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Is India Ready for Shale Gas?

India has a long way to go before it can sustainably and safely extract shale gas. A lot depends on whether the proposed regulatory framework will promote investment in the requisite resources and infrastructure

Published: May 2, 2013 09:07:54 AM IST
Updated: May 3, 2013 11:21:23 AM IST

There is a high degree of expectation around the new shale gas policy due to emerge as per recent announcements from MoPNG. EIA estimates put India’s recoverable shale gas reserves at ~60 trillion cubic feet (TCF). For context, India’s current annual gas consumption is ~2 TCF.

Everyone knows that development of shale gas in USA has transformed its energy dynamics and boosted its economy – increasing manufacturing output thanks to the now low cost of gas as fuel for power and feedstock for industry. Could shale gas be the panacea for India’s energy needs? Can we too enjoy the same transformation seen in USA? To answer these questions, we first need to understand what exactly is shale gas, how is it extracted, what are its pitfalls and finally we need to learn from the shale gas experience of other countries.

Broadly, there are two types of natural gas resources – conventional and unconventional. Conventional natural gas is like a big balloon of gas trapped underground – the way to extract it is to drill a well, puncture the balloon and collect the gas. Finding these big balloons and drilling in exactly the right place to the right depth to extract the maximum gas is a science and an art that was mastered by major global oil and gas companies. Meanwhile, smaller, more entrepreneurial companies were chasing unconventional gas. This comes in three flavors – tight gas, coal bed methane and shale gas. Shale gas is not aligned to the balloon analogy at all – it’s more like lots of little bubbles of gas trapped inside impermeable shale rock that stretches for miles underground. The way to extract it is to drill a well that penetrates the shale, then takes a ninety degree turn and makes a channel in the rock parallel to the ground – this is called a horizontal well. Water (mixed with chemicals & additives) is then blasted at high pressure through the horizontal well to fracture the shale, an activity referred to as “fracking.” Fracking dislodges the gas bubbles and they find their way to the surface through the horizontal well.

So extracting shale gas is very different from conventional gas production. Instead of a single big balloon there are millions of bubbles stretching over large tracts of land. Unlike conventional gas where drilling that perfect well is critical, shale reserves are easier to find and drill – the name of the game here is operational efficiency: quickly drilling horizontal wells, fracking them, connecting them to pipeline infrastructure, extracting the gas, transporting it and moving to the next tract of land. Instead of the capex consolidated in a small area as in conventional drilling, shale gas extraction requires capex spread over wide areas – especially the extensive midstream pipeline network required to gather the gas recovered. Finally there are some new environmental challenges – a lot of water (mixed with chemicals and additives) is required for fracking, if this is not properly disposed it can pollute the ground water.

Our view is that India has a long way to go before it can sustainably and safely extract shale gas. A lot depends on whether the proposed regulatory framework will promote investment in the requisite resources and infrastructure. Technological knowhow, although critical, should not be the bottleneck – GAIL, OIL and RIL have already started investing in shale in USA and their local staff is onsite building technical capabilities. Where India will be challenged is in its ability to manage resources (e.g., water, for which there is a distribution problem even for human consumption) and to design regulations for sustainable development (e.g., investment incentives for developing the required supply chain and capex; preventing ground water pollution; compensating land-owners which will be critical for drilling horizontal wells in large tracts of populated land, etc.) These are complex problems and in addition to a shale gas policy (which in itself will elicit debate on production sharing/ royalty, etc.) India will need to create/ modify other policies plus tighten oversight.

India will not be alone in dealing with this complexity. European countries are grappling with similar issues – fracking has been banned in many European nations and companies have either pulled out (e.g., ExxonMobil from Poland) or tempered expectations (Chevron with large amounts of acreage in Eastern Europe has stated that commercial development could be over a decade away). Even countries much further along in the shale journey are re-visiting policies – e.g., both USA and UK are conducting studies and refreshing guidelines around chemicals/ additives used in fracking. China will soon be releasing a new shale gas policy to resolve the shortage of mid-stream infrastructure investments and to enforce stricter environmental controls.

In summary, shale gas has potential but it is not the silver bullet which will resolve India’s energy crisis tomorrow.  And although we need a policy around shale gas, it needs to be holistic and incorporate lessons learned from the experiences of other countries (USA and UK) that are further ahead. Understanding the challenges they faced around water, investment incentives, land, etc. will allow us to create a more robust policy for India which will sustain over the long term.

1)    Akshaya Gulhati is a Principal in the Energy Practice of Booz & Company, New Delhi, India
2)    William Dusek is a Principal in the Energy Practice of Booz & Company, Dallas, USA

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  • Dhruv Rathi

    The government has to be very cautious about pricing of shale gas. We have seen how one company has forced the government to increase the natural gas price and that results into higher inflation. We have also seen two major companies for Coal Bed Methane. Essar and RIL discovered different market prices for CBM gas. Essar\'s price of $4.2 per mmbtu is much lower than RIL’s $12.93? Why?

    on Sep 26, 2013
  • Jagrut Badani

    India is ready for shale gas exploration. The high demand for gas, and India\'s dependence on imports, a burgeoning population and current account deficit means the returns from a venture like shale gas exploration is justified. Before crying foul, give the policy-makers sustainable alternatives.

    on May 15, 2013
  • Dr.a.jagadeesh

    Shale gas in India is still a far cry as we lack necessary technology and infrastructure. Dr.A.Jagadeesh Nellore(AP),India

    on May 7, 2013
  • Mayank Roy

    The above article articulately describes the engineering of extraction and future prospects of Shale gas in India. But there are some technical hurdles which may procrastinate the commercialization of shale gas- 1. Most of the regions in India have shale formations at shallow depths. Creating a 90 degree turn in such a small depth would require a better horizontal drilling technology. 2. \'Hydro-fracturing\' process,which is required in the shale extraction, is something which the Indian Oil Cos don\'t expertise in. The success rate of ONGC in Hydro-fracturing has been just 30% (as per their annual drilling reports of 2012) 3. The Hydro-fracturing fluid used by the companies are mainly patented and the US cos are considered to have the best fluid composition patented with them. Guar Gum, a product of guar beans mainly planted in Rajasthan, is used by India and the Middle East to make fracking fluid. Due to the stagnancy in global fuel demand, the farmers have left this occupation because it was moving closer and closer to a zero-sum-game.

    on May 7, 2013
    • Sk

      SHALE GAS in India is future energy source.By having joint ventures with US company Indian PSUs can make a early start at technological part.On commercial part issues could be resolved by MOPNG by formulating a robust and holistic PSC with comapnies.India is in need of energy specifically in the from of natural gas as most of the gas based Power Plant could not be operated/commissioned due to drop in production from KG-D6.Come on let us start SHALE GAS as early as be possible.

      on May 19, 2013
  • Abhishek Kumar

    I agree with views. Even after PMP Act 1962 in place and Gazette notofocation w.r.t land acquisitions for laying NG pipelines, pipeline companies face lot resistance even after paying compensation. Huge water requirement 'Shale Gas Vs Human consumtion' will face ire of multiple social groups and environmentalist. Akashay has been a big proponent and avid supporter of India'€™s natural gas industry and this article is realistic reflection indeed.

    on May 3, 2013
  • Subir Purkayastha

    The Article clearly brings into fore the likely challenges for the sucess of Shale gas production in India. In my opinion there are two more important challenges for the sucess viz. the absence of large scale gas pipeline network (proximity to production wells) and the time needed for the development of variousskilled service providers inter-alia for drilling and Fracking.

    on May 3, 2013
  • Pradeep

    A wonderfully written piece - Explaining complex arcane stuff in simple terms. Thanks.

    on May 2, 2013