Shale gas is mainly stored in shale reservoirs with a large number of developed micro-fractures in adsorbed and free state forms and only a small amount of shale gas is stored in dissolved state form. For this reason, analyzed are fluid properties and reservoir properties of the rock matrix and fissure system respectively and considered comprehensively are effects of such driving mechanisms on shale gas as natural gas expansion, matrix and fissure shrinkage, fluid expansion, water encroachment, adsorbed gas desorption and adsorbed- phase volume change and established is the material balance equation for limited water encroachment shale gas. Practical application results of the equation show that the equation can effectively estimate shale gas reserves, estimation results will not be accurate probably if driving mechanism of adsorbed-phase volume change is not considered, lack of adsorbed-phase volume change consideration may result in lower estimated reserves, lack of matrix porosity and water expansion consideration may result in lower estimated free gas reserves in matrix system, larger estimated free gas reserves in fracture system and lower gross reserves.