India stumbles over shale gas contracts

Wed Aug 14, 2013 2:50am EDT

* Private, foreign firms have to wait

* State firms have green light to drill for shale gas

* Policy for others to take at least three months

By Nidhi Verma

NEW DELHI, Aug 14 (Reuters) - India will take at least three months more to draw up a policy framework for shale gas exploration that would allow both private domestic and foreign firms to begin drilling for the fuel, two oil ministry sources said on Wednesday.

India has a chronic power supply shortage and yet many gas-fired electricity plants stand idle as the country lacks the fuel to supply them, or the infrastructure and cash for expensive imports. Shale gas supplies could eventually help meet demand, but India has been slow to open up the sector.

The country could be sitting on as much as 96 trillion cubic feet (tcf) of recoverable shale gas reserves, the U.S. Energy Information Administration estimates, equivalent to around 26 years of the country's gas demand.

India's cabinet will soon approve a policy for shale gas exploration, initially allowing state oil companies holding India's oldest contracts to drill for shale. That would give state-run explorers Oil and Natural Gas Corp and Oil India Ltd a headstart, although neither has yet to show much appetite for drilling for shale.

Of the 356 blocks the two companies hold, India's upstream regulator has said 176 of them possibly hold shale resources.

These contracts were awarded when India first started a push to find and produce oil and gas after it got independence from Britain in 1947.

The old contracts refer to activity related to exploration and output of petroleum, which India's government has interpreted as a broad enough term to cover unconventional energy such as shale.

The wording of new contracts for blocks awarded to companies such as Reliance Industries, BG and Cairn India , specifies activity related to natural gas and oil. The Indian government has interpreted this as excluding unconventional energy.

It is unclear how the government would resolve the issue. It is also unclear if the government would open existing blocks to bidding from companies who want to drill for shale.

BUILDING SHALE EXPERTISE OVERSEAS

Gas demand in the country is expected to jump to 473 million cubic metres a day (mmscmd) by 2016/17 from 286 mmscmd in 2012/13.

India is eager to bring in global energy expertise to help it unlock resources and cut import dependency. It will link local gas prices to global indexes from April 2014 in an effort to incentivise and attract producers and importers.

Reliance Industries, GAIL (India), Oil India and Indian Oil Corp have bought stakes in shale gas assets overseas to help build the expertise needed to pump gas from deposits back home.

ONGC signed a preliminary agreement last year with ConocoPhillips to exploit shale gas reserves, but is unlikely to be able to use the technical expertise of the Houston-based company.

Indian rules do not permit equity participation in these particular blocks and multinationals are reluctant to be just service contractors, said an ONGC official.

"For (these) blocks we have to rely on consultants and service contractors for drilling," said the ONGC official.

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