The thorny road to India’s shale development

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Source: DollarPhotoClub

The third largest economy in the world, India is energy starved. Traditionally, the country has been of little interest to exploration companies as it lacks large deposits of oil and gas. As a result, India spends a whopping $160 billion annually importing oil and gas to meet the growing energy demands of its population of 1.25 billion. At present more than 85 percent of India’s domestic demand of oil and gas is met through imports. A 2014 Goldman Sachs report said, “India has a fifth of the world’s population, but only a 30th of its energy.”

It is no wonder then that the country is interested in developing its shale gas reserves which are estimated at 500 to 2000 trillion cubic meters. Back in April 2014, Reliance – India’s largest private sector enterprise – announced its plan to invest up to USD 700 million in exploring unconventional resources in the country.

So far not much has happened, though. The country’s regulatory regime means that only state-owned energy firms, ONGC and Oil India, are exploring for shale gas in India. In the New Exploration and Licensing Policy (NELP) few foreign firms have actually bid for blocks. In the latest round of the NELP, none of the 16 blocks have been awarded to an international firm. Foreign companies have also complained about prohibitive levels of bureaucracy, which make doing business in the country very difficult.

Another problem is the lack of technical know-how. The Indian hydrocarbon deposits are not well understood and reservoir intelligence companies have complained that the country lacks coherent and well-organised legacy drilling data that would make understanding its shale deposits easier. The shortage of water – necessary for hydraulic fracturing, which is a very water-intensive process – poses another problem.

India has looked towards foreign investors to combat these problems, but so far very little headway has been made.

In September, India’s Minister of State for Power, Coal, New and Renewable Energy, Mr Piyush Goyal, visited the USA seeking American involvement in India’s hydrocarbon exploration. In the field of unconventional energy, it was recognized that India had proven reserves of shale gas and US had well-developed expertise for shale gas extraction. Collaboration in the area of fracking of shale gas, especially waterless fracking in India were identified as areas of future cooperation under the Energy Dialogue.

According to the bilateral energy press statement, India wants to invite U.S. firms to invest, and would like to collaborate with American firms in developing fracking technologies, particularly “waterless” fracking. No actual steps have been taken yet, though.

In a separate development, India has reached out to Argentina – another, after the U.S., country which has managed to produce hydrocarbons from its plentiful shale deposits at a commercial scale. According to a report by Financial Express newspaper, Argentina is willing to help in developing shale gas resources in India.

“The potential is huge, we are keen to increase the capacity and that is why we met ONGC. Also, we are pushing the government to change the current policy and allow foreign investors in the oil sector. We are keen on having a long-term policy,” said Mariano C Groppo, director, Lappco International, Argentina.

Meanwhile, the Government has taken steps to make the country more welcoming of foreign investors. In September, the Government announced its approval for shifting to a revenue sharing model, whereby successful bidders will be able to sell crude oil or natural gas at market-determined prices, without any government interference. Under the profit sharing model the government had to scrutinize the various costs incurred by private companies, which often led to delays and disputes.

“We have made a paradigm shift from cost-recovery model to revenue sharing. At the same time, we have decided to implement unified licensing regime. This is a primary step towards ease of doing business,” said Mr Pradhan.

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