With the recent rapid growth of China’s economy, the demand for energy has grown correspondingly and the trend is expected to continue. In response to this, China is seeking to adjust its energy structure by diversifying its energy supply. As part of this, shale gas development has become an important energy strategy in China in recent years because there are abundant prospective resources of shale gas. However, the related economic and environmental issues associated with shale gas developments are controversial. This thesis discusses shale gas developments in China and the USA. Then it focuses on the economics of shale gas development in China based on an analysis the costs and benefits of shale gas from the perspectives of (a) the Supply Chain companies (those in the upstream, midstream and downstream sectors) (b) the Whole Economy. Specifically, the aims are as set out below.A. To describe and quantify the benefits and costs of an example Chinese shale gas development for the Whole Economy. The benefits and costs include those external to shale gas Supply Chain companies.B. To assess the benefits and costs of an example Chinese shale gas development for the companies operating the shale gas operation. In other words, the boundary of the analysis is the shale gas Supply Chain on its own. The analysis excludes the economic effects of benefits and costs external to the development. C. By comparing the analyses in 1 and two 2, to quantify the incremental economic effects of external benefits and costs.The results show that the Fuling shale gas development has a mean nominal NPV of positive US$583MM as at 2011 from the perspective of the Supply Chain. That is when the economics exclude External Costs and include Fiscal Costs. However, the mean nominal NPV becomes negative US$595MM from the perspective of the Whole Economy. That is when the economics include External Costs and exclude Fiscal Costs. In other words, the economics of the project for the Supply Chain companies are significantly more attractive than the economics for the Whole Economy. The effects of External Costs are decisive factors in the economics of shale gas. For instance, the greenhouse gas emissions by burning shale gas and the existing central subsidies are significant External Costs.
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