Indian government devising policy on shale gas exploration has been much debated topic currently. The government is actively considering new rules to allow commercial gas production and start the auction of shale gas blocks by 2013. But why shale gas?

Shale gas has emerged as an important new source of energy globally. The gas is trapped deep below ground between rocky formations and is hard to extract. But technological advances such as injection of chemically-treated water at high pressure into the ground that helps to release the gas from underground. This is something known as hydraulic fracturing or fracking.

In recent times, India has laid out several plans to liberalize its energy policies ranging from partially loosening control on pricing of natural gas to dismantling APM and allowing fuel retailers to raise diesel rates as it looks to attract more investment in the sector. These plans are in line with the country's goal to cut dependence on energy imports by half by 2020 and eliminate it by 2030.

Isn’t India is too optimistic with shale gas and hoping it would change the natural gas scenario same as it did for US? The US, once import dependent, will be self sufficient in natural gas by 2020. India currently imports 75% of its energy needs.  Necessity for self dependency in energy requirement has fueled India’s interest in tapping the hard to reach gas and one solution can be exploitation of shale gas.

It is believed that total recoverable reserves could be between 6 tcf – 63 tcf is 20 times more than Reliance’s KG D6 reserves. This much gas is enough to run existing gas fired capacities for 15-20 years. However, these figures are yet to be established. It is also that shale gas will remain a regional resource over short to medium term due to the increased technical challenges and higher development costs. Government of India has asked USGS to conduct identify reserves, transfer technology required to tap them, and finalise a policy for exploration.  Several sedimentary basins such as Cambay, Gondwana, Krishna Godawari onland and Cauvery have been identified by USGS. After the formal approval of the new shale gas policy, these blocks will be put up for auction this year.

The excitement over shale gas is understandable. However, it could be premature. The exploitation of shale gas may not close India’s energy gap in the near future for few reasons. Firstly, the country lacks the technological capabilities and policy framework for natural gas. It will be crucial for international oil companies to participate and deploy their best technology. Clear policy framework would provide larger incentives for international participants. For e.g. in exploration, the company generally bid for PSC and the profit is being shared by companies and government. However, the government accuses companies for inflated budgets, high drilling costs and under recovery. On the other hand, companies complaint about delay in approvals, regulated pricing regime, etc. Reliance has made it clear that it is not keen to not participate in shale gas potential in India. It would rather have ambitious targets for US mainly due to low exploration risks in the shale gas business and an investment-friendly environment in the US.

Second, an exploitation of shale gas in India is likely to cause concern over environmental issues as there are no stringent environmental regulations. Fracking use large amount of water and chemical, when not conducted properly, might lead to the migration of highly toxic injection fluids into water sources which may be used for drinking. Every company needs to specify the type of chemicals they would use in the process. New techniques of double-sealing to check gas leaks should be mandated. Sadly, India is global leader in water pollution and with fracking the situation would be worst.  

While some countries are advancing in shale gas development, it seems unlikely that it will change India’s scenario any time soon. India must first reassess the size of its recoverable reserves for shale gas and deploy high quality infrastructure such as waste water management. This is high risk - high return venture and only country with vast reserves may decide to enter the technologically challenging complex shale gas exploration.