INDIA AND THE SHALE GAS REVOLUTION

As we in energy-starved India were sleeping, the world awoke to the magic of shale.
As a result, gas prices plummeted from $13/mmbtu(million British thermal units) four years ago to just $4/mmbtu today, even as the price of oil doubled. Shale, that is, thin compressed layers of soft rock formed from mud and clay, is a wonder source of natural gas which has caused an energy glut where previously there was dire scarcity. These unconventional, eco-friendly deposits have raised estimates for US gas reserves from 30 years to 100 years at current usage rates. In fact, the share of shale gas in the US gas production has shot up from zero to 8% in the last decade. One single deposit, the Barnett Shale in Texas, produces 1.1 trillion cubic feet per year, and other deposits (Bakken, Haynesville) could be just as productive. India, the world’s fifth largest consumer of energy, is burdened with a mammoth import bill for nearly 25 per cent of its gas needs. Shale gas could, therefore, bring about an economic renaissance. But the big question is: ARE WE READY?
Tapping shale gas deposits wasn’t considered commercially viable before Houston billionaire George P Mitchell pioneered new extraction techniques in the 1990s.Shale being non-porous; it does not flow from a normal well. The new technology cracks open shale with sand and water under high pressure, opening up the formation and allowing gas to flow. North America is where shale production really took off, so it naturally holds all the cards when it comes to the finer points of extraction technology. Without the requisite technological expertise, which can be acquired only by tying up with US/Canadian companies, it is difficult to implement any national production blueprint. For this, we need a China-style memorandum of cooperation with the US, which, by the way, can be sealed in November itself when President Obama arrives for bilateral talks.Unfortunately, despite talks on the subject; India hasn’t pursued a similar partnership. The ONGC in fact still accepts the outdated oil-gas linked price formula which Gulf countries like Iran and Qatar are reluctant to alter, which implies that India will have to pay $10/mmbtu at today’s oil price of $70/barrel, and a whopping $20/mmbtu for gas if oil returns to its 2008 peak of $150/barrel. This is patently absurd.
India, moreover, is intent on the quixotic Iran-Pakistan-India oil pipeline, which is tantamount to economic and political hara-kiri. A Kissinger-style “leaning away” from Iran, an international bête noire, could also further India’s democratic credentials, paving the way for a permanent Security Council seat. Why then, is the government’s top brass so myopic?
The Chinese establishment, on the other hand, have shown commendable far-sightedness in this regard. Their aggressive shale policy is apparent when one considers their largest state oil firm, the CNOOC, which has engaged the Canadian company Vangold (based in Vancouver, British Columbia) on possible joint stakeholding in exploitation of Kenyan reserves. Elsewhere in Europe, where the bid to overthrow Russian energy supremacy is being carried out on a war footing ,Hess Co. and Torreador Resources Co. are committed to jointly exploiting the Paris Basin reserves. Can we afford to lag behind?
The good news is that RIL (Reliance Industries Limited) has been the first to grasp the new opportunity. It has just bought a 40% stake in the operations of a US company, Atlas Energy, in the Marcellus Shale, a huge deposit extending from New York to West Virginia.Essar Oil, too, has evinced interest (Non-state players thus seem to be better advised).They will, however, be hampered by governmental price control and other legal handicaps. The ridiculous ban on exploration of shale deposits even in their own exploration blocks is another perfect example of India’s economic naïveté.
We desperately need to attract experienced global firms such as BHP Billiton, BG Exploration and Cairns Energy to take advantage of their technological know-how. Our shale basins, mainly those in Cambay(Gujarat),Assam-Arakan(in the North-East) and Gondwana(in central India),can be put to auction under Production Sharing Contracts(PSCs),which could reap a gas bonanza similar to that in the US. Seismic surveys on a massive scale are needed to produce basic data.
If we play the shale game well, edging out China and Europe, shale gas (like Boost in that unforgettable advert) could well become the secret of our energy. But is Oil Minister Murli Deora willing to give his best? That remains to be seen...
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