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India will benefit from the Shale gas

India will benefit from the Shale gas

John Westwood, Group Chairman of Douglas-Westwood and Dan Eberhart, CEO of Canary USA, give their insights on the future of oil & gas in the Indian market.

What is the present status and future potential availability of oil & gas in India?
John Westwood (JW):

Indian oil & gas production is set for growth both onshore and offshore in our forecast period (2014-2020). Combined (oil gas) onshore production will see 11 per cent growth by 2020, supported by output from Cairn India’s acreage in Rajasthan. Combined offshore production will rise by 21 per cent by the end of the decade, with large gains in deepwater gas projects operated by Reliance Industries, BP and ONGC.

Dan Eberhart (DE):

India is rich in fossil fuel resources, with nearly 5.7 billion barrels of proved oil reserves at the beginning of 2014. Despite the wealth of resources underground, the country’s growing energy demand is actually increasing its dependence on foreign energy. In 2013, India was the fourth-largest consumer of oil and petroleum products (after the US, China, and Japan) and the fourth-largest net importer of crude oil and petroleum products.

This is chiefly because domestic production has not kept pace with demand in recent years: Demand hit 3.7 million barrels per day (bbl/d) in 2013 and is expected to top 8 million bbl/d by 2040. During the same time period, the nation only produced 1 million bbl/d of total liquids – and production is likely to remain at this level until approximately 2040.

India was self-sufficient in natural gas relatively recently. It began importing liquefied natural gas (LNG) from Qatar in 2004 but in the decade since has grown into the world’s fourth-largest LNG importer (behind Japan, South Korea, and China). In 2013, India expended about 6 per cent of the total world LNG market.

On the plus side, despite its status as net importer of crude oil, India has grown into a net exporter of petroleum products by investing in refineries designed for export. In an attempt to diversify and increase supply security, Indian national oil companies (NOCs) have been acquiring more equity stakes in South American, African, Southeast Asian, and Caspian region fields. Additionally, the government began implementing oil & gas pricing reforms several years ago – moving away from some of the government-imposed price regulations on petroleum products – to begin encouraging private investment. The NOCs still control most of the petroleum industry, but the upstream sector in particular is becoming increasingly open to competition through private and foreign investment.

What are the potential steps to revive the gas sector in India?

The Indian authorities are to raise the price paid to operators per unit for gas supplied. This would likely increase exploration activity, especially in deepwater plays. However, indecision on the start date of the increased price is causing reluctance among operators to invest more in their developments until a more concrete plan exists.

A hindrance for future investment could be the new revenue-sharing agreement (RSA) model between the Indian State and operators. Previously, profit-sharing agreements were the norm – operators were allowed to recoup their costs before paying a share to the State. With the introduction of RSAs, the State is not owed a share of income from the field from first oil/gas. This, along with the ongoing tax dispute with Cairn Energy, could knock investor confidence in the near-term.


Private and foreign investment needs to be bolstered. The Indian government’s current policy is seen as a backtrack on the free pricing promise that it began promoting in the 1990s. As a result, many potential investors have turned away. The government needs to implement an official policy on shale gas that encourages exploration, facilitates seismic surveys to promptly identify potential shale gas deposits, and welcomes bids from private and foreign investors. Current regulations limit government-issued leases to conventional sources, meaning when a drilling company hits a shale deposit, they are forbidden from extracting it – thereby causing India to miss out on the true potential that its deposits could produce. Rather, exploration contracts should permit exploitation of both conventional and unconventional gas to make it advantageous for companies to investigate shale gas they encounter while targeting conventional hydrocarbons.

The country must also reconcile its impending critical shortage of manpower within the energy industry. For example, State-owned ONGC expects to recruit about 1,000 geologists in the coming four to five years – a short timeframe to create qualified experts.

Higher price for natural gas, under review by the expert committee, is essential for any meaningful reinvestment in existing fields and investments in new discovered fields. Your views.


Despite slumping natural gas prices in some markets, some investors continue to look at developing India’s less-developed shale gas frontiers in hopes that the market glut will not last and that prices will begin to rise. With the gradual downturn in conventional production, the price of natural gas will likely determine whether the long-term investment required of shale plays pay off. But in the case of India, the most pressing bottleneck to investment is likely a restrictive policy on gas allocation and fixed energy pricing, not natural gas prices.

Is shale gas the future for India?

This is uncertain at the moment. New onshore acreage contracts now allow operators to explore for both conventional and unconventional resources under the same license – thus streamlining the auctioning process. However, exploration is in its infancy, so Douglas-Westwood does not expect large-scale production from shale this decade.


India has vast shale deposits, with resources that could total 63 trillion cubic feet. Unfortunately, only six basins appear to have any real extraction possibilities: the Cambay Basin in Gujarat, the Assam-Arakan Basin in northeast India, the Gondwana Basin in central India, the Krishna-Godavari Basin in Andhra Pradesh, Kaveri River, and the Indo-Gangetic Plain in northern and eastern India.

India’s enormous population has created both a growing demand for energy and a growing challenge to meeting this demand domestically. With 383 people per square km as of 2012, this population density also creates a barrier for shale extraction. Another complication of population density is a growing lack of water. The Energy and Resources Institute (TERI) goes so far as to say that all of India’s basins will experience water shortage by 2030. Fracking is a water-intensive process, and without a sufficient water supply, India’s shale industry will not be able to move forward. In the long term, India will probably benefit from the shale industry as a buyer, rather than a seller. Although shale gas production may not be in India’s near future, the country could nonetheless experience other economic benefits of the shale revolution in the form of outsourcing.

– Garima Pant

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