Government announces new policy for shale gas exploitation only by ONGC, OIL

ONGC CMD Sudhir Vasudeva

IN A major energy policy decision, the Cabinet Committee on Economic Affairs (CCEA) has approved the proposal of the Ministry of Petroleum and Natural Gas on the policy on exploration and exploitation of shale gas and oil by National Oil Companies (NOCs) on acreages under the nomination regime. The policy will automatically allow…

ONGC and Oil India to exploit shale resources in 176 identified onland areas where they are either exploring or producing conventional crude oil and natural gas. These areas fall in Cambay, Krishna-Godavari onland, Cauvery onland, Assam-Arakan and Damodar basins.

It is expected that the decision will pave way for ONGC and Oil India to search for non-conventional resources in blocks awarded to them without auction. The policy formally bar participation of private explorers such as Reliance Industries GSPC and Cairn India. The policy also bars exploration of shale oil and gas in 254 blocks, awarded to several public and private sector energy firms in nine rounds under the new exploration licensing policy (Nelp) regime in last 15 years. The government has now restricted the scope of the policy after the department of economic affairs questioned extending oil and gas contracts of private companies' to also exploit shale resources without giving equal opportunities to new players.

Shale gas trapped in sedimentary rocks (shale formations) below the earth's surface, is the new focus area in the Western countries like US, Canada and also China as an alternative to conventional oil and gas. India is the world's fourth-largest consumer of energy and may have as much as 96 trillion cubic feet (tcf) of recoverable shale gas reserves. The reserve may meet 26 years of the country's gas demand, according to the US Energy Information Administration. During an inter-ministerial consultation, the ministry of environment and forest had raised environmental concerns. 

The ministry said the shale gas production process should be "viewed with circumspection in many countries in Europe because of perceived environmental problems ", said a media report. The ministry of environment and forest had said exploitation of shale resources could lead to water crisis in India. The ministry had also raised concerns related to availability of water, safety of aquifers and ensuring regulatory framework for environmental safety.

This policy will allow NOCs to carry out exploration and exploitation of unconventional hydro-carbon resources particularly shale gas and oil in their already awarded onland Petroleum Exploration License/Petroleum Mining Lease (PEL/PML) acreages under the nomination regime. The terms and conditions for guiding these activities are laid down in this policy, said a government release.

NOCs shall apply for grant of shale gas and oil rights in their interested PEL/PML acreages and are required to undertake a mandatory minimum work programme. The company is permitted three assessment phases of a maximum period of three years each. Royalty, Cess and Taxes would be payable at par with conventional oil/ gas being produced from the respective areas. As the production requirements and profile for shale oil and gas is different from conventional gas and oil, it was felt that a policy be put in place to achieve early development of these resources and to address issues arising out of E&P activities in shale gas and oil, said the release.

In a related development, ONGC Mangalore Petrochemicals Ltd (OMPL), a joint venture of Oil and Natural Gas Corporation Limited (ONGC) and Mangalore Refineries & Petrochemical Limited (MRPL), will roll out products from its Mangalore plant in January , said Sudhir Vasudeva, chairman, MRPL. During 2012-13, the MRPL processed the highest ever crude of 14.4MMT and posted the highest ever gross turnover of Rs 68,834 crore. The company recorded positive GRM of $2.94/bbl even in the current volatile market situation and continued rupee depreciation. This was stated in a company release. However, due to unscheduled shutdown of the company for eight days in April 2012 due to acute shortage of water coupled with a host of factors, the MRPL incurred a net loss after tax of Rs 757 crore against profit after tax of Rs 909 crore in the previous year. He told reporters after the company’s 25th annual general meeting (AGM) of that benzene and paraxylene would be rolled out of the plant. The products could serve as feedstock to other industry. 

MRPL Phase III Expansion project is in final stage of completion with all the three balance units viz. PFCCU, DCU and CHT mechanically complete and commissioning activity started. The Gas Turbines and Heat Recovery Steam Generator (HRSG) have been since commissioned, these units are likely to be completed by mid October. The overall project progress as on 15th July 2013 is 99.02 percent. The release said.