Shale policy

The industry feels that only by offering subsidies and reducing royalty rates can India achieve success similar to what the U.S. has achieved in shale exploration.

Workers prepare pipes used in the drilling of shale gas at a rig operated by Exalo Drilling SA, the oil and gas exploration unit of Poland's PGNiG, also known as Polskie Gornictwo Naftowe I Gazownictwo SA, in Lubocino, Poland, on Wednesday, Oct. 9, 2013. San Leon Energy Plc., an oil and gas explorer with four licenses in Spain, said some of the shale it's studying is comparable to rock in Poland, where it's a leader in using hydraulic fracturing, or fracking. Photographer: Bartek Sadowski/Bloomberg

Has the Indian government rushed its policy on shale exploration in its urge to repeat the American success story? Yes, says the domestic oil and gas industry.

The industry wanted a policy that treats shale differently from conventional exploration, with adequate participation from the private sector, particularly the services industry. But what it got was a policy that is very similar to the conventional exploration policy.

The new policy The government has restricted shale exploration to state-run Oil and Natural Gas Corporation (ONGC) and Oil India in the blocks awarded to them on a nomination basis before the advent of the New Exploration Licensing Policy.

There is also a regulatory overlap. The existing exploration and production policy does not qualify or quantify the hydrocarbon finds. “It could be either oil or gas or any other hydrocarbon discovery,” say explorers. They feel that for shale exploration, a policy offering incentives to industry is required.

In a production-sharing contract, the government awards the execution of exploration and production activities to an oil company, which bears the exploration and financial risks.

The company is permitted to use the money from the produce to recover capital and operational expenditures, known as “cost oil”. The rest, known as “profit oil”, has to be shared with the government. With the government proposing to shift from profit sharing to revenue sharing (or production-linked contracts), the industry fears shale exploration will get even more expensive for the contractor.

Environmental risks Drilling a well in a shale prospect is almost three times more difficult than a conventional well. In addition to the environmental risks involved in conventional gas production, there are implications of hydraulic fracturing in the case of shale.

Failures associated with well casing and on-ground activities and risks associated with hydraulic fracturing, such as contamination of water due to the storage and handling of wastewater, are unsurprising. But incidents of methane in tap water are difficult to explain.

The U.S.’ success in shale has hinged on a cost-effective service industry and fiscal incentives. The industry feels that only by offering subsidies and reducing royalty rates on shale fields can India achieve similar success.