterprises to make decisions.
237
238
Table 1
Parameter list of SD model of SG industry competition.
Level variables
Rate variables
Auxiliary
variables
Parameters
Connotation
Unit
ST (stock of technology)
AR (average revenue)
LCP (level of competition)
R&D (total R&D investment)
GPR (gas production rate)
CNI (competitors number in industry)
NPC (number of potential competitors)
NC (number of competitors)
(Ten thousand
(Ten thousand
(Ten thousand
(Ten thousand
(Unit/Year)
(Unit/Year)
(Unit/Year)
(Unit/Year)
(Ten thousand
(Ten thousand
(Ten thousand
(Ten thousand
(Ten thousand
(Ten thousand
Year)
(Ten thousand
(Ten thousand
(Ten thousand
(Ten thousand
(Ten thousand
(Ten thousand
(CNY/m3)
(Ten thousand
(Ten thousand
(Ten thousand
(Ten thousand
(Ten thousand
(CNY/m3)
(Ten thousand
(Ten thousand
(Ten thousand
(Ten thousand
CNY)
CNY/Year)
CNY/Year)
m3/Year)
CNY/Well)
CNY/Well)
CNY/Well)
CNY/Well)
CNY/Well)
CNY/Well/
CNY)
CNY/Well)
CNY)
CNY)
CNY/Year)
CNY/Year)
CNY/Year)
CNY/Year)
CNY/Year)
CNY/Year)
CNY/Year)
CNY/Year)
CNY/Year)
CNY/Year)
CNY/Year)
FC COSTFC FCRR
MC COSTMC MCRR
10
We study this industry for the next 10 years and divide it into
three stages articially: the early stage from 2013 to 2016, the
medium stage from 2017 to 2019, the last stage from 2020 to 2023.
239
240
Fig. 3. Subsidies policy comparison chart of shale gas and coal bed gas.
Source: China Treasury and Energy Bureau in document [2012]847.
241
block actual data rstly. The winning enterprises will repay the
government for the cost. Moreover, the government will remove
the restriction that enterprises have to own the minimum
registered capital of 300 million CNY (48.5 million US dollars).
5. Simulation results analysis
5.1. Simulation software
The SD model explained in the previous section has been used
to simulate SG market competition using the software of Vensim
PLE for Windows Version 5.7a for validation of results on SG
industry competition.
242
the cost stably shows little reduction space at the later stage,
after 2021.
5.2.3. Subsidy scenarios
For analyzing the inuence of government subsidy policy on
competition, we also assume three scenarios of subsidy with xing
other parameters: high subsidy (0.8 CNY/m3; 12.95 cents/m3),
standard subsidy (0.4 CNY/m3; 6.47 cents/m3), low subsidy
(0.2 CNY/m3; 3.22 cents/m3), which is set on relevant policies of
coal gas and other energy. Then the result of SD model can obtain
the results, shown in Fig. 10.
The results show that different subsidy policies have slight
effect on competition from 2013 to 2017, because subsidy is related
to gas production according to Chinese subsidy policy. The subsidy
policy cannot bring more prot to enterprises as the gas production is limited at the early stage. Therefore, the subsidy at the early
stage has little effect on competition. However, when the gas
production increases, subsidy will have huge inuence on prot
and will cause erce competition. Furthermore, if the subsidy is
higher, the peak of competition will come earlier. At the later
stage, the subsidy will become relatively less than the prot.
Therefore, the impact of subsidy will be weakened again.
5.2.4. Combined inuence of technology, cost and policy on market
competition
In this paper, the indicator of NPC is used to study the market
competiveness of SG industry by reecting the number of potential competitors. We can nd that the number of competitors will
arrive at its peak from 2019 to 2020 and fall back slightly into
stable state (shown as Fig. 11). Why does this kind of phenomenon
competitors. High subsidy means the high value of the subsidies. Thus, more competitors are attracted to the SG industry.
(3) The peak of the competitors will appear at 2019 and 2020
according to the combined inuence. When technology, cost and
policy are all taken into consideration, the peak appears at 2019
under high input and at 2020 under standard and low input.
Based on the above conclusions, we present the following
suggestions:
(1) The number of potential competitors will arrive at the peak in
2019. Thus, Chinese government should pay more attention to the
norms and provisions of entry and exit SG industry and a perfect
market system should be established before 2019, which will
provide basic prerequisite for SG market competition.
(2) Lower mining costs will contribute to the earlier coming of
competitive situation. From 2013 to 2018, the high-input
strategy should be applied by Chinese government urgently.
That is to say, a high investment R & D is needed currently,
which will bring technological upgrading and lower
mining costs.
(3) From 2013 to 2016, the competitors need input high R&D to
overcome technical barriers. Due to the high investment, yield
equilibrium point will appear in 2019, which means achieving the
maximum subsidy prots and keeping stronger competitiveness.
(4) The competitors need to reasonably apply competition strategies. Before 2019, technological barriers are high and the
competition is weak. After 2020 the technologies will be
mature and the competition will be erce. The competitors
should take their condition into consideration, including funds
and technology, when they prepare to enter or quit.
Acknowledgments
The whole research process is funded by National Natural
Science Foundation of China (71271085), Social Science Fund of
China (12JGB044) and the Fundamental Research Funds for the
Central Universities of China.
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