INDIAFILE. Between a Rock and a Hard Place

“The kitchen is functional, the food is cooked, and ready to be served,” says a young geologist with a major Indian exploration company, referring to the country’s efforts to extract shale gas. One might get a bit confused. What has the kitchen got to do with shale exploration? Shale is where gas is actually created. Energy men call it “the kitchen”, where hydrocarbons “cook,” and where gas remains trapped.

For critics, the India shale story may still be just hot air, but geologists at the country’s oil and gas exploration sites are not ready to give up. Though challenges remain, they are confident that India, which currently imports over 75 per cent of its energy requirements, can exploit this unconventional formation.

India’s newfound thrust for shale energy comes at a time when technological advances make extracting gas and oil trapped below ground less challenging and the country’s energy needs are rocketing.

Growing demand

Gas consumption has grown at an annual rate of 10 per cent in 2001-2011. In 2011, India consumed 2.3 trillion cubic feet (TCF), and liquefied natural gas imports accounted for about a quarter of it. The oil ministry projects this trend to continue, with gas demand more than doubling in five years. India has a chronic power supply shortage and yet many gas-fired electricity plants stand idle as the country lacks the fuel to supply them.

On the other side, conventional oil and gas resources, mainly found in sandstone (for example, Reliance Industries Ltd’s KG D6 field off the Andhra Pradesh coast) are on a decline globally, while those found in limestone (Oil and Natural Gas Corp Ltd’s Mumbai High field) are highly unpredictable.

Cautious approach

This makes a perfect case for pushing unconventional energy sources like shale gas, and the government has played ball, but cautiously.

It has allowed only state-run oil companies — ONGC and Oil India Ltd — to explore shale. That, too, in blocks awarded to them on a nomination basis prior to the licensing rounds. This also will be done in phases.

Six onshore basins — Cambay, Krishna-Godavari, Cauvery, Assam-Arakan, Ganga and Gondwana—have been identified for shale exploration, based on the geo-scientific data gathered for conventional exploration. If successful, the government claims it will bring down the country’s energy import bill, which stood at Rs 7.84 lakh crore in 2012-13.

Preliminary studies indicate that Indian basins are prospective for shale oil and gas, but the productivity would be known only after gathering more shale gas-specific data.

According to the US Energy Information Administration, India could be sitting on as much as 96 TCF of recoverable shale gas reserves, equivalent to about 26 years of its gas demand, compared with its 43.8 TCF of natural gas reserves at the end of 2012. The Directorate General of Hydrocarbons, the country’s upstream regulator, says of the about 350 blocks held by ONGC and Oil India, 176 could hold shale resources.

Nevertheless, the government is wary of making big claims. “We are still at a very preliminary stage when it comes to tapping these unconventional resources,” Petroleum and Natural Gas Minister M. Veerappa Moily said recently.

Indian companies are not alien to the shale gas extraction process, known as hydraulic fracturing or fracking. This process typically blasts huge quantities of water, mixed with sand and chemicals, underground to break apart rock and allow the natural gas to flow from the shale into the well.

Mukesh Ambani-led RIL, state-run GAIL (India) Ltd, and an Oil India-Indian Oil Corporation combine have already made footprints in the US shale gas business. ONGC Videsh Ltd, the overseas arm of ONGC, is exploring it in Russia through its subsidiary Imperial Energy.

ONGC created an exploration landmark when gas flowed from the Barren Measure shale at a depth of around 1,700 metres in its first R&D well RNSG-1 near Durgapur, West Bengal. The Barren Measure shales are 858-m thick in the well.

Chairman Sudhir Vasudeva said last month that ONGC hopes to start commercial drilling next year. “We are planning to drill 10 wells this year and hope to start commercial production next year,” he said at an Indian Chamber of Commerce summit in New Delhi.

Challenges

So far, so good. But it doesn’t mean that India has a smooth road ahead. From where the country is placed today, land and water remain major issues, pipeline infrastructure is still inadequate, specialised services are nascent and environmental concerns linger.

Mineral rights in the US belong to the landowner and hence, there are certain royalty mechanisms to motivate the landowner to part with his or her land for development. In contrast, the Government owns the mineral rights in India. “The land required for drilling and subsequent production will have to be leased or purchased through direct negotiation with landowners,” says a senior official with the DGH.

The official, like most others quoted in this article, refused to be identified as he was not authorised to speak to the media on the subject. Land requirement for developing shale oil and gas is much higher than what’s needed for the development of conventional energy resources. While in conventional oil and gas 50 wells can give higher economics, thousands of wells are required to give good returns in shale.

Besides, the government will need in-principle approval of the State Governments concerned for the areas of shale blocks, including facilitation in the matters of land acquisition and water management issues.

Cost implications

Another area of concern is the cost of exploration. Drilling large number of horizontal wells and stimulation with fracking combined with a comparatively low rate of production make shale exploration an expensive business. Drilling a well in a shale prospect is almost three times more difficult than a conventional well, say experts.

Moreover, the fracking technology is restricted to onland exploitation of shale, with deep sea still remaining unexplored terrain.

These factors make shale gas development viable only at comparatively high gas price, say experts and industry representatives who see marketing freedom for gas producers as an imperative for shale exploration to become a sustainable business. At present, the Government’s focus on prioritising gas for certain sectors such as fertiliser and power, and onerous approval delays for projects have led to a belief that gas market prices in India remain significantly controlled.

In the US, shale exploration faced stiff opposition from environmental groups. They say fracking can use a lot of water in parched areas, create waste water and pollute groundwater.

Even those who support shale exploration agree that shale hydrocarbon production is a high-risk business, and needs strict oversight on aquifer contamination by methane, fracking chemicals (such as benzene) and other fracking by-products. Some reports have even linked fracking to mini earthquakes in the UK in 2011.

India’s Ministry of Environment and Forests says the country is prepared to avoid any such situation. “We will devise appropriate standards, whenever it is felt that the existing standards are inadequate,” says a Ministry official. Under the recently announced Shale Policy, the Government has left it to the contractors to attain all necessary approvals.

Baby steps

The Petroleum and Natural Gas Ministry feels domestic shale gas exploitation will be critical to reach the zero energy import target by 2030. However, the oil and gas industry says it may take years for the country to get access to and realise profits from this source because of the paucity of information and lack of infrastructure.

Shale gas-specific data has to be generated through pilot well drilling and laboratory investigations.

As of now, different agencies offer varying shale gas estimates on India.

The only way to resolve this uncertainty is to accelerate exploration and drill wells to gather data and analyse it.

“This requires a prudent, unambiguous contractual and fiscal regime with incentives to attract technologically-advanced explorers to invest in India,” says a private sector explorer. “Shale gas exploration need not have any separate policy or bid round, as it is an integral activity of hydrocarbon exploration. We should emulate the US example of harnessing the shale gas potential.”

DGH officials say India is doing just that. “We have taken the initial steps in line with the success the US has made in this field,” says one official.

But emulating the US model in India is not as simple as that. The US has infrastructure in terms of a high-pressure gas pipeline and grid, and market-linked pricing, which enable quick monetisation, while India is still struggling with infrastructural and regulatory challenges.

In a nutshell, a comprehensive environmental safety standard, mechanism for multiple clearances and marketing freedom remain some of the key concerns for shale hydrocarbon extraction in the country, say analysts.

Shale will not replace the conventional oil and gas, but it will supplement them, says one official with a public sector oil company. “India has just taken baby steps. It has a long way to go before it can take giant strides.”

> richa.mishra@thehindu.co.in

(With inputs from Aesha Datta)

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