Shale gas

Fuel of the future

Shale gas could be a solution to India’s energy woes By Vandana When it comes to taking business decisions, the Ambanis are known to be ahead of their times. Dhirubhai Ambani ventured into petroleum business when few other private players could foresee a future in the industry. Now his son Mukesh Ambani, who heads India‟s largest private sector company, has set his eyes on shale gas assets, hinting at a major shift in his company‟s business interests. Ambani‟s Reliance Industries Ltd, it seems, is banking on reports that shale gas is likely to overtake conventional gas and liquid fuels as a source of energy in the next decade. Shale gas is touted as a ray of hope for major petroleum-importing countries such as the US, Canada and India. “Shale gas is now a proven game changer after high-profile acquisitions in the US. India has a large number of sedimentary basins with good shale gas potential,” said Bivek Anand and Harshad Boravake of Motilal Oswal in a report titled „Shale gas in India—closer to reality‟. A form of natural gas that is trapped within shale (a fine grained sedimentary rock) formations, shale gas is known for more than a century. It was not seen as a viable alternative to petroleum fuels because shale drilling (which is done horizontally) is more expensive than conventional oil drilling. “Horizontal wells are generally two to three times more expensive than typical vertical wells, but the expected ultimate recovery of gas is two to six times higher,” said Ajay Arora, partner, Ernst &Young. However, according to the report by Bivek Anand, the breakeven cost of shale gas production has declined from $8-12/mmbtu to $4-8/mmbtu (million metric British thermal units) thanks to technological advancement. It is not for nothing that shale gas is called the future of energy. The reason for the sharp fall in the price of natural gas—from $10/mmbtu to $3/mmbtu—between 2004 and 2009 is attributed to the emergence of shale gas as a dependable source for meeting gas requirements. Shale gas now accounts for 20 per cent of the total gas consumed in the US. “Shale gas development in the US happened because of market forces. In the first half of the decade, there was a surge in natural gas prices based on depleting conventional gas reserves and increasing demand. Higher prices led to investments in technology which made the process [of extracting shale gas] commercially viable,” said Nitin Zamre, managing director, ICF International. Many American petroleum companies are investing heavily in shale gas assets. “What was started by small and independent oil exploration firms in the US was soon gobbled up by oil majors. Large companies such as Exxon Mobil and Chevron took notice of the enormous activity and acquired these smaller companies. Exxon Mobil paid a whopping $42 billion to acquire XTO Corp, a shale gas producer,” said Jerry Chappell, an oil & gas expert. The US Energy Information Administration recently studied 70 shale formations from 48 basins in 32 countries. It estimated the technically recoverable shale gas reserves in 32 countries at 5,760 trillion cubic feet. India started its pursuit of shale gas in 2010 and signed a memorandum of understanding with the United States Geological Survey for cooperation. The USGS is to identify the potential areas and amount of gas available in India. The petroleum ministry has formed a multi-organisation team which includes members from ONGC, GAIL, Oil India Limited and the Directorate General of Hydrocarbons.

“The USGS is expected to submit its assessment report by November, based on which the ministry will take a call on the shale block auctions. We had meetings with the USGS in January and May and have handed over the data to them,” said a source at the DGH. The petroleum ministry and DGH have been working on a regulatory framework for shale gas exploitation. It is expected to be out in December and define production sharing contract of exploration companies with end users. The first auction of shale blocks is expected early next year. Former petroleum minister Mani Shankar Aiyar, however, said the whole process had already been delayed. “China has gone ahead of us in this field also. There is a lack of seriousness and unwillingness to explore new frontiers,” he said. China had its first auction of shale blocks recently. The petroleum ministry has identified six basins for exploration in the first phase—Cambay, Krishna-Godavari, Cauvery, Ganga, Gondwana and Assam-Arakan. The Assam-Arakan basin is considered to have significant shale gas deposits. “We have recently completed drilling of four wells in Durgapur, Raniganj, Jharia and North Karanpura near Hazaribagh. We are studying these samples for gas potential and have even found gas at North Karanpura,” said P.K. Bhowmick, executive director, ONGC. Reliance Industries is also making rapid moves in the field. It has acquired 45 per cent stake each in Atlas Energy‟s Marcellus Shale and Pioneer Natural Resources‟ Eagleford Shale (both in the US), and 60 per cent in Carrizzo Oil & Gas. According to RIL‟s latest shareholder statement, it invested close to $400 million in its shale gas joint venture projects during the first quarter of 2011-12. ONGC also is not averse to investing in foreign shale gas reserves. “The opportunities are to be scanned in terms of potential and worth. Acquisition of acreage for shale gas exploration and exploitation in any basin may require intensive techno-commercial evaluation to evaluate risk-reward scenario. If it is found attractive, OVL [ONGC Videsh Ltd] can enter into the acquisition process,” said an ONGC spokesperson. Shale gas exploration in India is not going to be an easy affair as land acquisition could be a major problem. Areas such as the Damodar Valley and Gangetic basin are densely inhabited. “Shale gas is a land and water intensive project. There would be pressing and competing demands from other sectors of the economy as well,” said a GAIL spokesperson. According to reports, GAIL is looking to buy 20 per cent in Eagleford Shale. Hydraulic fracking, which is used for shale gas drilling, is fraught with environmental challenges, said environmentalists. In some areas where fracking was used, the ground water had been found contaminated by methane. Sources said the petroleum ministry is consulting environment ministry on all these issues.

What is shale gas? Shale gas is a form of natural gas that is trapped within shale (a fine grained sedimentary rock) formations. Its existence has been known for more than a century. Why is it important? It is a dependable alternative to petroleum fuels and could change the world‟s dependence on oil producing countries. It now accounts for 20 per cent of the total gas consumed in the US. What are the challenges before shale gas exploration? Unlike conventional oil fields which are drilled vertically, shale gas fields are drilled first vertically and then horizontally. Shale gas is found in tight reservoirs that have poor permeability. Water, air, chemicals and sand are forced at great pressure down the drill and through perforations in the rock to stimulate the flow of gas. This process is known as hydraulic fracking. Availability of abundant water is a major pre-requisite for this process. Can it reduce India’s hefty oil bill? India has signed a memorandum of understanding with the United States Geological Survey for cooperation. The USGS is to identify the potential areas and amount of gas available in India. The petroleum ministry has identified six basins for exploration in the first phase—Cambay, Krishna-Godavari, Cauvery, Ganga, Gondwana and AssamArakan. The Assam-Arakan basin is considered to have significant shale gas deposits. The first auction of shale blocks is expected early next year.