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Optimal shale oil and gas investments in the United States

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  • Tan, Siah Hong
  • Barton, Paul I.

Abstract

We present a comprehensive supply chain optimization model to determine optimal shale oil and gas infrastructure investments in the United States. The model encompasses multiple shale plays, commodities, plant locations, conversion technologies, transportation modes and both local and foreign markets. The dynamic evolution of supply, demand and price parameters and the uncertainty in parameter realizations are fully taken into account. Imposing two different scenario sets over a time horizon of twenty-five years, the model maximizes the expected net present value of the entire undertaking. We analyze the features of the optimal infrastructure investments and associated operating decisions, perform case studies which highlight the importance of incorporating uncertainty into the model and analyze the stability of the stochastic solutions as the degree of uncertainty changes. The overall opportunity set of investments is sparse, and there is a tendency for over-investment in new liquefied natural gas capacity when the uncertainties in future oil prices are not taken fully into account.

Suggested Citation

  • Tan, Siah Hong & Barton, Paul I., 2017. "Optimal shale oil and gas investments in the United States," Energy, Elsevier, vol. 141(C), pages 398-422.
    • Handle: RePEc:eee:energy:v:141:y:2017:i:c:p:398-422
    DOI: 10.1016/j.energy.2017.09.092
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    References listed on IDEAS

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    Cited by:

    1. Afees Adebare Salisu & Idris A. Adediran, 2018. "The U.S. Shale Oil Revolution and the Behavior of Commodity Prices," Econometric Research in Finance, SGH Warsaw School of Economics, Collegium of Economic Analysis, vol. 3(1), pages 27-53, September.
    2. Li, Boying & Zheng, Mingbo & Zhao, Xinxin & Chang, Chun-Ping, 2021. "An assessment of the effect of partisan ideology on shale gas production and the implications for environmental regulations," Economic Systems, Elsevier, vol. 45(3).
    3. Devine, Mel T. & Russo, Marianna, 2019. "Liquefied natural gas and gas storage valuation: Lessons from the integrated Irish and UK markets," Applied Energy, Elsevier, vol. 238(C), pages 1389-1406.
    4. Chen, Lei & Huang, Ding-Bin & Wang, Shan-You & Nie, Yi-Nan & He, Ya-Ling & Tao, Wen-Quan, 2019. "A study on dynamic desorption process of methane in slits," Energy, Elsevier, vol. 175(C), pages 1174-1180.
    5. Wang, Wenyang & Pang, Xiongqi & Chen, Zhangxin & Chen, Dongxia & Ma, Xinhua & Zhu, Weiping & Zheng, Tianyu & Wu, Keliu & Zhang, Kun & Ma, Kuiyou, 2020. "Improved methods for determining effective sandstone reservoirs and evaluating hydrocarbon enrichment in petroliferous basins," Applied Energy, Elsevier, vol. 261(C).
    6. Becerra-Fernandez, Mauricio & Cosenz, Federico & Dyner, Isaac, 2020. "Modeling the natural gas supply chain for sustainable growth policy," Energy, Elsevier, vol. 205(C).
    7. Bai, Xiwen & Lam, Jasmine Siu Lee, 2019. "A destination choice model for very large gas carriers (VLGC) loading from the US Gulf," Energy, Elsevier, vol. 174(C), pages 1267-1275.
    8. Devine, Mel & Russo, Marianna, 2018. "LNG and gas storage optimisation and valuation: lessons from the integrated Irish and UK markets," Papers WP606, Economic and Social Research Institute (ESRI).
    9. Li, Jinbu & Wang, Min & Jiang, Chunqing & Lu, Shuangfang & Li, Zheng, 2022. "Sorption model of lacustrine shale oil: Insights from the contribution of organic matter and clay minerals," Energy, Elsevier, vol. 260(C).
    10. Sakib, Nazmus & Ibne Hossain, Niamat Ullah & Nur, Farjana & Talluri, Srinivas & Jaradat, Raed & Lawrence, Jeanne Marie, 2021. "An assessment of probabilistic disaster in the oil and gas supply chain leveraging Bayesian belief network," International Journal of Production Economics, Elsevier, vol. 235(C).
    11. Zhao, Laijun & Li, Deqiang & Guo, Xiaopeng & Xue, Jian & Wang, Chenchen & Sun, Wenjun, 2021. "Cooperation risk of oil and gas resources between China and the countries along the Belt and Road," Energy, Elsevier, vol. 227(C).
    12. Sun, Hai & Li, Tianhao & Li, Zheng & Fan, Dongyan & Zhang, Lei & Yang, Yongfei & Zhang, Kai & Zhong, Junjie & Yao, Jun, 2023. "Shale oil redistribution-induced flow regime transition in nanopores," Energy, Elsevier, vol. 282(C).

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