Exploration of shale gas,a huge success in the US that changed global gas flows,is being given the same status as traditional hydrocarbons to spur its success in India. However,initial permission would be limited to national oil companies (NOCs) only on onland blocks held by them under nomination.
The production of shale gas and oil,if any,in such areas would be treated at par with the production of conventional oil and gas for all purposes of exploration licence and mining lease, says the petroleum ministrys proposal to the Cabinet Committee on Economic Affairs.
Besides income tax and customs exemptions,the NOCs ONGC and Oil India Ltd would have to pay a low 10 per cent royalty on shale gas. The royalty on any oil from shale formations would be 20 per cent as available for nominated oil and gas blocks. It would also imply that shale oil and gas would get the same price as available to conventional crude oil and natural gas.
However,unlike the nominated oil and gas blocks where the NOCs do not have to pledge a minimum work programme (MWP),the proposed shale gas and oil exploration policy includes an MWP with a penalty of $0.25 million by the NOCs for not fulfilling it.
It also requires them to submit a field development plan (FDP) after which they have to start producing within six months. In order to ensure that the FDP is implemented well within the timelines,a stiff penalty of 10 per cent of the royalty has been proposed in case of default, says the note.
The ministrys initial proposal was to extend the exploration rights to the existing 254 blocks being operated under the New Exploration Licensing Policy as well as pre-NELP blocks such as Vedantas Rajasthan oilfield,Reliances Panna-Mukta & Tapti. But it was dropped following objection from the Department of Economic Affairs that since the initial auction did not envisage exploitation of shale gas,giving these rights could lead to legal complaint from the unsuccessful bidders.
Moreover,the ministry says,a majority of potential shale gas reserves fall under the 176 leases given to the NOCs through nomination in the five sedimentary basins where the prospective study was conducted. The note says that a new policy would be framed for NELP and pre-NELP blocks while newer areas would be covered under a unified policy regime covering conventional and non-conventional hydrocarbon resources under similar fiscal and contractual terms.
The proposal also fixes responsibility on the operator for ensuring health,safety and environment following concerns raised by the Ministry of Environment & Forest. MoEF wrote last May that though shale gas was a huge success in the US,its production process was being viewed with circumspection in many countries in Europe because of perceived environmental problems.
Some countries,it said,had announced a moratorium on fracking the process of hydraulic fracturing of rocks with high speed water mixed with chemicals largely on fears of possible seismic effects. The use of water,the environment ministry said,could result in a water crisis.
Each well would require 3-4 million gallons of water… as per the US experience in shale gas exploration and exploitation,the water used for fracking is fresh water, it said. Besides availability,the chemicals flow back from the wells and could affect the safety of aquifers,it warned.
*The production of shale gas and oil would be treated at par with the production of conventional oil and gas for all purposes of exploration licence and mining lease
*Initial permission would be limited to national oil companies (NOCs) only on onland blocks held by them under nomination
*Besides IT and customs exemptions,the NOCs would have to pay a low 10% royalty on shale gas