Analysis: India Looks to Shale Gas to Meet Future Energy Needs

The Indian government and Indian energy companies are setting their sights on shale gas development to meet its growing domestic energy needs.

Preliminary figures on shale gas reserves in India are not available as the Indian government has only started preliminary studies on the nation's shale gas resources. However, the Indian government is establishing policy guidelines for shale gas exploration and plans to begin offering acreage for oil shale exploration in 2012.

Reports suggest that shales in the Gondwana in eastern onshore India, in the Cambay basin in Gujarat state and in Assam-Arakan in northeast India are being studied for shale gas potential and that the initial results are quite positive. Earlier this year, ONGC approved a research and development project for exploration of shale gas at coalbed methane blocks at Raniganj and North Karanpura in the Damodar Basin at a cost of Rs. 128 Crore (US $27.1 million).

"The challenges that need to be overcome for shale gas are many. The immediate challenge is locating where prospective areas for shale gas are located - this will involve testing different rock types and carrying out various geophysical surveys over the next couple of years," said Thomas Greider, Asia Pacific energy analyst with IHS World Markets Energy. "Once prospective areas have been identified and reserves drawn up, establishing a regulatory environment for the sector, which is conducive to private investment is the next challenge."

Technology poses another challenge for extracting shale gas. In an effort to gain insight into shale gas drilling techniques, Reliance Industries, has been seeking to broaden its portfolio with shale gas investments. The company has reportedly is in talks to buy an interest Quicksilver Resources' Horn River gas project in British Columbia. Quicksilver officials reported in May that joint venture discussions had been held regarding the upstream and midstream/downstream parts of its Horn River project.

The buyout would be Reliance's third shale gas investment this year. Reliance already has acquired a 45 percent stake in Pioneer Natural Resources’ Eagle Ford shale gas assets in South Texas for $1.315 billion and formed a joint venture with Atlas Energy, which has interests in shale in the U.S. Northeast. These investments will allow Reliance to learn about shale drilling while tapping into the growing U.S. shale market.

The Indian government has also reached out to the U.S. for cooperation in developing energy resources. Last November, the U.S. and Indian governments signed a memorandum of understanding (MoU) to enhance cooperation on energy security, efficiency, clean energy and climate change. U.S. Agencies involved in the MoU include Department of State, Department of Energy, USAID, Commerce, U.S. Trade Development Agency, Overseas Private Investment Corporation, and Export-Import Bank.

Traditional Oil, Gas Exploration Still Needed

Despite the launch of production from Cairn India's Rajasthan fields, which is estimated to hold 6.5 billion BOE of oil in place, India's oil production is still far below consumption and the country remains highly dependent on oil imports, Greider noted. This situation will likely continue due to huge consumption as a result of oil product subsidies and population growth.

Gas production is more balanced with demand, largely due to the launch of production from large fields in the D6 block in the Krishna-Godavari (KG) basin and because a dearth of transmission infrastructure means the domestic market remains supply constrained.

For both crude oil and gas demand the future is growth. "India has a huge refining base but some new facilities are in the planning stages, while automobile sales are on the way up. The power and fertiliser sectors are both in need of gas as is the petrochemical sector and India is pushing investment into developing new large fields in the KG basin and expanding LNG receiving capacity," Greider noted.

Apart from some areas in the KG basin, interest in India's bidding round from the major International Oil Companies (IOCs) has not been that high. Deterrents to interest by IOCs include low resource potential in a number of blocks and a lot of block recycling, and the tendency of state oil companies to club together and put in bids, which private investors can't match. The financial crisis during the last bidding round also hit hardest the smaller companies, which India mainly relies upon to put in bids, Greider said.

The NELP IX is due to commence in the third quarter of 2010 but over the longer term the government wants to move towards an Open Acreage Licensing Policy (OALP) - which would be more flexible - enabling bids all the year round on blocks, which can be accessed using a National Data Repository currently in the process of being established.

The Indian government also has supported ONGC's attempts to conduct large-scale work on some of India's largest oilfields like Mumbai High to sustain output over the longer term. The government is encouraging exploration in new areas like the Andaman Sea to boost gas reserves too and pushing exploration of the KG basin more thoroughly. There are ongoing assessments of regulatory terms to try and make them more attractive for investors, Greider said.

The government also has tried to encourage investment in liquefied natural gas (LNG) receiving capacity by allowing foreign companies to take 100% stakes in new terminals, allowing investors freedom to choose terminal locations and by not placing ceilings on imported supplies.

"There was a hold back in new LNG receiving capacity in the build up to the launch of production from D6, but I think suppliers are now confident that there is still demand for LNG in the market, which will start to push forward new projects," Greider said.


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