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India plans shale gas blocks auction by 2013 end

Bidders would be asked to quote a percentage of output they are willing to share.

Written by Agencies | New Delhi | Published: July 31, 2012 5:23:28 pm

India plans to launch its first auction of shale gas block by 2013-end on terms that are likely to be remarkably different from those offered in bid rounds for oil and gas blocks.

The Directorate General of Hydrocarbons (DGH),the oil ministry’s technical arm,has proposed to offer areas for exploration of gas trapped in sedimentary rocks — shale gas– on royalty and production-linked payments to the government.

The draft policy does not permit cost recovery and hence profit sharing the two features that came under criticism by the CAG in its audit report on Reliance Industries’ KG-D6 block.

Bidders would be asked to quote a percentage of output they are willing to share with the government at different production slabs.

“This will minimise government intervention and remove complications in accounting,and incentive for gold plating,which may occur while allowing profit sharing,based on cost recovery,” the DGH’s draft policy said. “Government share of production will be net of all statutory dues”.

Under New Exploration Licensing Policy,companies share profit with the government only after recovering all their investment,a regime that CAG found was designed to encourage hike capital expenditure by private contractors thereby reducing the government’s share.

DGH proposed a fiscal regime for shale gas and oil on lines that exist in coal bed methane (CBM) contracts where the government gets royalty and production linked payment (PLP).

“Ad-valorem royalty at the prevailing rate for crude oil and natural gas would be applicable to shale oil and gas respectively,and accrue to the state governments,whereas the production liked payment on ad-valorem basis,will be made of the central government,” the draft policy said.

This is proposed to be linked to different production slabs which will be biddable item.

Shale oil and gas are unconventional hydrocarbons reserves found in non-porous rock and requires fracing technology to extract them from shale.

“Preliminary estimates suggest that fairly thick sequences with high shale gas potential are extensively present in the oil,gas and coal sedimentary basins such as Cambay,Gondwana,Krisha-Godawari on land and Cauvery on-land,” DGH said.

Different studies have put recoverable reserves of shale gas between 6 trillion cubic feet and 63 trillion cubic feet.

“There will be freedom to market shale gas within India on arm’s length basis within the framework of the government policies on marketing and pricing of the gas,” the draft said. “Marketing of shale oil will be as per prevailing NELP guidelines for crude oil” A 2011 study by Energy Information Administration (EIA) of the US has assessed 290 trillion cubic feet of in place gas reserves with technically recoverable resource of 63 TCF for 4 out of 26 sedimentary basins in India.

United States Geological survey (USGS) study put technically recoverable resource of 6.1 Tcf in three basins.

India,the fourth largest oil and gas consumer in the world after the US,China and Japan,is likely to see demand for natural gas jump to 473 million standard cubic meters per day in 2016-17 from 179 mmscmd in 2010-11.

As against this,the total production of natural gas from indigenous sources was 146 mmscmd in 2010-11.

“In line with the policy of the Government of India attracting private investment to move towards self reliance in the indigenous production of oil and gas sector,it is important to have a framework to facilitate and regulate shale oil and gas exploration and exploitation,” an oil ministry press statement said here today.

Government,it said,has invited suggestion on the draft policy for exploration and exploitation of shale oil and gas in India by August 31.

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