This year Indian firms and
the government have switched their shale gas focus from abroad to home. As one Indian firm sold some overseas
assets, the government of India moved to make exploration and production of
domestic shale gas and coalbed methane (CBM) more attractive.
North American Ventures
Over the last five years,
Indian oil and gas companies, both private and state-owned, actively sought
shares in North American shale gas plays.
The overseas investments served two purposes: to gain experience with and access to cutting-edge shale gas
exploration and development technology that they could use in India, and to
line up potential LNG imports from the U.S. and Canada.
Mukesh Ambani’s Reliance Industries
Ltd. (RIL) kicked off aggressive acquisition by Indian firms of U.S. shale gas assets
in 2010. In April of that year,
RIL purchased a 40% stake in Atlas Energy’s Marcellus shale tracts in Pennsylvania,
New York, etc. for $1.7 billion and followed in June with a $1.4 billion acquisition
of 45% of Pioneer Natural Resources’ Eagle Ford, Texas, shale gas acreage. In October, RIL spent nearly $400
million for a 60% share of Carrizo Oil & Gas’ Marcellus shale gas
tracts. A year later, state-owned
Gas Authority of India Ltd. (GAIL) spent $95 million for a 20% share of Carrizo
Oil & Gas’s Eagle Ford holdings. State-owned upstream Oil India Ltd. combined with
state-owned refiner India Oil Corp. in October 2012 for a 30% share of
Houston-based Carrizo’s Niobrara shale gas in Colorado for $85 million. Just a year ago, Indian Oil Co. took a
10% stake in British Columbia Montney shale assets owned by Malaysia’s Petronas. In exchange, the Indian refiner gained
guarantees of 1.2 million tons of liquefied natural gas for 20 years from
Petronas’ B.C. LNG project. The
deal was valued at $1.1 billion.
In the face of sharply
declining oil and gas prices over the past year, RIL and Pioneer Natural
Resources last month announced the sale of Eagle Ford Midstream to Enterprise
Products Partners for $2.15 billion.
The midstream operation comprises 10 gathering plants and about 460
miles of pipelines. Since October
2014, Indian press reports have suggested that RIL, which has invested $3.9
billion in Eagle Ford exploration and infrastructure, seeks a buyer for its
share of the project. The
continued fall in oil and gas prices since then, although recovered somewhat
from lows earlier this year, have depressed the value of RIL’s asset.
Domestic Assets
India’s Cambay,
Krishna-Godavari, Cauvery and Damodar Valley shale gas basins hold less than
100 trillion cubic feet of technically recoverable gas reserves according to a
May 2013 study done for the U.S. Energy Information Administration. By comparison, the same study ranked
China first with 1115 tcf, the U.S. fourth with 665, and Brazil tenth with 245. Still, that compares well with India’s
47 tcf of proved reserves of conventional natural gas, two-thirds of which are
located offshore.
State-owned Oil and Natural
Gas Commission (ONGC) began exploration of the Damodar Valley basin for shale
gas several years ago, as it already had coalbed methane (CBM) operations
there. ONGC and Gujarat State Petroleum Corp. both have drilled wells in the
Cambay shale for oil and gas. ONGC also plans exploration of the
Krishna-Godavari, Cauvery and Assam-Arakan basins and in 2012 signed an
agreement with ConocoPhillips for joint exploration and development of shale
gas in India and abroad.
Although there is adequate
water for hydraulic fracturing in the Damodar basin, concerns about water
constraints have delayed formation of national government policies for shale
gas exploration and development. In
2013, The Energy and Resources Institute (teri) of India, an international-renowned
think tank, challenged the formation of government shale gas policy with a
commentary “India: Water or Shale Gas?”
The impetus for greater
shale oil and gas exploration in India remains strong. Coal accounts for 45% of India’s
primary energy supplies and 80% of electric power fuel inputs, with all of the
attendant environmental degredation.
India relies on imports for one-quarter of its coal, 80% of its crude
oil (partially offset by large oil product exports), and almost one-third of
its natural gas. If India’s
domestic shale gas resources can be effectively tapped, this would provide
significant environmental, economic and energy security benefits to the county.
Regulatory Changes
With these benefits in mind,
in late June 2015, India’s Ministry of Petroleum and Natural Gas indicated that
it was considering two changes to current policy to encourage shale gas and CBM
exploration and development under the New Exploration Licensing Policy
(NELP).
The first change would
permit companies to develop shale gas and CBM in oil and gas blocks for which
they currently hold permits for oil or gas. Current policy limits permits to either oil or gas. A senior MPNG official observed that
such expansion “…would come with a rider that all investment in the new exploration
activity would be ring-fenced…” so that costs for shale gas exploration could
not be combined with existing operations for cost recovery. The present production sharing contract
(PSC) terms allow companies to recover costs before paying the government a
share of production revenue.
The second improvement would
remove the current restrictions on blocks to either oil or gas, to allow
exploration and production of any hydrocarbons found. An official at state-owned Oil and Natural Gas Corp. noted
that sometimes “…during exploration we find other natural resources than what
we were actually looking for. But
the PSC doesn’t allow us to extract other resources.”
Further, over the last two
years, India has moved toward more market-based pricing for natural gas, which
would provide greater incentives for gas exploration and development.
On September 2, the Indian
cabinet approved the auction of 69 marginal field currently owned by state
companies ONGC and Oil India, shifting to a revenue sharing contract from the
current profit sharing model. A
uniform license covering all hydrocarbons including shale gas, shale oil and
CBM will apply to the auctioned fields.
The partially explored areas reportedly contain 89 million tons of oil
and gas equivalent reserves and include onshore, shallow offshore and deep
offshore tracts.
The extraordinary power of
farmers and other land-holders to delay or eliminate industrial development in
India remains a concern that was only heightened by Prime Minister Narendra Modi’s
recent reversal on an executive order easing federal acquisition of land for
infrastructure and industry and his decision to drop efforts to amend India’s
tough land-acquisition law in Parliament.
Both steps appeared motivated by upcoming elections in the Bihar, an
agrarian state, but could have fateful impacts on shale gas development.
ONGC efforts in the Cauvery
Basin in Tamil Nadu State illustrate the tensions. Farmers, environmental activists and political parties have
demonstrated against ONGC’s development of shale gas reserves in Cauvery. ONGC Director of Exploration A.K.
Dwivedi was forced this month to explain that the company was not exploring for
shale gas or CBM in the area, but only conducting research into the potential
for shale gas. ONCG still needs
clearance from India’s federal Environment Ministry before doing any drilling
in Cauvery, and even then would need state-level clearances. Currently 31 wells in Tamil Nadu
produce oil and some 110 million cubic feet per day of natural gas.
Conclusion
Lower gas prices in North America
make Indian shale gas operations overseas less appealing, while shale gas
developed in India will compete with much more expensive imported LNG. Combined with a potentially more
attractive regulatory regime, shale gas exploration and development in India
could finally be reaching its launch.
The federal (Union) government in India will be key: it needs to develop and execute
national policies for exploration of shale oil and gas in India. Further, as overseer of the state-owned
hydrocarbons companies that dominate the Indian oil and gas sector, it must
require more efficient and diligent efforts by ONGC, GAIL and others to define
and develop national shale gas resources.
