The global discussion on a clean energy future is centering on the development of unconventional oil and gas resources such as those from shale deposits. India may have large shale reserves, with major implications for its energy markets, its environmental impacts and global relations.
The U.S.-led ‘shale gas’ exploration and production (E&P) has the potential to change the energy equation radically for India. In the past two decades, U.S. oil and gas companies, supported by the U.S. Department of Energy, have advanced techniques such as hydraulic fracturing (fracking) and horizontal drilling to extract natural gas from rock formations known as shale, from which gas extraction was previously challenging due to geological conditions.
These improvements, along with the presence of significant shale reserves in the U.S., have meant that the U.S. has now become the world’s largest natural gas producer, overtaking Russia. With shale oil and gas production, the U.S. is expected to achieve energy self-sufficiency by 2030. High oil and gas prices made shale extraction profitable in the U.S, along with the country’s well-developed midstream infrastructure and gas markets, and policy support for such endeavours. [1]
With several countries, including India, estimated to have significant shale deposits, the shale gas revolution is unlikely to remain restricted to the U.S. for long. This has implications for global oil and gas prices, geopolitics and climate change.
OPEC initiated a study at it recent meeting in Vienna in May 2013 to investigate the impact of U.S. shale on the global market for crude oil from OPEC countries. [2] In the U.S., natural gas prices have declined significantly with the advent of shale gas, in contrast to domestic oil and LNG prices in regions such as Asia-Pacific. [3] In 2012, U.S. gas prices were at a ten-year low of $2.75 per million British thermal units (mBtu), compared to a peak of $8.86 mBtu in 2008. [4] Shale gas production in the U.S. and other countries, combined with shale oil development, may lower global oil and gas prices.
The burning of natural gas results in significantly lower greenhouse gas (GHG) emissions than oil or coal consumption; countries attempting to reduce their emissions are likely to substitute oil and coal with the newly-abundant and relatively cheap shale gas for transportation and other uses such as power generation.
The advantages of domestic shale gas production, as evidenced in the U.S., have driven Indian oil and gas companies and the government to explore shale reserves. According to the most recent U.S. Energy Information Administration (EIA) estimates, released in June 2013, India has technically recoverable shale gas resources from four basins of around 96 trillion cubic feet (tcf), [5] which is significantly larger than current gas consumption, which was around two tcf in 2011. [6]
Without developing domestic shale reserves, the share of imported gas in India’s total gas supplies is expected to increase from 22.5% in 2012 to about 54% in 2022. [7] Besides lowering India’s trade deficit and improving energy security, domestic shale gas production could have other positive impacts, including switching electricity generation from coal to natural gas, which could lower GHG emissions, and the industry could become a source of government revenue. The Indian government is expected to finalise its shale gas E&P policy and auction shale blocks later this year. [8]
India faces potentially conflicting priorities of meeting household and industrial energy needs while reducing its GHG emissions and fulfilling its international commitments under the Copenhagen Accord. Around 290 million people in India still have no access to electricity, and as many as 830 million people lack access to modern cooking or heating fuels. [9] At the same time, India ranks seventh in the world in aggregate GHG emissions, which are expected to increase at a compound annual growth rate of around three percent by 2035, along with similar rates of growth in energy demand. [10]
However, the enthusiasm for developing India’s potential shale resources may be tempered by the realities of doing so. For example, accurate reserve estimates are difficult to obtain without further exploration; a study by the U.S. Geological Survey in three basins estimated recoverable resources of only six tcf and not the 96 tcf estimated by the U.S. EIA. [11] India has poor midstream infrastructure for the gas industry, and a lack of domestic oilfield services companies and critical equipment. In addition, Indian natural gas prices are not market-based and may not be allowed to increase enough to make shale gas production economical.
Besides these factors, the environmental and social impacts of fracking will have to be addressed for there to be any progress on shale E&P. U.S. and European gas companies face increasing public opposition and regulatory scrutiny of these impacts, with bans on fracking in some countries like France and Bulgaria. The significant use of water in fracking, possible contamination of groundwater without adequate safeguards, and the need for land acquisition are particularly pertinent to the Indian context, due to the country’s persistent water scarcity and high population density.
This is true, for example, of the basins with the greatest potential for technically recoverable shale gas according to the EIA, the Cambay basin in Gujarat and the Krishna-Godavari basin in Andhra Pradesh. [12] Both these regions have an “Extremely High” baseline water stress level according to the World Resources Institute (total annual water withdrawals as percentage of total annual available flow of greater than 80 percent).[13] The population density in Ahmedabad district in Gujarat, part of the Cambay basin, is 719 per square kilometres (sq. km.),[14] and in the Krishna and West Godavari districts it is 519 per sq. km. and 508 per sq. km. respectively. [15] This compares to the national average of 382 per sq. km. according to the 2011 Census. [16]
Some of these challenges could be addressed through foreign private sector and research collaboration and global diplomatic relations, particularly with the U.S. and also perhaps with China, which is estimated to have the world’s largest shale gas reserves. The Chinese government is already beginning to implement its own shale E&P policies.
In 2009, the U.S. and India signed a Green Partnership, part of which included increasing cooperation on unconventional natural gas. [17] Indian oil and gas companies have begun to work with foreign oilfield service companies to implement pilot projects in the country. Companies such as GAIL and Reliance are also acquiring stakes in U.S. shale gas E&P to build their expertise and knowledge of advanced shale E&P techniques. [18]
However, more needs to be done to ensure success in developing India’s shale resource, including a strong shale policy that rewards developers, and promotes a robust gas market and related infrastructure, but minimises environmental and social impacts. In order to lower these impacts, the government and private sector could pursue foreign collaboration on research, impact assessments, and appropriate technology applications. Many U.S. companies are already implementing advanced well designs and equipment to reduce fractures per well and are using closed-loop drilling to minimise water usage and toxic waste discharge.
Lower global energy prices due to shale may reduce India’s trade deficit in the short-term, providing some reprieve; however, the structural energy demand-supply gap and energy access-environment dilemma persists. A holistic policy lens, taking into account the overall energy mix of the country, is needed for sustainable development. As a report by the International Energy Agency put it, India’s energy policy cannot be set in isolation and needs to account for rising global interdependence.
Himani Phadke works at the Sustainability Accounting Standards Board in San Francisco, USA. She has an MA in International Policy Studies, focusing on Energy and the Environment, from Stanford University, U.S., and an MSc in Economics for Development from Oxford University, UK.
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References
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2. Voss, S., Razzouk, N., & Chmaytelli, M. (2013, May 31). OPEC to study U.S. shale oil bonanza as export concern grows. Bloomberg. Retrieved from http://www.bloomberg.com/news/2013-05-31/opec-to-study-u-s-shale-oil-bonanza-as-exporter-concern-rises.html
3. Arora, A., Khanna, D., Grover, S., Chawla, D., & Lal, R. (2012, October). Shale gas: Key considerations for India. Petrotech 2012: 10th International oil and gas conference and exhibition, New Delhi, India. Retrieved from http://www.ey.com/Publication/vwLUAssets/Shale_Gas_-_Key_considerations_for_India/$FILE/EYIN1210-084-Shale-gas.pdf
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8. Moily sets ambitious target of energy independence by 2030. (2013, March 24). Ministry of Petroleum and Natural Gas, Press Release, Government of India Press Information Bureau. Retrieved from http://pib.nic.in/newsite/erelease.aspx?relid=94271 PM’s address at the inaugural function of the 7th Asia gas partnership summit. (2013, March 23). Prime Minister’s office, Press Release, Government of India Press Information Bureau. Retrieved from http://pib.nic.in/newsite/erelease.aspx?relid=81524
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