Enough shale oil to join OPEC?

India has enough oil trapped in shale and coal deposits in Assam and Arunachal Pradesh to produce 140 million tones per year for 100 years, say former geologists of Oil India Ltd including ex-Chairman and Managing Director Chudamani Ratnam. This is more than India’s entire current consumption, high enough to make India a member of OPEC.You might think this would be a major strategic thrust of our energy policy. Yet there was no mention of shale oil at last week’s meeting of the Inter-Ministerial Energy Coordination Committee, chaired by the Prime Minister. The meeting focused on acquiring oil, gas and coal reserves overseas. Does not domestic shale oil deserve higher priority?

We need an immediate strategy to evaluate shale oil deposits in greater detail, evaluate the best technologies for extracting oil, and then set up a commercial scale plant. Given the huge potential benefits, the risks are very worthwhile. If this works, we can throw open our huge deposits to international exploration, as has already been done for conventional oil and gas deposits.Shale oil deposits are common the world over, but have not been mined because of uncertainties over the future price of oil. Ratnam and his fellow-geologists estimated in 1990 that extracting shale oil would become economic at an oil price of $ 30/barrel. US experts estimate that shale oil would be economic today at $ 35-40/barrel. With the world price touching $ 65/barrel last week, you might think that oil multinationals would be scrambling to produce shale oil in several countries. In fact they are held back by fears that oil prices could drop in a few years below $ 35/barrel.

In the 1970s, expectation of ever-rising oil prices spurred giant shale oil projects in the USA. Exxon built a $ 5 billion facility in the Rockies. This had to shut down in 1982 because of dipping oil prices. Other shale oil projects of Tosco and Unocal are closed down soon after. Multinationals lost all appetite for shale oil after those expensive failures.Environmental issues also dogged these projects. Oil-shale has to be mined, crushed and baked to extract oil. The spent shale is huge in volume, and needs large quantities of water to cool and stabilize it. Shale mining was tried in the USA in arid areas lacking water. However, Assam and Arunachal Pradesh are blessed with ample water. A small dam on a minor tributary of the Brahmaputra could provide enough water, and generate hydel power too. Possibly the dam itself could be a rock-filled one built with spent shale.

The first step needed is to appoint international consultants to assess the deposits and suggest technologies for extraction. Oil India Ltd has long explored for oil and gas in the north-east, and is the obvious candidate for setting up a commercial-scale plant to extract shale oil. Given the potential benefit, the risks are very worthwhile. Over 90% of OIL’s staff are already Assamese, so ULFA and other militant outfits are unlikely to paralyse such a project with bandhs. Coal-mine rejects (containing more shale than coal) already lie piled up at mine-heads in Assam, providing ready-made material for a shale oil project.

If the project yields good results, we can have a New Exploration Licensing Policy for shale oil, throwing open the deposits for competitive bidding. To attract bidders and ensure again a sudden dip in future oil price, the government should guarantee a floor price of $ 35-40/ barrel. In return for such a guarantee, the government could ask for a 50% share of any price hike above $ 60. This would make the project attractive for both bidders and guarantor.Assam coal is, technically, a sort of solid petroleum deposit (it is a marine sediment like oil, not a carbonized forest like conventional coal). This makes it especially suitable for conversion to oil. Assam coal has much sulphur, so it is a high-pollution fuel for thermal power. But coal liquefaction yields ultra-clean oil, leaving behind sulphur as a by-product that can be used for fertilizer manufacture.

Coal can be converted to oil using the direct liquefaction technology of IFP of France, or the indirect liquefaction technology (coal into gas and then gas into oil) of companies like Sasol, Chevron and Shell. OIL already has a technological tie-up with IFP for direct liquefaction.China is planning to set up at least four plants to convert coal to oil. The Shenhua Group is setting up a direct liquefaction plant in Inner Mongolia using IFP technology. However, this has run into technical glitches, and there are reports that the plant will switch to two-stage liquefaction using Shell’s technology.India needs to make a start immediately, experimenting with different technologies. China already plans to invest over $ 15 billion in extracting oil from coal. India has not even started thinking about this.