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Indian shale gas: get the policy right or fail

Access to pipeline infrastructure and consistent treatment of investors are vital

An investor-friendly policy and access to pipeline infrastructure will be vital to the success of India’s shale-gas sector. Prashant Modi, president of India’s Great Eastern Energy, has warned that if the country’s shale policy is not formulated correctly, or if blocks on offer do not lie near pipeline infrastructure, India’s planned shale licensing round will struggle to succeed.

Modi told last week’s Shale Gas Investment Summit in Hong Kong that regulations governing shale-gas must be based on the existing coal-bed methane (CBM) royalty model and not India’s profit-sharing contracts under the new exploration licensing policy – which would, he claimed, be unbearable – for the licensing round to be successful.

The government is pushing ahead with its delayed shale-block auction, expected by mid-2012, and the policy framework should be complete by the end of the year. But, while the results of state-owned Oil & Natural Gas Corporation’s pioneering research and development in the Damodar basin will help establish the policy, Modi said the framework cannot be generalised for the country as a whole.

The US Energy Information Administration estimates India’s recoverable shale-gas resources at 1.8 trillion cubic metres (cm).

Other hurdles include infrastructure development. India has around 13,000 km of gas pipelines and plans to expand this to 35,000 km by 2022 should ease fears surrounding constraints. But unlike CBM, the volume of gas produced from potential shale projects during start-up will be high. And operators must decide what to do with this output while pipelines are built to carry volumes to market.

On a positive note, Modi is confident the shale industry will not suffer the same fate as the country’s CBM sector, which, since its inception 18 years ago, has seen only one commercial project come on line – a lack of confidence in CBM until about seven years ago stunted the sectors’ expansion. Fortunately, times have changed and global interest in shale’s potential should avert a repeat performance. And with Indian gas imports rising to feed its booming economy – nearly 19% of 64.5 billion cm of consumption in 2010, according to Cedigaz – there is a big incentive to develop all domestic resources.

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