The first steps taken by the government to open up shale gas resources in the country will help reduce dependence on oil imports, though this emerging energy initiative will be opened up in stages. In the first phase, only NOCs (national oil companies) ONGC and Oil India Ltd have been permitted to explore and produce shale oil and gas in blocks they already control.
The government is yet to work out an auctioning process solely aimed at shale gas exploitation which is necessary, considering that more state-backed oil companies and private players will be keen to get into the act. It is notable that the government has spelt out a mandatory minimum work programme for NOCs applying for grant of shale gas and oil rights.
Assessment phases have also been stipulated for a maximum period of three years each, but this is too less considering that upfront investments on shale gas prospecting will take time to fructify.
However, this is unlikely to be the case for private players -- whenever they are permitted to apply for shale gas exploration licenses -- who will face huge operational overheads on their existing blocks while applying for separate mining leases for shale gas extraction. And, investments in the latest fracturing (or ‘fracking’) – the use of pressurised fluid to force oil and natural gas from shale deposits -- infrastructure will necessitate an altogether different set of rules.
Furthermore, production requirements for shale oil and gas, which are different from conventional gas and oil, need to be outlined, and pricing disagreements sorted out quickly before opening the field to independent producers. This will be vital in reducing India’s dependence on costly oil imports from OPEC and shale gas from the US.
And, reduced import dependence can be preceded only by significant growth in shale gas production, achieved through independent producers entering the fray. To further widen the scale of assessment and prospecting activity for shale reserves, the government might also want to look at relaxing royalties and relevant cesses on shale gas being produced from the onland blocks held by NOCs as a further incentive to production, besides allaying the fears of bloating the latter’s subsidy burden. This can push energy reforms further and hasten investments from independent producers in the more inaccessible areas of the country where a bulk of its shale gas reserves of 63 trillion cubic feet are sited.