India needs industry-friendly regulations, a developed onshore oilfield services sector, an extensive gas- distribution network and a market-driven gas pricing, if it wants to replicate the North American shale gas revolution. This has been stated in a report from EY ‘Shale gas – global experience and key learning’.
The report, which was recently released said that while addressing environmental and social concerns India will need to address the above issues to promote exploration and production activities in shale gas industry.
On the fiscal steps to be taken to promote shale, it states that taking cues from the US, several countries have already begun to take measures including offering financial incentives -- subsidies and reduction in royalty rates.
Countries such as the UK are developing shale gas-specific policies to provide regulatory certainty to investors. Over the past one year, China, India and Argentina have raised their natural gas prices to provide an incentive to oil and gas producers to explore and develop gas blocks.
The Indian Government’s draft policy on exploration and production of shale oil and gas stipulates that initial permission for exploration of shale on existing acreage will be restricted to the National Oil Companies. It also proposes several financial incentives for NOCs, including Income tax and customs exemption, along with reduced royalty to be paid on shale gas. The Ministry plans to formulate a separate policy for private and foreign companies at a later date.
"The Government will have to ensure that the shale gas policy, expected to be released this fiscal year, provides adequate incentives and a level playing field to state-owned, domestic private and foreign companies. This remains a crucial aspect to unlocking the potential of shale gas in India," says Dilip Khanna, Partner, Oil & Gas, Ernst & Young LLP.
Policy should also help leverage technical capabilities in partnership with foreign companies. Lack of technological know-how, and inadequate capacity and suitable equipment in the onshore oilfield service (OFS) sector are some of the bottlenecks. OFS companies are looking to export techniques, used successfully in North America, to international markets. India could tap this opportunity and encourage the participation of such companies in the country, the report said.
The report also stresses the need for India to expand its natural gas pipeline infrastructure. The Government will have to create a favourable policy that addresses the concerns of landowners, and oil and gas companies, in view of land acquisition being expected to be a vital issue in India, it states.
Since natural gas market continues to see a deficit, with demand far exceeding supply, India needs to exploit this resource. In Fiscal 2013, natural gas consumption is expected to stand at 104.4 bcm against production of 40.7 bcm, increasing dependence on LNG imports. The Government has taken steps to address this supply-demand deficit, including its initiative to increase wellhead gas prices, effective April 2014, which is likely to incentivise companies to increase their gas production and also benefit India’s shale gas industry.
The U.S. Energy Information Administration (EIA) has revised its estimates upwards on technically recoverable shale gas resources in India, which now stand at 96 tcf, up from its previous estimate of 63 tcf. This revision will help the Government of India attract investors to its first shale gas bidding round, which is slated for the end of 2013.