STRATEGIC FRAMEWORK FOR SHALE GAS EXPLORATION

WITH REFERENCE TO INDIAN SUBCONTINENT

Author : Abhishek Pande

Institute : Orange School of Business

Contact :9890375870

ABSTRACT

Shale gas currently contributes nearly 20%,turning the world's attention to this energy

source which could play a critical role in meeting world's future energy requirements.Shale

gas is being increasingly tapped across the world as conventional energy sources like oil and

coal turn scarce and expensive.Analysts point out that access to shale gas reserves can boost

India’s energy security as its augmented supplies can reduce international prices and lower

consuming nations dependence on natural gas producers.

Keywords – drilling,fossil fuel,fracturing

LITERATURE REVIEW

India is world's fourth largest consumer of primary energy and accounts for nearly 4.6

percent of world's energy consumption after China, US and Russia.

During 2011-12, the consumption of petroleum products was about 148 million metric tonne

(MMT) showing an import dependence of more than 75 percent.Natural gas sector constitutes

about 9.8 percent of primary energy consumption which is likely to grow up to 20 percent by

2025 as per indian hydrocarbon vision1. About 65 percent of natural gas consumption is

consumed by power and fertilizer sectors. Coal currently accounts for 53 percent of the

country's energy needs. However, the huge rising gap between demand and supply of coal,

coal import price of coal and environmental concerns will limit its use.

There are plenty of shale gas formations in Europe, mostly in France, Poland and Denmark

The recent Montelimar exploration permit in southern France is covering initial gas in place

1 The India Hydrocarbon Vision has identified natural gas as the fuel for the future.

reserves of up to 85 trillion cubic feet equivalent to about 650 billion dollars at today’s

European gas prices.Shale formations existence and location in Europe were known for

decades but only recently, following the increase of energy prices, has exploration started

again. Moreover the technology and equipment to extract them are now commercially

available and new well stimulation technology could improve gas production by 50%.

DEFINE SHALE GAS

Shale gas is natural gas produced from shale formations. Gas shales are organic-rich shale

formations. In terms of its chemical makeup, shale gas is typically a dry gas primarily

composed of methane. It’s mainly methane gas like the one we use for cooking or heating.

However, this gas is tightly trapped in rock formations hundreds of meters down the earth.

The primary differences between modern shale gas development and conventional natural gas

development are the extensive uses of horizontal drilling and high-volume hydraulic

fracturing. According to a recent department of energy report, the use of horizontal drilling

has not introduced any new environmental problems.While unconventional gas sources like

gas shales reserves are plentiful, cost to produce is more than the conventional gas

productions.

Shale gas has become an increasingly important source of natural gas in the over the past

decade, and interest has spread to potential gas shales in the rest of the world. One analyst

expects shale gas to supply as much as half the natural gas production in North America by

2020.Some analysts expect that shale gas will greatly expand worldwide energy supply.The

shale gas is a fossil fuel,so shale gahe advantages and disadvantages of fossil fuels.

SHALE GAS EXTRACTION PROCESS

Shale gas is gas that is produced from shale formations. These formations have low flow

capacity, so the rock must be broken (fractured) before gas can flow. Generally water is

pumped into the wells at high rates to open spaces (fractures) in the rock. Sand or ceramic

proppantis2 used to keep the fractures open. Gas exploration companies drill boreholes down

2 A proppantis is a material that will keep an induced hydraulic fracture open, during or following a fracturing treatment.

into the gas-bearing shales, thousands of metres below the surface drilling may also continue

horizontally.The borehole is lined with a steel and concrete casing.A 'perforating gun' is

lowered into the borehole to make small holes in the concrete casing at the depth of the shale

target.A mixture of water, chemicals and sand is pumped — at very high pressure — along

the borehole and through the perforations which fracture the shale.The water opens up cracks

in the rock, and the sand grains lodge into the spaces and keep them open, allowing the

released gas to flow out of the rocks and to travel back up the borehole casing.

LOCATION OF SHALE GAS RESERVES IN INDIA

In National Geophysical Research Institute (NGRI) at Hyderabad scientists have identified 28

sedimentary basins of shale gas (natural gas found trapped in shale formations under the

ground), including ten potential producing basins, across India.These have been classified

according to their hydrocarbon potential, and hold an estimated 527 trillion cubic feet (tcf) of

reserves.India, which is staring at a grave energy deficit, as per expert projections,natural gas

companies have also begun identifying potential domestic shale gas reserves. Under the

National Shale Gas Programme, Oil and Natural Gas Corporation has started studying

potential reserves in the country. But, commercial drilling may take a few years. India is

believed to have reserves in Cambay, KG onland, Cauvery onland, Assam-Arakan and Indo-

Gangetic basins.

INDIAN STORY

So far India’s relentless efforts during the last 25 years to build pipelines to bring gas from

Turkmenistan, Iran, Qatar, Bangladesh and Myanmar have remained pipe dreams. Renewable

energy sources like ethanol and bio diesel, wind and solar are high on the national agenda.

Because of Indo-US nuclear pact, India may succeed in increasing the contribution of nuclear

energy.But a recent phenomenon of shale gas — which has brought about seismic changes in

the natural gas scene — has not been given the importance it deserves. Energy economists all

over the world have started to admire with awe the great achievement of oil companies in the

US in developing shale gas resources on a large scale during the last decade.

In India we are also familiar with this development and the government of india has to bring

about policy changes to promote shale gas. In India, shale deposits are found across the

Gangetic plain, Assam, Rajasthan and many coastal areas, but neither the government nor the

corporate sector has carried out any exploration or estimation. Recently, ONGC announced

plans to start a pilot project in 2011 when most oil companies in Europe and the US are

racing to master the technology of shale gas from those companies who have already

succeeded.

In reality India’s gas demand is limited by its access to gas supplies based on domestic

production and imports availability. If India can produce more gas then it can reduce its coal

imports which is environmentally more unfriendly, its gasoline consumption through the use

of compressed natural gas, and its demand for LPG through piped natural gas to meet

residential cooking and heating requirements.

Unfortunately, Indian government has not been able to implement the right kind of gas

policies even after the recommendations given by several high powered commissions.

Today we have three kinds of gas prices in India:

1. Gas prices based on Administered Pricing Mechanism (APM) for those gas reserves

before new exploration and licensing policy. This is around $2.50/mmbtu.3

2. Import prices paid to LNG imports which depend on international prices which were as

high as $16/mmbtu last year.

3.The so called arms length price based on market for those gas reserves discovered after

NELP4. For Krishna Godavari basin the government has fixed gas price at a level of

$4.20/mmbtu on an arbitrary basis when the market based price would be above

$6.50/mmbtu.

LESSONS FROM THE WEST

As recently as three years back conventional wisdom was that US will have a huge gas deficit

and it has to import increasing quantity of LNG. In less than two years,  the US supply has

changed from one of deficit to surplus. The sudden and unexpected development of shale gas

has been a game changer. World renowned energy economist Daniel Yergin, chairman of

Cambridge Consulting Group has referred to shale gas development as “the biggest energy

innovation of the decade”.

Three factors have contributed to its rapid development of US gas shales :

i) Advances in horizontal drilling.

ii) Advances in hydraulic fracturing

iii) Rapid increases in natural gas prices in the last several years across the globe.

The potential shale gas production in Europe will have huge geopolitical importance. Since

gas prices are often higher in Europe than in the US, oil companies are keen on drilling for

shale gas prospects even though profits at this stage are only speculative. Europe is today

dependent on Russia for its gas supplies to the extent of about 31 per cent. Future shale gas

3 MMBTU is an acronym for Million Metric British Thermal Units.

4 New Exploration Licensing Policy (NELP) was conceptualised by the Government of India.

production may reduce this dependence on Russian gas suppliers for Europe and they may

improve their own energy security needs.

ADVANTAGES OF SHALE GAS

Fossil fuels are a dependable source. No other source of energy can provide the same power

to our cars and power plants. Frequently, fossil fuels provide the most economical source of

power. 

Natural gas is considered by many to be a cleaner burning fuel than oil and coal as it emits

less carbon dioxide when burned.The shale gas is a fossil fuel, so shale gas has all the

advantages of fossil fuels.

The advantage to shale gas are numerous. It provides long term employment oppourtnities in

many countries. The gas reserves are in decline, and shale gas is a new source that has great

potential. As mentioned in this paper, new sources of fossil fuels in the country could help to

keep the OPEC 5countries from creating a monopoly on fuel prices. When burned,

methane emits less pollutants than coal or oil. CO2 emissions are lower than today’s global

electricity mix based principally on coal. So exploiting shale gas seems to improve the energy

status-quo and transition us towards a more environmentally friendly energy mix. Natural gas

reserves are mostly in Iran, Qatar and Russia. Being less dependent on imports from this it

could also be an argument for exploiting shale gas at its full potential.

DISADVANTAGES OF SHALE GAS

Their supply is limited, because they are non-renewable. The burning of fossil fuels causes

pollution. The price to consumers continues to rise as production becomes more costly.

Large quantities of water are pumped in. This can reduce the drinking water supply. It is

possible the fracturing fluids which frequently contain chemicals will be accidently

contaminate natural aquifers6 that supply drinking water. Small towns are impacted when

large fracture trucks go down roads not built to withstand their weight.

Shale gas wells do not have high rates of production. Many wells have to be drilled to fully

exploit a shale gas play. This means the contribution of shale gas to annual fossil fuel

consumption is likely to be small for many years.

The impact on the environment is controversial. If natural gas is burned instead of coal, then

there can be less harm to the environment. Methane is more harmful than carbon dioxide in

global warming.

A potential problem in India could be that shales are mostly found about 2,000 metres deep

on shore, in areas of human habitation, unlike oil drilling that takes place offshore. Specially

designed water borewells may be needed in such areas to tackle escaping methane gas. Use of

high-power compressors and other equipment could also unsettle local populations, while

shale drilling could affect ground water reserves.

Shale gas requires a minimum land holding of about 80-160 acres, but average land holdings

in India are less than an acre. Besides, access for gas gathering stations and huge requirement

5 OPEC (Organization of the Petroleum Exporting Countries) is an intergovernmental

organization dedicated to stability in and shared control of the petroleum products.

6 An aquifer is a body of saturated rock through which water can easily move.

of water pose additional challenges. Unlike the US, where the owner of a land has the right

over mineral resources below the surface as well, a resident in India has only surficial right

and mineral resources belong to the government.

CHALLENGES RELATED TO SHALE GAS PRODUCTION

If the local energy mix is not dominated by coal or oil, the advantage of exploiting

shale gas are less obvious. Hydropower, biomass, geothermal, wind, solar and

sometimes nuclear are considered much cleaner.

A lot of water is needed for shale gas production,approximately 18 million litres of

water is needed to drill and fracture a typical deep shale gas.In addition, when the

water is used to fracture the rock several hundred meters below the surface, it is

blended with sand and chemicals. Therefore the monitoring of any potential leakages

is crucial. After it is used, the water has to be treated and disposed off properly adding

pollution issues to the surroundings.

The emissions of gas during operations could add an additional environmental burden

to the shale gas sector since the emissions of methane for the moment are not well

monitored.

The operations to extract shale gas are very intensive and thousands of drillings and

fracturing of the rock have to be performed.The regulations covering these operations

are unfortunately not very clear.This could create unregulated and undesired

disturbances, including induced seismicity, in the concerned neighborhoods.

RECOMMENDATIONS AND CONCLUSION

China has now adopted a very 'useful' and 'effective' 'twin track' methodology which India

should emulate.There has been an influx of chinese graduate students sponsored by their

government who make themselves available as research and teaching assistants to professors

in the US universities, especially the top institutions in shale gas namely University of

Oklahoma, Stanford University.The aim is to develop a pool of chinese scholars with

academic and technical experience in shale gas and other petroleum engineering

technologies. Alongside, the Chinese oil and gas companies are also sending 'industry interns'

to various US companies.India should also follow this model with US companies in future.

The government should consider setting a shale gas mission to make efforts to develop

India’s shale gas reserves on a war footing. In short, we should actively endeavour to develop

shale gas reserves in India in the shortest time with all the human, geologic and financial

resources we can assemble. It would be useful if the existing platforms for cooperation and

partnership with the US dealing with science and technology, higher education and

innovation & entrepreneurship are used for similar opportunities with US universities and

industry with a target to develop talent pool in our energy sector especially in shale gas

technologies. The government should encourage Indian companies —public sector and

private sector to import gas shale production technology by giving incentives. It may even

facilitate such transfer of technology through signing of cooperation pact with the US

government.

BIBLIOGRAPHY

[1] Economic Times, 25th Aug, 2010 “Exploit potential of shale gas: US to India and China.”

[2] Economic Times, 20th Apr, 2010 “Gas still remains a pipe dream.”

[3] The Hindu, 26th Aug, 2010 “India-U.S. shale gas exploration initiatives set to advance.”

[4] Energy Information Administration www.eia.doe.gov.

[5] International Energy Agency www.iea.org.