India: First Shale Gas Auction to Boost Reserves

India plans to offer shale-gas areas for exploration for the first time, according to the nation’s oil regulator.  The government will appoint an expert by early July to assess potential reserves and then create rules to tap unconventional energy sources before auctioning areas in about a year.

Preliminary estimates show India’s shale-gas reserves may be larger than its proven conventional gas deposits.  India plans to join a boom in shale-gas exploration that has fueled more than $39 billion of acquisitions in the U.S. by companies including Exxon Mobil Corp., Royal Dutch Shell Plc and Reliance Industries Ltd.

“Companies are interested in expanding their global portfolios in shale gas as it is a big revolutionary step,” said Thomas Grieder, a London-based analyst at market intelligence firm IHS Global Insight. “Everyone will be looking at places like India with interest. It will depend on whether regulations are solid and implemented consistently.”

India will need to change exploration laws for shale gas to be produced because current exploration licenses don’t include unconventional sources, Srivastava said. The changes will have to be approved by the nation’s Cabinet.

Supply of natural gas in India lags behind demand as the nation seeks to cut air pollution and as power plants and fertilizer users seek to replace more expensive naphtha and imported liquefied natural gas with cheaper domestic fuel. Gas demand may rise to 120 billion cubic meters a year by 2015 from 62 billion currently, B.C. Tripathi, chairman of GAIL India Ltd., said June 24.

The nation faces an energy shortfall of 55 percent by 2030 as demand more than doubles to the equivalent of 1.3 billion metric tons of oil, according to the Paris-based International Energy Agency.

Asia’s third-biggest energy consumer also needs to work out how companies that produce shale gas will share profit with the government, Srivastava said.

ONGC Study

Oil & Natural Gas Corp., India’s biggest energy exploration company, awarded a 1.2 billion rupee ($26 million) contract to Schlumberger Ltd. in April to drill for shale gas in east India, according to Chairman R.S. Sharma. Drilling wells to assess the reserves may be completed by the end of this year, he said.

“Shale rocks have been found in Gujarat, Assam, Jharkhand,” Sharma said June 25. “We have to study the extent of the reserves and the economics of producing it.”

The shale rock found in India is similar to those in the U.S., Bhowmick said. The cost of producing the gas may be different because the rocks are found deeper in the ground in India than in the U.S., he said.

“The rocks are definitely gas-charged,” Bhowmick said.

India has gas reserves of 39.4 trillion cubic feet compared with 244.7 trillion cubic feet in the U.S. at the end of 2009, according to the BP Statistical Review.

Land, Pollution

Problems with land ownership and concerns that drilling for shale gas can pollute ground water may force the government to hold back some shale-gas blocks. Steel projects worth more than $80 billion, including those of ArcelorMittal and Posco, have stalled in Orissa and Jharkhand states because of protests by villagers and approval delays.

Shale-gas drilling uses a process known as fracking, which blasts water mixed with chemicals into a well to break the rock and release gas, polluting ground water.

“There is some controversy over the impact the chemicals in the drilling fluid have on the water table,” Michael Liebreich, chief executive officer of Bloomberg New Energy Finance, said by telephone from London. “There are ways to prevent the pollution but the problem is we’re human. India has to avoid riskier, populated areas.”

Reliance Industries, operator of India’s biggest gas field in the Bay of Bengal, has spent $3 billion to buy shale gas assets in the U.S. This will help the explorer bring the knowledge to India, said Sara Pourghorbani, an Edinburgh-based analyst with Wood Mackenzie.

Global Explorers

“Shale-gas development has become economical,” Srivastava said. “Technology is available off the shelf now.”

India hasn’t been successful in attracting global explorers to its auctions of conventional oil and gas blocks aimed at raising domestic output to cut imports. The nation’s oil import bill climbed six-fold in the past decade to $85.47 billion in the year ended March, equivalent to about 7 percent of gross domestic product.

“Large companies have tended to stay away from Indian auctions because they are usually cautious of regulatory frameworks,” IHS’s Grieder said. “India now has to develop regulations, including for pricing and supply of gas, that will attract international players.”

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