Shale gas policy and its regulatory mechanism in India

INTRODUCTION

Increase in demand of Energy fuel in the market has alarmed the world to seek for other alternative in the energy sector. Use of Shale Gas as an Energy Fuel is another addendum in the energy market which will certainly abridge the demand of fuel crisis to a certain extent. Shale gas has the potential to turn the world’s energy industry on its head[1]. The unlocking of domestic shale gas reserves could help India meet its growing energy demand, besides reducing its dependence on expensive energy imports. In addition, the development of the domestic shale gas industry could boost the economy. However, this emerging industry will have to promote by balancing economic benefits with environmental and social issues[2].

India has a chronic power supply shortage and yet many gas-fired electricity plants stand idle as the country lacks the fuel to supply them, or the infrastructure and cash for expensive imports. Shale gas supplies could eventually help meet demand, but India has been slow to open up the sector [3].Indianeeds strong service and infrastructure capabilities, along with a favorable regulatory regime, to promote its shale gas industry.

With an extensive R & D of Shale gas, there is also a requirement of proper legal regime which shall understand the regulatory mechanism of shale gas in India. In pursuance to the same, the DGH which is an independent regulator in upstream sector have framed a draft policy highlighting all the essentials of the development of Shale Gas in the Country.

HIGHLIGHTS OF THE DRAFT SHALE GAS POLICY

The latest policy briefly explores the question of shale gas being a game changer in the context of India. It explains the nature of shale gas, the technology for its extraction from underground sources, and its potential for India. It also highlights overseas acquisitions of this resource by Indian companies even before it is sourced domestically, and then examines the viability of the technology in India. One of the key determinants of the viability of this technology is the availability of large quantities of clean water. The policy brief points out that conventional gas can occur by itself or in association with oil. Coal bed methane (CBM), which is extracted from coal beds, is also an unconventional gas and, in terms of depth, occurs much closer to the land surface than other similar gases[4].

SHALE GAS EXPLORATION AND EXTRACTION

CLEARANCE AND APPROVAL BEFORE BIDDING PROCESS

The Government of India will ensure all statutory, regulatory and security clearances are obtained before bidding[5].It will also seek in-principle approval of the State Governments concerned, for the areas of shale oil / gas blocks, prior to bidding, including facilitation in the matters of land acquisition and water management issues[6].

MODE OF BIDDING PROCESS

The offer of acreages under this policy would be made through an open International Competitive Bidding (ICB) process. The successful bidders would be required to enter into a contract with the Government, which will be negotiated based on the Model Contract (MC)[7].Ministry of Environment and Forest (MOEF) will prescribed a panel of agencies, competent to carry out the Environment Impact Assessment for the blocks allotted to successful bidder[8].

BIDDING AND ITS APPROVAL

Blocks for shale oil /gas would  be identified by the MoPNG and the relevant data package and information docket for each block so identified will be made available for interested companies for inspection and purchase. The identified blocks will be advertised for international competitive bidding. Participation of the State will not be mandatory. Requisite promotional exercise would be undertaken to apprise the prospective bidders with the proposed fiscal and contractual arrangement[9]. In addition to the round system of bidding, The Government may adopt Open Acreage Bidding System at any given point of time[10]. Detail bidding formats would be provided to the interested companies to maintain uniformity in submission of bid documents.

PROVISION FOR BIDDING AFTER CLOSING DATE

Evaluation of bids received by the bid closing date would be done by a team constituted by the MoP&NG, which may include officers having knowledge and experience in technical and financial aspects and fiscal and contractual framework. The report of the bid evaluation committee would be submitted to the MoP&NG[11].

OVERLAPPING PROVISION

Simultaneous Exploration and Exploitation of Hydrocarbons i.e. Conventional Oil and Natural Gas, Coal Bed Methane (CBM), tight gas and Shale Oil and Gas from the same contract area by same/ different operators will be governed by the relevant policy of the Government of India. As such, in case of acreage an offer for shale oil / gas overlaps or falls within an existing Oil and Gas /CBM Block, right of first refusal will be offered to the existing contractor to match the offer of the selected bidder, provided he agrees to all the terms and conditions of the bid. In case they refuse, they will have to enter into a model co development /operating agreement for simultaneous exploration[12].

HIGHLIGHTS OF CONTRATUAL TERMS UNDER THE POLICY[13]

An individual contract, based on the Model Contract will be executed between the Government and the successful bidders. The contract duration will be of 32 (thirty two) years and will be divided into two phases.

Phase-I will be for a period of 7 (seven)  years and will be for exploration, appraisal, evaluation of the prospect and feasibility  and Extension of Phase-I would be permissible similar to NELP/ CBM or any other govt. Guidelines and will be a part of the Model contract.

Phase – II  will be the Development and Production Phase for duration of 25 years. Plus the time saved in Phase-II if any. This would include the following :- 

(a) Development wells drilling

(b) Establishment of field facilities

(c) Commercial production and marketing

ISSUES REGARDING OVERLAPPING BETWEEN NELP AND OTHER POLICIES

All areas which are already allotted under nomination /pre NELP/NELP/CBM rounds and where operations have entered the development/production phase shall be excluded from area to be offered for shale oil/ gas exploration[14].In case of the same contractor operating both the blocks, the policy will be to adequately ring fence the two so that two distinct accounts are maintained, without affecting each other[15] and assignment of Interest would be permitted, as in NELP[16].

REGULATION FOR SAFETY

Safety aspects will be regulated as per existing regulations / OISD guidelines and practices,  as in the case of Oil and Gas and CBM operations. New rules / guidelines, whenever notified by competent authority, in this regard, will also become applicable[17]. 

ENVIRONMENTAL CONCERN

Ministry of Environment and Forest (MOEF) will prescribed a panel of agencies, competent to carry out the Environment Impact Assessment for the blocks allotted to successful bidder. Exploration of Shale oil / gas will be accordance with the law of the land, including the Water (prevention and control of pollution) act, 1974, Air (prevention and control of pollution) act, 1981 and the overall ambit of environment protection measures[18]. 

PROVISION RELATING TO WATER ISSUES

The draft policy has identified some of the water issues in the exploitation of shale gas. Optimal exploitation of shale gas/oil requires horizontal and multilateral wells and multi-stage hydraulic fracturing treatments of stimulate oil and gas production from shale[19]. This may require large volume of water 3-4 million gallons per well (11,000 to 15,000 cubic metres of water required for drilling/hydro fracturing depending upon the well type and shale characteristics)[20]. The water after Hydraulic fracturing is flowed back to the surface and may have high content of Total Dissolved Solids (TDS) and other contaminants (typically contains proppant (sand), chemical residue occur in many geologic formation, mainly in shale). Therefore, the treatment of this water before discharge to surface / subsurface water needs to be in line with the Central / State Ground Water Authority regulations[21].  Possibility of contamination of Aquifer (both surface ad subsurface) from hydro-fracturing and fracturing fluid disposal and the need for safeguarding the Aquifer. Multiple casing programme (at least 2 casings) will be mandatory requirement across all subsurface fresh water aquifers[22].

The government’s draft policy suggests that there should be a mandatory rainwater harvesting provision in the exploration area, which trivialises the extent to which water will be required. It states, as far as possible, river, rain or non-potable ground water only should be utilised for fracking and re-use/recycling of water should be the preferred method for water management[23]. The environmental concerns in using water for fracking have been considerably downplayed and their significance underestimated. The other environmental issues related to exploration and exploitation of Shale Oil / Gas will be addressed  by the Contractor within  framework of existing Central & State Environment Acts and statues. New rules/guidelines, whenever notified by competent authority, in this regard, will also become applicable[24].  Further, enforcing legislation on environmental and water issues is a problem in India, and such legislation has been more in breach than in observance[25].

India suffers from physical and economic water scarcity whereas the U.S. and Europe do not have the same water worries. The website Indiawaterportal.org points out that in the next 12-15 years, while the consumption of water will increase by over 50 per cent, the supply will increase by only 5 to 10 per cent, leading to a water scarcity situation[26].

TERI’s own study in 2010, ‘Looking Back to Think Ahead’, demonstrates that India is already a water-stressed country and is fast approaching the scarcity benchmark of 1,000 m3 per capita with unabated growth in the irrigation sector; again, it is evident that potential shale gas bearing areas, such as Cambay, Gondwana, Krishna-Godavari, and the Indo-Gangetic plains are also areas that will experience severe water stress by 2030[27].

THREAT TO WATER CRISIS

Shale rock is sometimes found 3,000 metres below the surface. Therefore, after deep vertical drilling, there are techniques to drill horizontally for considerable distances in various directions to extract the gas-rich shale. A mixture of water, chemicals, and sand is then injected into the well at very high pressures (8,000 psi) to create a number of fissures in the rock to release the gas. The process of using water for breaking up the rock is known as ‘hydro-fracturing’ or ‘fracking’. The chemicals help in water and gas flow and tiny particles of sand enter the fissures to keep them open and allow the gas to flow to the surface. This injection has to be done several times over the life of the well[28].

The Ministry of Environment and Forest said exploitation of shale resources could lead to water crisis in India. Each well would require 3-4 million gallons of water. Although the note does not specifically say so, as per the US experience in shale gas exploration and exploitation, the water used for fracking is fresh water. The Ministry of Environment also raised concerns related to availability of water, safety of aquifers and ensuring regulatory framework for environmental safety[29].

PROSPECT OF SHALE GAS

According to estimates by EIA, India has 63 tcf of recoverable shale gas reserves. However, there has been a recent downward revision in the estimates. India’s shale reserve estimates pale in comparison to global standards; however limited exploration has been carried out so far. It is quite possible that similar to the US, India’s shale gas reserve potential could be upgraded with further exploratory drilling[30].

The Cambay, Krishna Godavari, Cauvery and the Damodar Valley are the most prospective sedimentary basins for carrying out shale gas activities in the country. The Cambay basin in Gujarat is the largest basin in the country, spread across 20,000 gross square miles, with a prospective area of 1,940 square miles. Around 20 tcf of gas has been classified as technically recoverable reserves in the basin. It is estimated that the Krishna Godavari basin, located in eastern India, holds the largest shale gas reserves in the country. It extends over 7,800 square miles in gross area, with a prospective area of around 4,340 square miles. The basin encloses a series of organically rich shales, containing around 27 tcf of technically recoverable gas[31].

LATEST DEVELOPMENT

The Government of India, along with Indian companies, is undertaking various initiatives to accelerate the development of shale gas reserves in the country. India is likely to launch the bidding for shale gas exploration toward the end of 2013[32].As a part of this initiative, the government has set up a multiorganizational team (MOT) comprising the Directorate General of Hydrocarbons (DGH), Oil and Natural Gas Corporation (ONGC), Oil India Limited (OIL), and GAIL (India) Limited for analyzing the existing data set and suggesting a methodology for shale gas development in the country. Further, in April 2012, the DGH submitted its draft policy on exploitation of shale gas to the Ministry of Petroleum and Natural Gas (MoPNG).

ONGC and OIL are aggressively implementing pilot projects to assess the shale gas potential in the country. In addition, Reliance Industries Limited (RIL) and GAIL have entered the US shale industry to gain technical expertise and may apply that expertise in developing shale gas reserves in India[33].

CONCLUSION

Discovery of Shale Gas Pool at Durgapur by the ONGC was a red letter day in the history of India’s Energy Sector[34]. ONGC created an exploration landmark when gas flowed out from the Barren Measure shale at a depth of around 1700 m in its first R & D well RNSG-1 near Durgapur at Icchapur, West Bengal on 25 January 2011[35]. Owing to the necessity of demand of Oil and Natural gas in India, it is primary responsibility of the nation to hunt for other alternatives of such natural reserves. Exploration of Shale Gas in India is an outcome of necessity. Now, the most pertinent issue is “How to extract maximum benefit out of exploration of shale gas?” and for this, the central government of India has set up various Research and Development Centre to explore the prospect and quality of shale gas reserves in India and also have proposed to lay down Shale Gas Policy .