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Shale gas
1. Shale Gas: The Indian
Perspective
Submitted To: Dr. Sanjay Kar
By
Puneet Bhardwaj
MBA 2012-14
2. Contents
1.) Overview of shale gas
2.) How shale gas has changed the energy market dynamics
3.) Technology that led to economical extraction of Shale gas
4.) Learning from the US story
5.) India's Shale gas potential
6.) Possible dominant players in the Indian Market
7.) Observed momentum for Shale gas extraction in India
8.) Challenges Ahead
Rajiv Gandhi Institute of Petroleum Technology, MBA Department
3. Summary
The study discusses about the impacts of the economic extraction of shale
gas in the past few years & how the improvement of technology for shale
gas extraction has led to a revolution in the energy sector. Main section of
this study discusses how shale gas exploration has become imperative for
India. Also, how India is proceeding towards harnessing the available shale
gas resources. Study throws light over the new draft shale gas policy
introduced by Directorate General of Hydrocarbons for beginning the
exploration of shale gas in India from the year 2013 onwards. The major
issues in the exploration & production of shale gas in India are discussed in
detail. Along with other issues this study also discusses the environmental
implication of shale gas extraction. The study is aimed to discuss the
holistic potential of shale gas in India.
Rajiv Gandhi Institute of Petroleum Technology, MBA Department
4. Overview of shale gas
Shale is the common name for rock that was once layers of clay or mud.
Due to geological circumstances, these layers were compressed into a
fine-grained sedimentary rock. The gas which is trapped in this rock
formation is called shale gas. In terms of its chemical makeup, shale gas is
typically a dry gas primarily composed of methane.
In many organic shale reservoirs, the natural gas is stored as free gas in
fractures. All rocks have pore space that can hold water or gases. In Shale,
the grains fit together so tightly that there is little movement of gas through
the rock. In order to release the gas, especially in commercial quantities,
the shale must either have natural fractures, or fractures must be created in
the rocks to provide suitable permeability.
All unconventional deposits have in common that the gas or oil content per
rock volume is small compared to conventional fields, that they are
dispersed over a large area of tens of thousands of square kilometers and
that the permeability is very low. Therefore, special methods are necessary
to extract that oil or gas. In addition, due to the low hydrocarbon content of
the source rocks, the extraction per well is much smaller than in
conventional fields, making their economic production much more
challenging. It is not the gas itself that is unconventional, but the extraction
methods are. These methods need sophisticated technologies, lots of
water and the injection of additives, which may be harmful to the
environment.
Gas was found in the shale all around the world for a long time, but its
extraction was considered economically unviable because of the low
permeability of shale. Due to the low permeability, gas would not flow easily
and therefore extraction was difficult. A large share of the focus in the past
century was on exploring the highly permeable seams of sandstone and
limestone.
Rajiv Gandhi Institute of Petroleum Technology, MBA Department
5. Things improved in the 1990s.When using a new extraction technology, a
tight shale deposit could be cracked open by injecting water into the
formation at high pressure. Water is mixed with sand to keep the cracks
open and therefore increase the permeability of the formation, enabling the
gas to flow. Shale deposits have limited depth but cover a large region.
Vertical drilling could only capture a zone of 20-30 meters and therefore
only a small amount of gas could be produced per well. Over the past
decade the drilling technology has substantially improved and horizontal
drilling is possible today. Horizontal drilling enables the well to cover a
shale zone for hundreds of meters (both horizontally & vertically), thereby
increasing the gas produced per well. This advancement in technology has
improved the economics of shale gas, and has changed the US gas market
scenario in a large way. Although, such technological developments have
changed the energy market in a large way there are unavoidable side
effects concerning water use, environmental risks etc. For instance,
hydraulic fracturing in tight gas formations typically needs several hundred
thousand liters of water per well for each fracturing process mixed with
propellants and chemicals while hydraulic fracturing in shale gas formations
consumes several million liters of water per well.
Rajiv Gandhi Institute of Petroleum Technology, MBA Department
6. How shale gas has changed the energy market dynamics
Shale gas is now a proven "game changer", after high-profile acquisitions
in US shale gas plays. Two key trends in the last decade have driven this:
During the decade 2000-10, the breakeven cost of shale gas production
has declined fromUS$8-12/mmbtu to US$2-7/mmbtu, led by
technological breakthrough. This has enabled shale gas to compete with
conventionally extracted natural gas.
In the year 2000, shale gas accounted for less than 2% of the total gas
production in the US. By 2010 end, this ratio had increased to ~20%,
and is increasing further. [Source: IEA]
Shale gas deals in the US worth ~US$70b entered into by global energy
majors (ExxonMobil, RIL, BHP, Chevron, Schlumberger) in the last yearand-a-half validate the shale gas story. As per a 2011 article named “The
Arithmetic of Shale Gas” by Forbes magazine consider the following
specifics:
“Consider that back in 2008, before the shale boom really took off, the
nominal price of natural gas (that is, the price at the Henry Hub in
Louisiana) averaged $7.97 per mcf. In 2011, the price averaged $3.95 per
mcf. Multiply that price drop of $4.02 per mcf by the 25.6 trillion cubic feet
the country consumed in 2008 and you find that thanks to the shale boom,
America is paying $103 billion a year less for natural gas. Had there been
no shale gas boom, the United States would instead have been forced to
do what the experts expected five years ago: import massive quantities of
gas, in the form of LNG from countries like Qatar, Australia, even Russia.
Import-dependent nations like Japan and Korea pay upwards of $14 per
mcf for LNG — more than triple U.S. prices. If the U.S. had to supplement
domestic supplies with imports, the extra costs could have easily added
$50 billion a year to the national natural gas bill.”
Rajiv Gandhi Institute of Petroleum Technology, MBA Department
7. Shale gas has driven the rise in gas production in the US over the last five
years. Between years 2000-05, shale gas accounted for just 2-4% of the
total gas production in the US. By 2010, this ratio had increased to ~20%,
and is increasing further.
Rajiv Gandhi Institute of Petroleum Technology, MBA Department
8. Technology that led to economical extraction of Shale gas
The presence of shale gas has been long known. Commercially viable
exploitation used to be a challenge previous to last decade, since
extraction was difficult and the gas deposit was spread over a larger area.
Technological advancements on horizontal drilling and hydraulic fracturing
have made it possible to exploit these unconventional gas deposits.
Breakeven production costs (that differ from basin to basin) are now
reported to be under US$4/mmbtu. Much technological progress is still
being made due to which the cost of extraction may decline further.
Compared to vertical wells, the horizontal wells can cover 3-4 times more
area. Moreover, there has been considerable improvement in gas yield per
well by fracturing, leading to more gas flow paths.
Once a well has been drilled and cased („completed‟), explosive charges
fired by an electric current perforate holes along selected intervals of the
well within the shale formation from which shale gas is produced. Pumps
are used to inject fracturing fluids, consisting of water, sand („proppant‟)
and chemicals, under high pressure into the well. The injection pressure
generates stresses in the shale that exceed its strength, opening up
existing fractures or creating new ones. The fractures extend a few
hundred meters into the rock and the newly created fractures are propped
open by the sand. Additional fluids are pumped into the well to maintain the
pressure in the well so that fracture development can continue and
proppant can be carried deeper into the formation (API 2009).
Rajiv Gandhi Institute of Petroleum Technology, MBA Department
9. Learning from the US story
US have been the pioneer of developing the technology to economically
harness. Mitchell Energy, now part of Devon Energy, developed the
hydraulic fracturing technique known as "slickwater fracturing" that made
the shale gas extraction economical. Horizontal slickwater fracking was first
used in 1998 in the Barnett Shale in Texas. American companies have
taken the lead in developing newly accessible resources, prompting
government officials, energy analysts and companies to hail domestic shale
gas development as a “game-changer,” “the most positive event in the U.S.
energy outlook in 50 years,” and the “Dawn of a New Gas Era.”
EIA is projecting a 25 percent increase in domestic natural gas production
between 2009 and 2035 to 26.3 trillion cubic feet, with shale gas driving
this dramatic growth. Shale gas‟s portion of U.S. natural gas production has
climbed from less than 2 percent in 2001 to nearly 30 percent today, and
EIA projects it will reach 49 percent by 2035. Al-together, energy analysts
now estimate there is enough natural gas to supply the country for at least
100 years at current rates of consumption. The transformation is such that
companies now are eyeing liquid natural gas import terminals on the Gulf
Coast for conversion into export terminals.
Energy Information Association (EIA) in its Annual Energy Outlook 2012
early release overview has estimated 482 trillion cubic feet (tcf) of unproved
technically recoverable onshore shale gas resources in the lower 48 states.
Four of the largest include:
114 trillion cubic feet (25 percent) in the Marcellus Shale, more than a
mile beneath portions of Pennsylvania, New York, Ohio and West
Virginia. Range Resources began producing the first gas from the
Marcellus shale in 2005.
75 tcf (17 percent) in the Haynesville Shale, more than two miles below
the surface of northwestern Louisiana, southwestern Arkansas and
eastern Texas. Chesapeake Energy and Encana were among the first to
begin drilling in this play in the mid-2000s.
Rajiv Gandhi Institute of Petroleum Technology, MBA Department
10. 43 tcf (10 percent) in the Barnett Shale, about one and a half miles
under north Texas, including the Dallas/Fort Worth area. Mitchell Energy
(now Devon Energy) first paired large-scale horizontal drilling with
fracking here in 1995, and the play took off in 2003.
32 tcf (7 percent) in the Fayetteville Shale, which varies in depth from
1,500 feet to 6,500 feet under north central Arkansas. Southwestern
Energy pioneered development of this shale in 2003.
“Liquids-rich” shale plays include the Eagle Ford in south Texas and the
newly discovered Utica in Pennsylvania and Ohio that hold gas, gas liquids
and oil. Oil shale plays include the Bakken in North Dakota and Niobrara in
Colorado.
Rajiv Gandhi Institute of Petroleum Technology, MBA Department
11. India's Shale gas potential
Around 2009, ONGC initiated shale gas exploration in the country. It
identified promising shale sequences in well explored basins like Damodar,
Cambay, Krishna-Godavari (KG) and Cauvery. The Assam-Arakan basin is
also considered to have promising shale gas deposits. ONGC and OIL
have started pilot projects in the Damodar and Assam-Arakan basins,
respectively. In January 2011, ONGC struck shale gas at a depth of 1700
meters in its RNSG-1 well in Damodar valley Basin, West Bengal which
made India first Asian country to discover shale gas.
So far government has identified six basins for exploration – Cambay,
Assam-Arakan, Gondwana, Krishna-Godavari onshore, Cauvery onshore &
Indo-Gangetic. Basins in India:
Rajiv Gandhi Institute of Petroleum Technology, MBA Department
12. A recent study (April 2011) by Energy Information Administration (EIA),
USA indicates that there is a significant potential for Shale Gas that could
play an increasingly important role in global natural gas markets. The
Report assessed 48 Shale Gas basins in 32 countries. India is one of the
countries covered in this Report along with Canada, Mexico, China,
Australia Libya, Brazil etc. This study has assessed risked gas-in-place of
290 TCF with technically recoverable resource of 63 TCF for 4 out of 26
sedimentary basins in India. In view of the advances made by the USA in
exploration and recovery of shale oil and gas resources, MoP&NG has
entered into and MOU with the United States Geological survey (USGS). In
a study conducted by the USGS in 2011-12, technically recoverable
resource of 6.1 TCF has been estimated in 3 out of 26 sedimentary basins
in India. The study also indicates potential for shale oil in Indian basins.
Further, process of identification of potential shale oil/gas resources in 11
other basins has also been initiated.
Rajiv Gandhi Institute of Petroleum Technology, MBA Department
13. Possible dominant players in the Indian Market
Among the government owned PSUs, ONGC is advantageously placed to
tap into the country's emerging shale gas opportunity. Through its
promoter, the Government of India, it stands to gain significantly from the
close cooperation between the US and India. ONGC also owns large
nomination acreage in shale gas rich regions, e.g. Cambay basin and
Assam-Arakan basin. It has already started pilot projects in the shale-rich
Damodar region, with encouraging initial results.
Among private players, RIL has an edge over other domestic players in
acquiring shale gas experience and technology. It has acquired part stakes
in three US companies focused on shale plays. RIL is the first Indian
company to own a shale gas asset abroad. The company has invested
around $2.89 billion in three shale gas assets in the US till date which is
capable of producing 26.4 trillion cubic feet (tcf) gas. Given the different
shale basins in which the JV companies have assets, RIL's experience is
likely to be that much richer. RIL also intends to gain experience as
operator of their shale gas assets. This will stand it in good stead for
bidding Indian shale auctions and in exploiting any acreage that it wins.
RIL's US shale gas experience will help it in outbidding competitors in
India's impending shale gas auction. Since the technology is new and the
operating rules driven by environmental concerns are still evolving, the
DGH is likely to place high weightage on the technical capabilities of
participants in shale gas operations. In case of bidding for deepwater
blocks, where again similar considerations drive the bid evaluation criteria,
the weightage on technical capability is 25% of the total points of 100. The
bid evaluation criteria for shale gas could be similar to deepwater blocks. If
so, RIL will outshine other competitors in terms of its technical expertise.
Rajiv Gandhi Institute of Petroleum Technology, MBA Department
14. Other Indian oil companies have also started buying stakes in shale gas
acreages abroad, both from the prospective of ensuring energy security &
getting the technical expertise for GAIL (India) Ltd has acquired a 20 per
cent interest in Carrizo's Eagle Ford Shale acreage position in the US
through its wholly owned US subsidiary GAIL Global (USA) Inc for $95
million. Moreover, Oil India Ltd and Indian Oil Corp have jointly bought a 30
percent stake in Houston-based Carrizo Oil & Gas's Niobrara shale asset in
Colorado for USD 82.5 million.
Rajiv Gandhi Institute of Petroleum Technology, MBA Department
15. Observed momentum for Shale gas extraction in India
In India, the last couple of years have witnessed high-paced activities
towards developing the shale gas potential in the country. This increased
pace of activities is also timed with decreased expectation of gas
production from KG-D6. This is indicative of the belief of the Indian
hydrocarbon ecosystem that shale gas could be a viable means of plugging
the domestic gas deficit, and plugging it quicker than earlier expectations.
This momentum in activities is seen at the government level, as well as
among public and private sector companies. Government of India signed
an MoU with the US government in November 2010 to obtain technical
assistance for characterization and assessment of shale gas resources,
policy formulation for shale gas, carrying out of technical studies & training
of manpower etc.
The Directorate General of Hydrocarbons (DGH), GoI, is actively preparing
for the auction of shale blocks from the year 2013. DGH has recently come
up with the draft version of shale gas policy for the same. In its latest
annual report DGH has mentioned that Areas like “Shale Gas” exploration
and production will be under prime focus in the immediate future. Six
basins viz. Cambay, KG onland, Cauvery Onland, Assam –Arakan, Ganga
valley and Damodar, have been taken up on priority for mapping shale oil /
gas prospective areas.
As per the draft policy, the identified blocks in these basins will be
advertised for international competitive bidding. Participation of the State
will not be mandatory. Requisite promotional exercise would be undertaken
to apprise the prospective bidders with the proposed fiscal and contractual
arrangement. Offer of blocks would be open to different categories of
investors, i.e. public / private sector and domestic / foreigners. Up to 100%
participation by foreign companies and participation through unincorporated
Joint Ventures would be permitted.
Rajiv Gandhi Institute of Petroleum Technology, MBA Department
16. Challenges Ahead
Although, there are huge advantages of harnessing shale gas but there are
many key challenges for proper exploration & production of shale gas
which need to be addressed upfront for smooth implementation of the shale
gas policy in India.
An unavoidable impact of shale gas and tight oil extraction is a high land
occupation due to drilling pads, parking and maneuvering areas for
trucks, equipment, gas processing and transporting facilities as well as
access roads.
Major possible impacts are air emissions of pollutants, groundwater
contamination due to uncontrolled gas or fluid flows due to blowouts or
spills, leaking fracturing fluid, and uncontrolled waste water discharge.
Fracturing fluids contain hazardous substances, and flow-back in
addition contains heavy metals and radioactive materials from the
deposit. Experience from the USA shows that many accidents happen,
which can be harmful to the environment and to human health.
Moreover, limited availability of water for hydraulic fracturing could
become a significant constraint on the development of shale gas in
some water-stressed areas.
Shale gas extraction require excessive water supply which can also
reduce the availability of water for use by local communities and in other
productive activities, such as agriculture.
The treatment and disposal of waste water are critical issues for shale
gas production. After being injected into the well, part of the fracturing
fluid (which is often almost entirely water) is returned as flow-back in the
days and weeks that follow. Flow-back returns (like waste water from
drilling) requires secure storage on site, preferably fully contained in
stable, weather-proof storage facilities as they do pose a potential threat
to the local environment unless handled properly.
Rajiv Gandhi Institute of Petroleum Technology, MBA Department
17. Shale gas production techniques and possible environmental hazards are
shown in the following diagram:
Rajiv Gandhi Institute of Petroleum Technology, MBA Department
18. Conclusion
Technological advancements on horizontal drilling and hydraulic fracturing
(hydro fraccing) have made it possible to exploit shale gas deposits. Much
technological progress is still being made due to which the cost of
extraction is likely to decline further. Thus, it can be said that shale gas has
a greater role to play in the global energy market in the coming years.
India is among one of the countries which has ample amount of
recoverable shale gas & with government keen on developing the
framework for extraction & production of shale gas, the shale gas story of
US can be repeated in India too with a good prospect of turning India from
net importer of natural gas to net exporter. Also, India‟s oil & gas import bill,
an astronomically Rs. 4.65 lakh crores last year, will reduce considerably.
But, on the other side of the big picture, lies big issues related to high land
occupation, air emissions of pollutants, depletion in water-table because of
excessive usage of water in fracturing process, groundwater contamination
due to blowouts or spills etc need to be addressed while devising a proper
framework for extraction of shale gas.
Rajiv Gandhi Institute of Petroleum Technology, MBA Department
19. References
1.) Shale gas extraction in the UK: a review of hydraulic fracturing. The
Royal Society and the Royal Academy of Engineering. Issued: June
2012 DES2597.
2.) World Energy Outlook: Special report
International energy agency. 2012.
on unconventional gas.
3.) Shale gas in India: Closer to reality. Motilal Oswal Research. 29 March
2011
4.) Draft Shale gas policy. Directorate General of Hydrocarbon. July 2012
5.) Shale gas: Global perspective. KPMG. 2011
6.) Impacts of shale gas and shale oil extraction on the environment and on
human health. Policy Department Economic and Scientific Policy,
European Union. June 2011
7.) Shale gas outlook: A US perspective. KPMG. 2012
8.) http://www.thehindubusinessline.com/companies/article2496191.ece
9.) http://www.moneycontrol.com/news/business/oil-india-ioc-buy-stakeusshale-assets-for-36825m_765031.html
10.) http://www.forbes.com/sites/christopherhelman/2012/06/22/thearithmetic-of-shale-gas/
11.) http://www.dghindia.org/NonConventionalEnergy.aspx?tab=2
Rajiv Gandhi Institute of Petroleum Technology, MBA Department