Shale gas has been a game changer for the US ever since fracking (see explanation below) through innovative horizontal drilling was introduced there a decade ago. According to the US Energy Information Administration (EIA) estimates, the US produced 8.5 trillion cubic feet (tcf) of natural gas directly from shale gas deposits in 2011, accounting for 30 % of the total natural gas production in that period. Shale gas will continue to remain the largest contributor to the projected growth in the US natural gas production which is expected to  double by 2035 (reference case: http://www.eia.gov/forecasts/aeo/MT_naturalgas.cfm#growth) from the 2010 figure. Again, according to EIA initial estimates of technically recoverable shale gas resources in the 32 countries are examined at 5,760 tcf, besides 862 tcf for the US, making the total shale resource base estimate of 6,622 tcf. Other countries having similar shale gas reserves potential are China (1,275 tcf), Argentina (774 tcf), Mexico (681 tcf), South Africa (485 tcf) and Australia (396 tcf).

While India, which is coming up with its first shale gas policy in a few days has 63 tcf of technically recoverable shale gas reserves, according to EIA estimates. India also expects shale gas to be a game changer, given its precarious natural gas scenario. India is exploring and trying all possible options, given the persistent fall in Krishna Godavari (KG-D6) basin. The Shale gas boom in the US, has given India one such option to look for this cleaner fossil fuel thereby improving its energy security.

Earlier, India had signed a cooperation agreement with the US Geological Survey for knowledge-sharing have carried out resource assessment in three basins in India. Some Indian companies like Reliance Industries (RIL), Gas Authority of India Limited and Indian Oil Corporation have already focussed shale gas abroad in the absence of a policy framework in India.

India looking to the US for shale gas import

The idea of viewing natural gas as a fuel of future and the US’s propagating its shale gas success across the world have spurred the geopolitics of energy industry. India, daunted with its not so great natural gas situation has jumped into this geopolitical game initially to import liquefied natural gas (LNG) from the US in order to secure gas at lower prices than what it is paying for buying LNG for spot LNG varying from $12-14 MMBTU. Gas price for KG-D6 gas India is paying $4.2 MMBTU, whereas for other source it various from $2.5 MMBTU to $7 MMBTU.

India’s current LNG import scenario

At present, India is importing LNG both on long term basis as well as on spot basis. India’s LNG import which is likely to surpass its indigenous natural gas production has started to augment LNG imports to feed its natural gas sector. India’s Petronet LNG Limited has already tied up with Qatar importing 7.5 million tonnes per year (mtpa) of LNG, while also signing a deal with Australia’s Gorgon, tying up with 1.5 million tonnes of LNG by 2015. Of late GAIL has also signed a deal with the US to import LNG from Sabine Pass for supply of 3.5 (mtpa) of LNG over 20 years beginning 2017. India has already gone for spot LNG import from countries like Trinidad & Tobago, Norway, Oman, UAE, Yemen, Algeria, Egypt, Nigeria, Australia and Malaysia.

Why shale gas could be a game changer for India?

With success in the US, shale gas is consistently regarded to be a game changer to many countries including India, as its revolution is claimed to bring multiple benefits to the world community in the form of enhanced energy security, reduce import dependency, lowering the cost as well as energy price vitality. Being regarded as a cleaner fuel it also has the potential to curb energy emissions, besides fuelling sectors like power, transport, etc. With energy being the backbone of any robust economy, shale gas definitely has the potential to bring economic prosperity to a nation.

The geopolitics of shale

The US sees its shale boom as a natural game changer firstly due to its significant reduction in its oil imports from the Middle East, secondly supplying gas to European market, which at present is heavily dependent on Russia. The cheaper US gas to this region will reduce its dependency on Russia, which at present is supplying 31 percent of Europe demand. Thirdly, while exporting its shale gas to Asian sub-continent, it will not only fulfil energy needs of Asia but also have its strategic presence in this region in the wake of China, which is the largest energy consumer as well as holding world’s largest technically recoverable shale gas reserves, as estimated by EIA.

Sanjay Puri, CEO, Alliance for US India Business, very aptly put this point in perspective saying in a report, “Currently, India competes with China and Japan for buying LNG from Qatar and Australia. India is talking to Iran for a gas pipeline. If we were able to export gas to India, if we can find an economically viable and environmentally clear mechanism....it would create economic opportunity in the US through exports, reducing India’s dependence on Middle East for gas and also build strategic relationship based on their desire for energy independence.” 

Also during the auctions and later production of shale gas US could well facilitate Indian companies in not only in increasing its production but also augmenting exploration of other shale gas reserves in other possible locations.

But question marks on the shale revolution persist

Despite numerous benefits cited and shale gas being regarded as a potential game changer, there are multitudes of issues surrounding such boom. The biggest question mark on shale gas success is its revolution itself. The biggest of concerns raised in the US is the issue of environment as the process of fracking rock is deteriorating underground aquifers as well as surface water, besides bringing tremors surrounding the region where drilling and shale gas fracturing happens. This clearly implies that we are a far from a shale gas revolution. Hence, following an evolving shale gas life cycle may not make sense just as yet, though to overcome the above two issues they have started using propane gel to move secret chemicals as an alternative for fracturing shale rock.

This not only saves gallons of water but also remove the chances of an earthquake in that region. Secondly, despite initial willingness of the US to export LNG to India, which is regarded to be an early mover, without even signing a free trade agreement, the US energy lobby against shale gas exports to India, as this could increase the gas price in the US, impacting the economy of the US. Therefore, as aforementioned, GAIL which is already on the verge of finalising LNG imports from the US could well be a risky affair, which in all probability the non-FTA agreement can be revoked by the US in case global gas prices increases. This could hamper the trade relations with India and the US, thereby a possible jerk in US geo-strategic options in Asia.

What then are India’s options?

First things first, India should incorporate its learning from the shale gas model been followed in the US as well as China, which recently came out with its second shale gas policy with respect to concerns relating to environment, scarcity of land, policy for exploration and exploitation of shale oil and gas, fiscal terms and the system followed during bidding and approval process. Secondly, India’s biggest problem in hand is the availability of water resources, which it has to handle both with optimum and appropriate water management along with trying out with an alternative using propane gel using water free fracking technique. With regard to the limited space of land it should go with multi-well pad based drilling, as also mentioned in India’s draft shale gas policy.

India too can gain from the US geopolitical shale gas influence as in coming days it will be commencing its shale gas operations. The presence of the US in the Asian region is likely to benefit India and its neighbours in enhancing its energy security. Therefore, India should continuously engage with the US in eliminating its apprehensions of exporting LNG to India. Looking at the long term perspective, US can leverage the benefit of its presence in Asian region thereby working closely as a strategic energy partner with India, extending its partnership to clean energy and carbon finance.

Last but not least, India despite augmenting energy ties with the US should diversify not only its energy resources like solar energy, wind energy, etc but also other sources of procuring energy supplies like Australia and Canada, in order to strive for a sustainable energy future minimising geopolitical, economical and security risks. Therefore, India should view shale gas as just another good option to enhance energy security, as this alone cannot change the game given its multifarious challenges.

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Fracking: Fracking refers to the procedure of creating fractures in rocks and rock formations by injecting fluid into cracks to force them further open. The larger fissures allow more oil and gas to flow out of the formation and into the wellbore, from where it can be extracted.