New Shale Gas Policy Lucrative for India
The government in India is finalizing a new policy for exploring shale gas that will provide states a share of the profit booty that exploration companies give as profit petroleum to the Centre.
Profit petroleum is a part of the revenue earned by the exploration company when it sells oil or gas. Proposed to be called shale gas payment as opposed to profit petroleum, this revenue will be shared between the centre and the state.
This new policy is being scripted to get proactive support from state governments in this new field of energy that is set to be a game changer. The profit share will be over and above the royalty that state government would earn from the oil company, a senior official at the Director General of Hydrocarbon’s office said.
DGH, a technical arm of the oil ministry, is directly involved with the policies on oil and gas exploration. It would be essential to get the state governments as a partner in the development of shale gas as this new unconventional gas involves exploration over large areas.
The profit share for the state would incentivize states to help with the land acquisition as it is under the direct jurisdiction of the state governments. It is expected that the resource-rich states would invest these revenues in the development of the region to avoid conflicts with local populace such as agitation against bauxite mining in Niyamgiri, the official who is working on the policy said.
Shale gas is non-conventional natural gas found in non-porous rock and requires fracing technology to extract gas from shale. Global majors like Exxon, Chesapeake, Davon and Pioneer are the market leaders in shale gas. India’s Reliance Industries has taken a lead in this new source of energy by acquiring stakes and forming joint ventures with shale gas companies in the US.
Petroleum secretary S Sundareshan confirmed that the government is framing new profit-sharing rules for shale gas production.“Quality of investments in shale gas (exploration and production) is different. We will consider international practices before framing profit sharing mechanism for it,” Mr Sundareshan told ET.
The government plans to invite bids for shale gas exploration by 2011-12, he said. India has huge shale deposits in Assam, Gujarat, Rajasthan, the Gangetic plain, the Cambay basin and the Gondwana basin.
This comes at a time when the first well for producing shale gas has been drilled by the national oil company ONGC. “The first (shale gas) well was drilled at Ichapur near Durgapur in Damodar valley on Tuesday,” ONGC chairman & managing director RS Sharma said.
The well is targeted to a depth of 2,000 mts and will be assessing the shale gas potential of about 700 mts thick shale. The contract has been awarded to Schlumberger and the results of this well is expected by October 30, 2010. ONGC has undertaken a Rs 128-crore pilot project for exploration of shale gas in the Damodar basin in Jharkhand and plans to drill three wells by March 31, 2012.
The new profit sharing norms is particularly being designed for shale gas exploration companies as this unconventional gas production requires wells to be drilled over large acerages in a much quicker time frame. In the US and Canada, where shale gas production has emerged as a game changer accounting for almost 17% of the gas consumption in the US, energy companies have acquired large tracts of land to take up shale gas production.
Unlike the conventional natural gas production process, where fewer wells are drilled and the volume of gas from each is much higher, shale gas wells have small volumes where almost 80% of the production of gas is done within the first year. “Its a volume game and the developer has to have a mindset of a manufacturer, “ R S Butola, managing director of ONGC Videsh said.