By Adam Currie — Exclusive to Gas Investing News
With crude prices surging, more and more countries are turning their attention to natural gas. With the commodity’s price currently sitting at a ten-year low, and a seemingly endless abundance of supply, it is unsurprising that developing nations are beginning to focus more attention on opportunities lying beneath their very feet.
The rapid growth of US shale gas exploration and production has been widely discussed in India, with talk now centering on whether India could taste similar success domestically. As the Indian economy has grown, the country’s need for energy has taken center stage, with shale gas now challenging as a potential source for the country moving forward.
In terms of its chemical makeup, shale gas is typically a dry gas primarily composed of methane. With advances in horizontal drilling and hydraulic fracturing, supply of this commodity has surged over recent years, with many feeling that India should be taking advantage of such advancements and producing its own shale gas supply.
In India, six basins have been identified for exploration, including the Cambay, Assam-Arakan, Gondwana, KG onshore, Cauvery onshore, and Indo Gangetic. However neither the government nor the corporate sector has carried out any notable exploration or estimation of reserves.
The Asian giant’s advances were dealt a blow recently when Indian petroleum minister S. Jaipal Reddy announced that India would once again delay its first ever shale gas exploration round until December 2013. He attributed the delay to regulatory regimes being put in place, including a resource assessment, policy framework for the upcoming rounds, and delays in official identification of potential acreage to be auctioned.
Speaking at the India Unconventional Gas Forum in Mumbai, C.M. Jain, Deputy General Manager – Head Unconventional Resources for Oil and Natural Gas Corp. (ONGC), outlined that the Indian shale gas sector faces multiple challenges in the form of manpower, technology, infrastructure, regulatory framework, as well as the availability of water resources.
The sweet spot
The nature of these challenges is unique to India, and the solutions will need to be India-specific, according to Jain. When highlighting the differences between the US and India in relation to shale gas, he noted that one significant hurdle faced is the current lack of relevant data.
The “US has a long operational history in shale gas E&P activities and there is a good availability of data. India has limited data and would require heavy investments to find the ‘sweet spot,’” he said.
Jain felt that for India to fully realize its shale gas potential the country must not only address these challenges, but address them quickly, adding that for progression to occur the Indian government needs to come up with a business-friendly regulatory framework that entices industry players.
According to analysts, India still has plans to emerge as a potential shale gas player, holding an estimated 15 billion tonnes of recoverable reserves out of 137 billion tonnes in place – given an expected recovery rate of between ten and 15 percent.
Global energy tracker Platts has indicated that Indian reserves of shale gas are between 600 and 2,000 trillion cubic feet (tcf). The estimated potential of the Reliance Industries-operated D6 block of the Krishna-Godavari basin, India’s most promising discovery of natural gas to date, is 11.3 tcf. Taking current energy trends into account, this figure means that current Indian reserves have a potential lifespan of approximately 33 years.
Although not moving ahead as swiftly has many might like, there have been reports that Indian upstream regulator Directorate General of Hydrocarbons (DGH) is preparing a resource assessment and policy framework for the upcoming rounds. Further, DGH, ONGC, Gail (NSE:GAIL), and Oil India (NSE:OIL) have teamed up on the government’s behalf and signed a memorandum of understanding with the US on technical cooperation. The US Geological Survey is also performing studies on India’s gas resources and is set to provide its report to the government upon completion.
No shortage of challenges
According to a recent business report, India has been plagued by a number of hindrances that have stalled notable progress. These include bureaucratic sluggishness on the part of the Indian government in recognizing the country’s untapped potential, and the challenge of land acquisition.
Logistical issues have also stalled progress in that many reserves are situated in politically sensitive areas – often at depths of 1,700 meters underground – and are proving to be substantially more costly to extract than in the US.
The bureaucratic go-slow has been highlighted by ONGC’s January 2011 discovery of shale reserves in West Bengal. Over a year has passed since the discovery, with very little production or in-depth testing having occurred. Around the same time, US-based Joshi Technologies International, Inc. reported a shale find at its conventional gas well in Gujarat’s Cambay Basin. It is still awaiting government approval for exploration.
Given the potential financial opportunities associated with finds such as these, many feel that the government should be taking a more proactive stance in fast-tracking these projects.
Deepak Mahurkar, Associate Director at PricewaterhouseCoopers, commented that current delays will “hurt” India, highlighting that there are already seven countries producing shale gas, while the rush for equipment and technology will only intensify moving forward.
If India is to become a competitive force within the shale gas market, it is clear that a lot more effort is needed from both the corporate and governmental sectors in order to make this a reality.
Securities Disclosure: I, Adam Currie, hold no direct investment interest in any company mentioned in this article.