Research On The Decision And Application Of Coalbed Methane Development Project Investment Based On Real Option

With the development of society, people demand more and more energy. The natural gas resources will not meet people’s needs because of the small quantity. CBM is highly valued as an alternative energy. China has rich CBM resources, third in the world. China’s CBM industry started in the last century, after nearly 20 years of development, has made significant progress. For CBM enterprises, how to assess the value of CBM investment projects and choose the best investment opportunity are significant. CBM investment has the feature of large amounts, irreversible, long payback period. The project is filled with uncertainty.NPV on behalf of traditional investment methods neglect strategic flexibility and management flexibility in the project, underestimate the value of the project, and then lead to a wrong decision.In the paper,the author uses Real Option to analysis CBM project investment,study the valuation of CBM and investment opportunity under conditions of uncertainty. At first, the paper introduces the basic theory of Real Option and its application in the other fields; then study the characteristics and analysis uncertain factors of CBM project investment, point out the defects and shortcomings of the traditional investment methods, provide the necessity of Real Option in the CBM project investment finally.Finally assume information about the amount of CBM,geological conditions, development process and technology has been mastered, so the price of CBM become the main factors influencing the value of the project. The author assume that the price of CBM follows the Geometric Brown Motion, use B-S model to evaluate the value of the CBM project and investment timing. The author use MATLAB software to deal with the data and draw images. Calculate the value of the CBM project in the best investment price*P, and analyze the investment choice under different price levels. When the price0PP(27), the NPV of the project value is less than zero, the enterprise should abandon the project; When the price*0(27)?PPP, enterprises can choose to wait; When the price*PP ?, enterprises should invest immediately, then they can get the best economic benefits. At the same time, the author also analyzes the influence of different investment time on the project. In the end,the paper does a comparative analysis between Real Option and NPV in the CBM project investment and carry on a sensitivity analysis of model parameters.The Real Option takes into account both the time value of investment projects, also consider the strategic flexibility and management flexibility hidden in the process of project investment. So The Real Option method help enterprises to accurate value of CBM project, choose the best investment opportunity. In our country, the application of Real Option method is still relatively few, this article can help enterprises of CBM to use Real Option in the project investment, at the same time considering NPV,making scientific and accurate decision, in order to obtain the maximum economic benefits.