Shale Gas An essential part of Indias plan for energy independence

Shubi Arora analyses the importance of shale gas as an energy independence resource for India and how the country lacks technological know-how and is trying to reduce its energy gap with signing an agreement with President Barack Obama during his recent visit, for cooperation with respect to shale gas technology..Shale gas, which is natural gas produced from shale formations, has become an increasingly important component of the natural gas supply in the United States. Although those in the industry have known about the abundance of shale gas for some time, it was not considered to be a viable resource until recently. Two factors have contributed to its recent rise to prominence in the United States. First, advances in horizontal drilling techniques and hydraulic fracturing have made shale reserves more accessible. Second, the increase in the price of natural gas due to supply and demand pressures has improved the economics of drilling for this unconventional resource..Among other countries, India too has turned its attention to the development of indigenous shale resources. Indian shale deposits appear to be abundant and are found in, among other areas, Assam, Rajasthan, as well as several coastal regions. P.K. Bhowmick, president of the country’s Association of Petroleum Geologists, estimates that India’s shale gas reserves are potentially larger than its proven conventional resources. As demand for cleaner energy sources rises, demand for natural gas in India could rise to 120 billion cubic meters a year by 2015 from 62 billion currently. In addition, the Paris-based International Energy Agency estimates that India is expected to face a general energy shortfall of 55 percent by 2030 as demand more than doubles to 1.3 billion metric tons of oil. In the midst of such dire predictions, India’s interest in the exploration and development of its abundant shale resources is a timely step in the right direction. As demonstrated in the United States, tapping into shale gas can help India turn around its natural gas industry and reduce the energy gap..While Indian shale resources are plentiful, India currently lacks the technological know-how when it comes to the development of shale gas resources. However, during President Barack Obama’s recent visit, India and the United States signed an agreement for cooperation with respect to shale gas technology. In addition to providing India with technological expertise, the United States will also help India in assessing its shale gas resources and framing regulations for the implementation of India’s proposed shale gas exploration program. India is currently looking to launch its first shale gas auction at the end of 2011. However, access to technology is only the first step as India seeks to become a major player in the shale gas arena. In addition to using US technology to develop its field resources, India also needs to develop a comprehensive set of rules and regulations to govern the development of its domestic shale resources..Such rules and regulations can be divided into three categories. First, India needs to change its exploration laws to allow for the production of shale gas because current exploration licenses do not include production from unconventional resources. Second, India must develop a comprehensive set of rules with respect to the leasing and acquisition of land for the exploration and production of shale gas. Many industrial projects in the country have been sidelined due to tensions between local populations and developers. If the development of shale gas is to commence without major impediment, it is paramount that rules that are fair to the local population be implemented. In this regard, the Indian government is in the process of formulating a policy that would provide states with a share of the profit earned by exploration companies. While administratively this policy is intended to incentivize states to support shale gas exploration and development, it is critical that states use the money to invest into the local economy and help reduce any friction energy companies may face when it comes to the local population. Third, India needs to formulate a set of environmental rules and regulations to govern the exploration and production of shale gas. Among other things, environmentalists have raised concerns that improper drilling may contaminate ground water. It is therefore best to provide energy companies with proper guidelines at the outset; otherwise, problems in the future could impede development efforts..While the rules and regulations enumerated above are critical to the proper development of this new source of energy, the government must ensure that India’s new shale gas policy does not unreasonably burden the industry and make shale gas an uneconomic option to fuel India’s continued growth and development. China too is working on developing its own shale resources and as both countries race to secure energy assets, it is critical that India not lose any potential competitive advantage. As India moves towards an open acreage licensing policy, which provides energy companies more freedom to choose exploration areas, it is unquestionable that the government does recognize the urgency of the situation. In the words of S.K. Srivastava, Director General of the Directorate of Hydrocarbons, “[w]e have to run now, we can’t just walk.”.Shubi Arora is an energy and global transactions associate attorney at Akin Gump Strauss Hauer & Feld LLP in Houston, Texas.