Will China eye Arunachal Pradesh’s shale oil?

From 1990 onward, Chudamani Ratnam, former chief of Oil India Ltd, repeatedly claimed that India had a treasure trove of shale oil in Arunachal Pradesh and other parts of the north-east. He said these deposits could produce 140 million tonnes per year for 100 years, making India a net oil exporter. However, the deposits looked uneconomic, so he was not taken seriously. Analysts laughed when he suggested that China might one day invade Arunachal Pradesh to grab the oil.

Suddenly, that scenario no longer looks completely crazy. New technology in the US has hugely reduced the cost of extracting shale oil. The world over, oil companies are looking afresh at shale oil. China is surely doing the same.

In favorable rock strata (like limestone and sandstone), gas and oil flow out under their own pressure. But shale is “tight” and yields poor flows of oil and gas. Hence, shale oil and gas have historically been viewed as worthless.

That changed a decade ago with shale gas “fracking”—a new technology of horizontal drilling followed by injection of high pressure water, sand and chemicals. This “fracks” open the shale and allows gas to flow. Shale gas production is now booming in the US, and will meet a quarter of US needs by 2020. Top Indian oil companies, from Reliance to BPCL, have acquired stakes abroad in shale gas companies to gain fracking expertise, to be used later in India.

The petroleum ministry is working on a new policy to encourage shale gas exploration. Shale fracking can increase not only gas flow but oil flow too, though at a slower rate. Shale oil can be profitable at $60/barrel. The Bakken shale in North Dakota has increased oil production tenfold to 400,000 barrels/day, and this could double again in a few years. The New York Times says that by 2020, US shale oil production may hit 2 million barrels/day, as much as India’s entire consumption was in 2000.

US oil companies first went for shale oil after the 1973-74 oil shock. The 1970s technology entailed digging and crushing enormous quantities of shale, and baking this to extract oil. The environmental consequences were terrible. Huge quantities of water were needed to cool and stabilize the spent shale, which piled up in giant man-made mountains that leaked toxic wastes. The technology also proved uneconomic, and was abandoned.

Arunachal Pradesh has an additional environmental issue– its shale lies in prime forest. So, nobody will use the 1970s technology in the state. However, fracking avoids problems of the old technology. It entails drilling underground, and so will not disturb forests or create mountains of spent shale. There is water aplenty in the north east.

However, environmentalists in many countries have opposed gas fracking, and will also oppose oil fracking. They fear drinking water could be contaminated by toxic fracking chemicals, and that gas might leak into domestic water supplies. France has banned fracking as a precautionary measure. Some regions in the US and other countries have also imposed curbs and bans. New York state virtually halted fracking and has now proposed new safeguards for fresh drilling. These include additional steel casings to avoid gas leakages, and prohibition of drilling near aquifers, wells or large cities. That still leaves 80% of the giant Marcellus shale deposit in the state available for drilling.

India needs similar safeguards for shale oil and gas. Arunachal’s shale oil lies in virtually unpopulated forests, so fears of drinking water contamination will be minimal. Non-toxic fracking chemicals are being developed and should be adopted everywhere.

Not all oil shale is frackable, only highly saturated shale. Oil India came across shale deposits in Arunachal Pradesh and Nagaland decades ago, and should act immediately to delineate the frackable proportion. If this turns out to be large—and the portents are good—Oil India should rapidly acquire and use fracking technology. Meanwhile, New Delhi should tweak its new policy on shale gas—including environmental safeguards– to cover shale oil too.

China claims Arunachal Pradesh on historical grounds. But shale oil can give its claim a new dimension. This has already happened in the South China Sea, which China claims for historical reasons, but also because it has huge oil potential.

Within a decade, China may overtake the US as the world’s biggest oil importer. It would love to get Arunchal’s oil, ideally located to supply Tibet and Yunan. China will surely protest diplomatically against Indian exploitation of shale oil in Arunachal Pradesh, just as it has opposed hydel projects there. India must reject such protests firmly and go full speed ahead.