Game theory approach to optimal design of shale gas supply chains with consideration of economics and life cycle greenhouse gas emissions

Abstract

This article addresses the optimal design of a non‐cooperative shale gas supply chain based on a game theory approach. Instead of assuming a single stakeholder as in centralized models, we consider different stakeholders, including the upstream shale gas producer and the midstream shale gas processor. Following the Stackelberg game, the shale gas producer is identified as the leader, whose objectives include maximizing its net present value (NPV) and minimizing the life cycle greenhouse gas (GHG) emissions. The shale gas processor is identified as the follower that takes actions after the leader to maximize its own NPV. The resulting problem is a multiobjective mixed‐integer bilevel linear programming problem, which cannot be solved directly using any off‐the‐shelf optimization solvers. Therefore, an efficient projection‐based reformulation and decomposition algorithm is further presented. Based on a case study of the Marcellus shale play, the non‐cooperative model not only captures the interactions between stakeholders but also provides more realistic solutions. © 2017 American Institute of Chemical Engineers AIChE J, 63: 2671–2693, 2017