Shale We Drill?

For Reliance, the partners’ exclusive knowledge in cracking the shale plays is what brings value. But oil analysts are very clear that for the Indian company the prize, ultimately, lies not in the Rocky mountains, but back home.

Precious little has been done in India on shale gas prospecting so far, even though the rock formation is common in several parts of the country like the Damodar basin, Jharkhand and West Bengal. ONGC, probably the only company actively searching for shale gas, has been studying the formations over the past five years and has begun data collection in its own oil and gas blocks. A pilot project drilling the first few wells will be underway by the end of the year. ONGC plans to invest close to Rs. 150 crore and has brought in contractors like TerraTek to start drilling the exploration wells, says an ONGC geologist leading the project. TerraTek is a Schlumberger company that has experience of working in the Barrett field, one of the oldest US shale prospects. The Indian government has no policy on shale and has not permitted commercial exploitation of the gas. But increased awareness of the global success and RIL’s high-profile investments can be expected to shake things up. The Indian market is energy starved and will grow much faster than the US in the future.

“RIL clearly hopes to cut its teeth in the US market which is at the cutting edge of shale gas extraction. The aim is surely to be a big player in this area in India,’’ says a multinational oil company official, who is not authorised to talk to the media. In the 300,000 acres at Marcellus, RIL will start as a financial partner, but the agreements have the provision for it to turn into an operator in some of the acreage over time. This experience will prove invaluable when India is ready to auction its own shale acreage. The Director General of Hydrocarbons is working on an approach paper that is expected to help lay down a policy for auctions of shale blocks. This could be similar to the policy for coal bed methane blocks that are already being given out.

RIL’s intentions were made clear by executive director P.M.S. Prasad while signing up the Marcellus acreage with Atlas. He said, “The company is entering one of the fastest-growing opportunities emerging in the US unconventional gas business.” The deal “will materially increase Reliance’s resources base and provide Reliance with an entirely new platform from which to grow its exploration-and-production business while simultaneously enhancing its ability to operate unconventional projects in the future.”

Shale gas wells cost much less than conventional onshore gas wells, leading to much higher profits for producers. For RIL, the costs will be in stark contrast to the expensive extraction process at its deep-water wells in the KG basin offshore.

But, like with most things in life, all is not hunky dory on the shale patch. Bill Holland, associate editor at oil newswire Platts (he has reported extensively on how shale gas was changing the face of south Texas, in areas that were among the poorest counties in the US), says the biggest challenge would be to manage the environmental impact of production. Fracking (fracturing) a single well takes two to four million gallons of water and most of the mixture, which includes sand and chemicals, returns to the surface and must be disposed of. The fluids are injected into wells far below aquifers used for drinking water, and there are deep layers of impermeable rock between drinking water supplies and fracturing fluids. Yet, environmental groups dispute industry claims that hydraulic fracturing is safe, citing the potential that contaminated drilling fluids can spill from surface storage tanks.

BP’s inability to stop the oil leak in the Gulf of Mexico has made it tougher for the oil companies. Upstate New York, where vast shale gas discoveries have been made, has imposed a moratorium on gas production until the impact of drilling is understood and dealt with. Holland says the problems will be more acute in prosperous and more populated areas. “In South Texas where the population is about two people per square mile, no one cares very much,’’ he says.

The other thorny issue for shale gas producers in the US is that of gas prices. Prices have fallen significantly and are currently close to $5 per unit, especially after the new shale gas finds. The gas is expected to eventually replace more and more oil as more fields come into production. If prices fall below a point, natural gas may even begin to replace liquid fuels for mass transportation. Imports of LNG from Europe to the US have already started falling. For India, the falling price is good news because it frees up more gas for a growing, energy-hungry economy. But the big leap, both for RIL and India, can only come when gas production actually starts here.