Water a major challenge for development.
By Rajiv Theodore
NEW DELHI: Shale gas is the new buzzword these days as this fuel is arguably the most significant discovery of the decade. This new find has for a great extent transformed the energy landscape of the United States which in turn had given a shot in the arm for its economy. Can in a country like India where people still await their first electricity connection with folded hands replicate the shale success in the US? Is it the silver bullet that could transform the energy dynamics in India?
Shale gas production indeed offers a reprieve for energy-starved India as well as a much needed boost to its economy. Where coal still dominates the energy mix – coal imports increased to a record 135 million tons in the last fiscal year, many experts opine that shale gas can represent a promising alternative, both in terms of costs and environmental impact thanks to its potentially lower emissions. Increasingly overburdened by heavy energy imports, pressure continues to mount on India to come out with a comprehensive shale gas policy. A spurt in coal imports over the past 12 months has demonstrated the stress on current energy supply and the negative impacts it has on India’s public health and environment.
Being the third-largest energy consumer in the world and a natural gas net importer since 2004, it is easy to understand why Indian policy makers place high hopes on its own “shale gas revolution.” But is it a realistic prospect that India could relive the American experience of a shale gas boom?
The demand in energy in India has been growing and is expected to rise 7-8 % annually hence unconventional resources like shale oil and shale gas have the potential to improve this situation. The U.S. experience with shale gas not only result in more advanced knowledge of the extraction process, but has also allowed a decrease in production costs and drilling time, making it both more feasible and competitive.
But what has been the Shale gas experience in India so far?
GAIL, OIL and RIL have already started investing in shale in the US and their local staff is onsite building technical capabilities. One of the top energy players in India, Reliance Industries Limited (RIL), which has major interests in domestic and global fields had discovered it way back in 2002 with 14 trillion cubic feet (tcf) of natural gas in the Krishna-Godavari basin ( in southern India ) in shale formations. From then onwards, the exploration and assessment of India’s shale gas resources became an imperative part of a shale gas policy that is still awaiting clearance.
Current research has identified six main basins that could be successfully exploited once the Indian government reveals its national shale oil and gas policy: Cambay (Gujarat), Assam-Arakan (North-East), Gondwana (Central India), Krishna Godawari onshore (East coast), Cauvery onshore, and Indo-Gangetic basins. Although the release of a comprehensive national shale oil and gas policy has been postponed, in 2010 the government signed a Memorandum of Understanding (MoU) with the U.S. in order to cooperate in developing Indian shale gas resources. Exploration and assessment of the potential of shale gas are part of the objectives of the MoU and, under the agreement, in 2012 the U.S. Geological Survey assessed the resources in a number of basins (the Cambay, Cauvery, and Krishna-Godavari basins), estimating the total of recoverable resources to be 6.1 tcf. This figure contrasts with the estimates suggested by the U.S. Energy Information Administration in 2011 of 63 tcf. But success may not come overnight for India in its quest for exploiting shale gas as a lot depends on whether the proposed regulatory framework will promote investment in the requisite resources and infrastructure.
What is shale gas?
Gas resources are classified broadly into two types – conventional and unconventional. Conventional gas is found in huge vaults trapped inside the belly of the earth and is extracted by drilling a well and then puncturing the vault to collect gas. This requires a combination of science and art which is mastered by few global oil and gas companies. The unconventional gas type constitute of tight gas, coal bed methane and shale gas. Shale gas is found in little bubbles of gas trapped inside shale rocks that stretch for miles inside the earth. The way to extract it is to drill a well that penetrates the shale, then takes a ninety degree turn and makes a channel in the rock .Water (mixed with chemicals & additives) is then blasted at high pressure through the horizontal well to fracture the shale, an activity called “fracking.” Which dislodges the gas bubbles and they finally find their way to the surface through the horizontal well which is then collected.
Unlike conventional gas where drilling that perfect well is critical, shale reserves are easier to find and drill – the name of the game here is operational efficiency: quickly drilling horizontal wells, fracking them, connecting them to pipeline infrastructure, extracting the gas, transporting it and moving to the next tract of land. While the capital expenditure is consolidated in a smaller area as in conventional drilling, shale gas extraction requires capex spread over wider areas to gather the gas recovered. But environmentally challenges remain in tapping shale gas as a lot of water (mixed with chemicals and additives) is required for fracking, if not properly disposed can pollute the ground water.
Encouraged by success stories across the Atlantic, the UK is set to join the fracking brigade with major proposals as tax incentives in the field. The UK government plans to slash shale gas production income by about half to 30 per cent. The British Geological Survey had announced recently that the Bowland shale gas resource beneath Lancashire and Yorkshire is at least 50 per cent more than the combined reserves of shale in Barnett and Marcellus, two of the largest fields in the US.
Like in India and elsewhere the green community in the UK has risen in protest against shale gas extraction as they point out that drilling of wells for shale gas recovery could potentially have negative consequences on the local environment. They add that greenhouse gas emissions resulting from hydraulic fracturing could lead to climate change. In the US, because of government assurances and breakthroughs in technologies allowing gas and tight oil recovery from shale without causing any significant disturbances to the environment, the new energy has become a booming business.
Even some European countries like France and Bulgaria, while sitting on significant shale gas reserves, have turned their back on fracking. France’s energy minister Delphine Batho says, “the reality is the cost of producing gas doesn’t take into account the considerable environment damage. Gas prices in the US don’t take into account the damage to the environment that would be a burden for future generations.”
But, taking a cue from their counterparts in the UK, a growing numbers of French businessmen are trying to convince their government the new energy source could be a catalyst to improve competitiveness in the country’s economy, creating new jobs and reversing industrial decline. According to the International Energy Agency, France and Poland have huge reserves of shale gas in Europe. In a Polish village, locals are laying siege to a plot of land to stop energy major Chevron, which has the government’s backing, from shale gas exploration. Equally importantly, local communities that would have to put up with fracking must not be given an environment protection guarantee alone; economic benefits are also important. On the latter, India would do well to take a look at the UK government’s proposal that shale gas and oil drilling groups provide at least £100,000 (Rs 97.5 lakh) for each fracked well, along with at least one per cent of the overall revenue. All this money would be earmarked for local community welfare.
Environmental concerns continue to shroud shale gas production worldwide. Such concerns contributed to the postponement of the first shale asset auction in India to 2013, to allow for further environmental analysis to be carried out. Indeed, India cannot escape the global debate on the possible risks posed to water aquifers, ecosystems, and public health, as well as the issue of flowback water disposal. Water, in particular, will represent a major challenge for Indian shale development. The large amount of water required in the process of hydraulic fracturing, or “fracking,” is a considerable obstacle in a water stressed country such as India, which continues to suffer from chronic shortages. Other problems persist and will inevitably add to the debate. Land acquisition and the relocation of displaced people will pose a challenge. Violent protests over land acquisition are common in India in general and the state of West Bengal in particular where the Oil and Natural Gas Corporation has recently “completed its first shale gas test well.” Further to this, India’s population density could make recovering resources more difficult.
Also, the energy infrastructure in the country is still underdeveloped. Additionally, the regulatory and pricing framework in India is very complex and represents another issue of concern for investors. Price regimes, in particular, need to be reformulated and deregulated, with the elimination, at least in part, of the heavy subsidies provided by the government, which lead to substantial differences compared to market prices.
Technologically speaking, Indian companies have less experience and know-how compared to many other countries engaged in shale gas exploration and production, such as the U.S., Australia, or even China. It is, therefore, not surprising that in the search for such know-how, Indian companies like Reliance Industries, Gail, and Bharat Petro Resources have begun acquiring stakes in shale gas assets in the U.S. and Australia. Experts agree that India needs a “bridge fuel” and shale gas could be just that. However, infrastructure takes time to develop and viable commercial shale gas production is still a long way off. Worryingly, the current bridge fuel being used is coal, which produces twice as many emissions as natural gas.
In May this year, the U.S. Department of Energy announced that it would grant conditional authorization to export domestically produced LNG to countries without a Free Trade Agreement, such as India. In the short term, U.S. shale gas may be the game changer and bridge fuel for India, yet it may also have the undesirable effect of decreasing pressure on New Delhi to develop its own domestic program.
The challenges posed by the current energy infrastructure, gaps in the regulatory framework, and public environmental concerns, together with the uncertainties over the amount of effectively recoverable gas, will represent real obstacles for New Delhi. However, if they can be overcome, shale gas could certainly have a positive impact on the country’s energy security and on the future competitiveness of India’s economy.
To contact the author, email to editor@americanbazaaronline.com