Impact of unconventional natural gas development on regional water resources and market supply in China from the perspective of game analysis

Abstract

This study presents a detailed framework for evaluating water resource constraint and game-based supply strategies of unconventional and conventional natural gases in China. Surface-water production pressure and groundwater-pollution risk level are used to measure the extent of water resource constraint on shale gas development. Cournot and Stackelberg game models are applied to illustrate the oligopoly mechanism between unconventional and conventional natural gas manufacturing. A subsidy multiplier model is then proposed to identify the impact of government subsidy on different game strategies. Results indicate that high amounts of estimated ultimate recovery and recycling wastewater would significantly reduce water resources consumption during shale gas development. An increased subsidy coefficient would increase the amount of unconventional natural gas but decrease the amount of conventional natural gas. However, the majority of subsidy multiplier values would be less than 1, implying an inconspicuous effect of the subsidy. Moreover, the equilibrium production of unconventional natural gas in the Cournot and Stackelberg game models would increase with the increased substitution factor m1 but decrease with the increased substitution factor m2. Conversely, the high amount of equilibrium production of conventional natural gas would increase the substitution factor m2 but reduce the substitution factor m1 within these two models.