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Challenges pertaining to exploration of Shale gas in India...- Shri BS Negi, Former Member, PNGRB


Shri B. S. Negi is the former member of Petroleum and Natural Gas Regulatory Board (PNGRB) with 43 years of experience in Oil & Gas sector in the areas of Oil Refining, Fertilizers, Gas Processing, Transportation, E&P and Gas Sourcing. He is now pursuing his PhD in Shale Gas. He has meticulously analysed the facade of shale gas globally with particular reference to India. He has offered his observations on the draft shale gas policy implications to the Government.

Mr. Negi has brought out challenges pertaining to the exploration of shale gas in India. Commenting on the draft policy proposed by the Ministry of Petroleum & Natural Gas (MoPNG) for the exploration and exploitation of shale oil and gas in India, he has made some key observations with respect to draft shale gas policy.

In an interview, Shri B. S. Negi highlighted that Shale oil/gas Policy needs to define the time bound acquisition of field exploratory data indicating the “Sweet Spots” and the responsibility for such data acquisition should be on a project execution concept where completion is to be ensured on pre allotted time basis. Also, he insisted that the role of DGH shall have to be defined in the Policy frame work. Mr Negi also shared his recent publication titled "Pipeline is Lifeline" which covers all facets of the pipelines in general and hydrocarbon in particular. The coverage includes planning, design, construction, commissioning, operation & maintenance, safety and integrity management of the pipeline system. This book also covers Government policies and Regulatory regimes concerning pipelines in India.

Question: Will shale gas exploration be a viable option for Indian Sub-continent?

Answer: The energy demand for India is increasing as a leading country in Asia Pacific. The domestic conventional resources are not able to meet the present demand and the projection for future also calls for huge imports.

For shale gas resource potential the estimates of the institution of petroleum engineers, US Energy Information Administration (EIA) and information and the Indian companies who have either struck shale gas during conventional E&P or have undertaken pilot projects for shale gas exploration are quite encouraging. The probable shale gas place in Cambay basin, KG basin, Kaveri basin, Gondawana, Damodar basin and assam aracan basin are quite promising. Almost all the studies confirm that India has adequate shale gas potential. The figure however varies from 61 Tcf to 300 Tcf but in absence of enough exploratory data the exact potential cannot be spelt out. 

Question: Does the market bring clarity in respect to exploratory data & marketing of shale gas?

Answer: As of now we do not have enough data on most of our shale plays, the policy therefore need to define the time bound acquisition of field exploratory data indicating the “Sweet Spots” and the responsibility for such data acquisition as a project. The role of DGH in this respect shall have to be defined very clearly in the Policy frame work.

Whereas the draft policy suggests that shale oil can be sold as oil produced from conventional E&P blocks with import parity, the policy does not bring clarity in respect to marketing of shale gas. It only states that the shale gas can be marketed as per Gas Pricing and Gas allocation policy of the Government, which is a negative factor because it neither gives the freedom to market nor it assures market driven price. This is very important issue as it has badly impacted the present gas production in India.

Therefore, producers should have freedom to market gas at arm’s length at a price determined by the market. However, the govt. can also have a monitoring tool thereby the price could move within the band of the weighted average cost of domestic gas and LNG import price (other than spot cargos).

Question: Do you think that fiscal and water management in the draft policy are taken care off?

Answer: While addressing fiscal issue, the Shale Gas Policy needs to provide 7 year tax holiday as provided in CBM policy. Shale gas E&E has three kind of water management namely :

  • Preparation of frac water- requires huge quantity of water and small quantity of proprietary frac chemicals.

  • Treatment of return frac water making it suitable for reuse.

  • Partial treatment of return frac water making it suitable for discharging in rivers/nalas/sea.

The water management in Shale gas E&E is very cost intensive and has high environmental impact. As mentioned in the Dft. Shale gas Policy, the applicable provisions are the Water (prevention and control of pollution) Act 1974 but the same does not answer all these questions. It is therefore suggested that based on global experience, we carve out process and parameters covering all these issues. This would avoid any ambiguity in the minds of the bidders (specially the foreign bidders).

Question: What is your stand on production sharing from shale plays?

Answer: India has very high population density with highly fractured land holding pattern. This would make land acquisition a difficult task for shale gas E&E. A profit sharing provision for individual land owners in proportion to the area of their land acquired may provide a solution.

In my opinion, the Production sharing from Shale plays may either be made as bidding condition with flat rate of production sharing mentioned in the bid document or it could be a biddable parameter (having the weightage of say 10% marks carved out 5% each from work programme and production sharing with the government or alternatively 10% marks carved out of production sharing provision alone.

Question: Can you highlight your observations on diverse sections of the draft policy?

Answer: Yes, there are certain sections in the draft shale gas policy pertinently Sub section 2.2.4, Sub section 2.5- sub Para iv, Sub section 2.6, Subsection Para 3.3, Subsection 3.4, Subsection Para 6.1, Para 8.2, Sub-Para 10.1 (v), Sub-Para 10.1(vii), Annexure 4 (Para 1) (Para IV), which according to me needs slight modification. 

Sub section 2.2.4

The present policy though covers shale oil and gas but we need to understand that the shale plays and conventional hydrocarbon deposits are more often located under the same earth surface. Till NELP- IX round of bidding almost 50% of the sedimentary basins have been awarded for E&P of conventional Hydrocarbon Resources. The policy should therefore address the issues of E&E of all basins for effective and efficient exploration and exploitation of shale gas.
 

It is therefore suggested to attempt for a composite shale gas policy which will address the issues of Exploitation of hydrocarbon resources efficiently and economically.
 

1. The conventional E&P blocks which are already awarded to various entities if found to have shale gas resource, may be allowed to be exploited by the same lessee/contractor. The terms at which such exploitation should be allowed may be the one most favourable to the government (owner/lessor) obtained under the shale gas bidding round.

2. The above suggestions is based on the premise that the Contractor/lessee is technically qualified since he has already been awarded E&P blocks and therefore he deemed to have met the technical requirement and the sole consideration should only be the, production sharing basis which should be based on the most favourable bids received during the bidding.

3. Alternatively if a shale gas block found to have conventional reserve post award, the same contractor should be allowed to exploit such reserves. As a corollary of (ii) above, technical qualification shall be considered to have been met and exploitation of conventional H/C resource be allowed on the basis of production sharing of hydrocarbons (it is on the premise that the government will revise the condition of NELP bidding to the extent to get away with cost recovery parameter and award the block on the basis of highest production sharing bid. As a win-win situation the most favourable bid to the government on production sharing could be applied to such cases.

Section 2.5- sub Para iv

a)  The mandatory provision of multiple casing should extend a depth of a minimum 10 m below the bed of the bottom most fresh water aquifer.

b) The annexure-I is  supposed to deal with water management issue,  therefore point(III) and (IV) of annexure-I need to be placed in annexure- II  and- III respectively since Annexure-II deals with environmental issues related to water and annexure- III deals with fiscal regimes and broad contract terms.

Sub section 2.6

Reference has been made to US Safe Drinking Water Act (SDWA), Water (prevention and control of pollution) Act 1974 and national environment policy act 2006. Whereas the SDWA and National Environment Policy Act are the provision of US government and Water (prevention and control of pollution) Act 1974 refers to India. Therefore it is suggested that reference to US provision may not form part of the Indian shale gas policy and the provision of water prevention and control of pollution Act 1974 may only be mandated. The provisions of US policies may find suitable place in model shale gas E&E contract.

Subsection Para 3.3

Whereas the concept of suggested Integrated shale gas policy finds an application in this Para but the new bid for Shale gas for  the blocks which are already awarded under conventional E&P, are likely to be very less and non competitive for the simple reason of coordination issues. Therefore even the allocation on first right of refusal basis to the existing contractor is going to be far from realization of actual value of natural resources to the government. Hence the suggestion at 2.2.4 above will be most practical.

Subsection 3.4

This provision is an extension of  Para 3.3 with the rider that the block for which bids would be invited should only be in  the exploration phase and the blocks which have entered in to development/production phase shall be excluded from the bidding for the shale gas. This provision is self defeating because the incentive to the contractor will only be available if the resources potentials are established and development/production phase has started. Therefore it is suggested that the provision proposed at sub Para 2.2.4 above should override the provision at Para3.3 and 3.4.

Subsection Para 6.1

Secretary MOPNG may have the role of member secretary in the empowered committee of the Secretaries. Also, there should be a provision of 2 technical domain experts from India other than Director NEERI.

Para 8.2

Effort should be made to reduce as minimum as possible the negotiable clauses in model contract. The idle Model Contract should have zero negotiable clause.

Question: What is your vision on the factors influencing shale gas exploration & exploitation in India?

Answer: I have studied various issues/ aspects/ factors that influence shale gas exploration and exploitation in India based on extensive literature review, deliberations in the conferences and discussions with the pears. As many as 42 of such aspects have been tabulated for further analysis and have also been forwarded to the ministry for consideration while framing the Model Contract. Although I see an optimistic approach in lieu of the shale gas plays in India but modest alterations are anyhow required in the draft shale gas policy framed by the government.

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