If estimated reserves were the only factor, India would appear to be on the verge of a huge American-style boom in natural gas. But India is not the U.S., and any chance of a shale gas boom is at least a decade out for Asia’s third largest economy.
Experts put India’s natural gas reserves at about 550 tcf—about 75 percent of the reserves in the U.S.—which would make India the fifth largest holder of shale gas reserves on the planet and provide a 200-year supply of natural gas for India. Yet India’s reserves sit largely unexplored while the country relies on imports to support its thirst for oil and gas.
What’s the holdup?
The shale gas picture in India is much the same as China, but India is actually lagging behind even China in clearing the hurdles to accessing its natural gas reserves.
Where to start? Before we can even look at the infrastructure issues, one of the biggest problems right now for any company interested in exploration and production in India is regulatory uncertainty and the lack of profit incentive. The Indian government has been fickle in its treatment of exploration and development policy, and it caps the retail price of gas, stymieing free market enterprise and killing oil companies’ incentives to pour millions of dollars into exploration and development. Why bother if the policies and price cap dampen any expectation of making a profit?
The effects of India’s murky exploration and production policies and price caps were apparent in March, when the government offered 34 exploration blocks for auction and was only able to sell 14. Notable in their absence from the auction were the major players like Chevron, BP, Exxon Mobile and Royal Dutch Shell.
Water Water Water
Companies looking to invest in exploration and production in India face a slew of other issues, including a very limited water supply, little in the way of pipeline infrastructure, a lack of data on shale reserves and little technical knowledge of processes used for accessing shale reserves.
The huge natural gas estimate is based on shale reserves, which can only be accessed via hydraulic fracturing. In a country where many people don’t even have access to adequate supplies of drinking water, finding enough water for a process that requires 2 to 12 million gallons of water per operation is a problem that’s only getting worse. Analysts expect India’s population to outgrow China’s by 2050, putting extraordinary pressure on India’s already disastrously mismanaged supply of water.
Notably, India isn’t a dry country without water resources; it has plenty of fresh water lakes and rivers. Government corruption, poor management, agricultural demand, and extraordinary pollution have choked an otherwise ample water supply. Which takes us back to investing in infrastructure: oil companies will have to truck or pipe water to drill sites, if clean water can be obtained, or they’ll have to make huge investments in large-scale desalination technology to take advantage of sea water.
Higher exploration risk
Aside from the regulatory and infrastructure issues, India is further hampered by a high exploration risk. India hasn’t had large reserves of traditional resources spurring a high volume of drilling. This puts India at a disadvantage in comparison to a country like the U.S., where more than a million traditional wells had been drilled before companies began searching for unconventional reserves. The existence of the million-plus wells, and the wealth of associated data, has made it easier for companies in the U.S. to identify the sweet spots and reduce their exploration risk.
Exploration in India is like exploring a new frontier, with all the associated risks and potential for failure, making it all the more important for India to adopt an exploration-friendly and incentivizing policy framework to attract companies willing to invest.
Exporting investments now for future domestic development
While foreign countries are reluctant to invest in exploration and development of India’s natural gas reserves, India is casting a wide net of its own investments and partnership s in the U.S., Canada and other countries.
In its quest to gain access to energy resources, technology and expertise, India has even gone so far as to set aside political tensions to allow its largest oil company to partner with China’s largest oil company in a joint effort to explore assets in other countries. Slightly less than half of India’s energy comes from oil and gas, and most of India’s need is supplied through imports. China is in similar straits, with projected consumption far outpacing projected production, as well as regulatory, infrastructure and technology issues not far ahead of India’s.
Where does this put India’s domestic production?
It’s very early days for exploration and production in India. If the government is serious about increasing domestic production, it will have to create a clear policy framework in the next couple of years, establishing guidelines for foreign investment, allowing licensing and extraction, committing to a free market system for oil and gas prices, and outlining its plans for infrastructure improvements. These are the necessary first steps before the major oil and gas companies will be willing to risk capital to invest in exploration and production India, and then gas production is still a decade out.
These challenges need to be addressed before the first bit hits the ground, or what’s the point? Until India is willing to get serious about its regulatory framework, infrastructure and other obstacles to oil and gas extraction, domestic sufficiency is not possible. In the meantime, India will stay married to coal for more than half of its domestic energy and remain a huge importer of oil and natural gas.