After years of consideration, the government has come out with a disappointing shale gas policy. The public sector companies, ONGC and Oil India, will be allowed to drill for shale oil and gas in blocks they already have, but fresh auctions will be conducted for all other shale deposits. Private sector companies will not be allowed to exploit shale formations in their existing blocks. This means delay and unwarranted red tape. There is little reason to have separate auctions for conventional and non-conventional oil and gas.
Shale gas and oil have changed the face of the US. Huge increases in production have taken the US close to self-sufficiency in oil, and created a big gas surplus. By 2020, the US may get all its energy needs from its own fields and those of Mexico and Canada, eliminating the need for oil from the Middle East or Latin America. India’s prospects are much poorer. Yet preliminary data suggest that India has 63 trillion cu. ft of shale gas, 20 times as much as in Reliance’s offshore field. Additional prospecting could raise reserves considerably.
One good feature: the new policy mandates auctions based on simple production sharing between the explorer and government. The current cost-plus system has led to endless disputes in Reliance’s case. This new policy will apply to conventional as well as non-conventional deposits.
The question remains, why treat shale gas as different from conventional natural gas?
Gas and oil have been formed by the decay under great pressure and heat of marine life trapped in sands millions of years ago. Conventional oil and gas are produced by drilling into rock formations that are porous (lots of holes in the rock) and permeable (the holes are interconnected, letting the oil/gas to flow out under its own pressure). Limestone and sandstone are rocks with good flow rates. But other rock formations can be “tight”, having low porosity and permeability, in which oil does not flow easily.
This is true of shale and some other rock formations. These formations have long been known to contain enormous deposits, but extracting them was earlier not economically viable. Then a new technology, fracking, was devised in the 1990s. It used horizontal drilling and high pressure water with sand to crack open tight formations. This improved the flow enough to make drilling viable.
Now, many oil and gas deposits lie in multiple layers of different rocks. Thick sandstone and limestone formations may be interspersed with shale layers. The oil and gas lie trapped in all the layers, but conventionally were extracted only from the easy-flowing ones. Now they can be extracted from the tight layers too.
Does it make sense to decree that an explorer can touch only conventional strata and not tight layers, which should be auctioned to a separate company? Is it logical to have two companies drilling in the same block, one in the limestone strata and another in the shale? Apart from the duplication in cost and effort, it could lead to endless disputes and litigation. It could jeopardize safe field development too.
The US makes no distinctions. An explorer strikes deals with landowners, and can extract any gas or oil from any sort of rock. After all, nobody knows in advance whether oil or gas will be discovered, and if so in what sort of rock.
Exploration policy in India should similarly have no distinctions in exploration policy. However, fracking will need separate environmental clearance, because it poses special challenges.
Fracking needs very large quantities of water, mixed with chemicals, for blasting open tight formations. Waste water after fracking could contain toxic chemicals, and so must not be dumped.
To begin with, fracking in India can be limited to areas with abundant water. Only deep aquifers should be tapped for fracking, avoiding shallow aquifers used for irrigation or drinking water. Maybe sea water can be used in coastal locations.
Second, waste water after fracking must be recycled for use in new wells, not dumped. This will not only check toxic hazards but reduce the water needed for additional wells. Only certified safe chemicals should be used for fracking.
If surplus fracked water is pumped underground for disposal, it can cause small tremors (misleadingly reported as “earthquakes” by activists). This can be managed by gradual, deep disposal.
Activists will undoubtedly ask the courts to ban fracking, even though not a single case of contamination has been established after two decades in the US. The government should get an advance ruling on this from the Supreme Court, clarifying conditions under which fracking can take place. This may take a few years, so we need to start forthwith.