Shale Gas - The Indian Story

Sudhir Vasudeva
Chairman & Managing Director, ONGC
Oil and Natural Gas Corporation Limited (ONGC) has signed a Memorandum of Understanding (MoU) with Conoco-Phillips to launch a joint venture pilot project to explore the viability of shale gas resources in the country. In an exclusive column for CEW, Sudhir Vasudeva, Chairman & Managing Director, ONGC, explains why monetising shale gas assets remains a challenge in the country, the factors that need to be addressed, shale gas policy and more.

The dramatic revolution in the hydrocarbon sector led by emergence of shale gas in USA has furthered the belief that the Earth has enough energy potential in its store and it is technology that is constraint. Shale rocks that occur thousands of meters deep were known to be housing large gas reserves but till recently, were ignored or just passed through while drilling for conventional oil & gas because of lack of technology Though the gas content and saturation in shales is leaner than the conventional reservoirs, the large geographical and vertical expanse (hundreds to thousands of sq. kms and thousands of meters thick, multiple zones) of the shales within stratigraphic column of the sedimentary basins present shales as the next generation gas source, now that fracking techniques are available and have been proven to be cost-effective in the USA. Monetising shale gas assets is a challenge on account of the following factors:

• S hale gas E&P is a narrow margin business game hence efficiency of operations is the key word in making it successful. A shale gas well D&C cost (drilling and completion) costs approx. USD 2.3 million and at gas price of USD 6.0/ mcf it gives an IRR of 16 per cent.

• S hale gas monetisation are long term plays and works best on economies of scale and on a life cycle approach.

• S hale gas operation is more of an engineering play than a geological play and mastering complex field operations and its associated logistics is pertinent in monetising of shale gas reserves.

• Well stimulation design & execution is critical to shale gas success. It requires technical and engineering excellence of a high order, particularly toward ¬fracking  as approximately half the cost of well goes into well stimulation.

• It requires lager tracts of barren land [Non - arable and preferably uninhabited] on account of the high spread of drilling and 'fracking' activity. This could potentially be a problem for India due to its high population density. Further, land acquisition may be an issue for easy access on account of small tracts of individual land holdings.

'Fracking' requires a plentiful supply of water and though modern technology has ensured that upto 80 per cent of water can be reused, water requirement is still substantial as is its efficient disposal. This again could be a most relevant issue in the Indian context.

• P roduction cost is likely to be higher initially compared with that of conventional gas production and hence an appropriate gas price will have to be discovered. Shale (F&D) gas finding and development cost has been estimated to be between USD 3-4 per mmBtu (Million British Thermal Units) in established fields and between to USD 6-9 in the exploratory areas.

• A large networ k of gas pipeline is essential for efficient capture and transmission of shale gas.

Shales become pertinent to us in India as so far we have been striving to close the gas 'demand - supply' gap by importing gas as LNG and through pipelines from Turkmenistan, Iran, Qatar, Bangladesh and Myanmar. While the LNG route is operational, but relatively expensive, the pipeline route remained mired in geo-political considerations. It would therefore be germane to study the Indian shale gas scenario.

India has taken initial steps in data collection and its preliminary interpretation to capture data for mapping the shale gas development programme for the country. MoP&NG has entered into a MOU with US Department of State in November, 2010 in pursuit of characterisation and assessment of shale gas resources in India. Main areas of cooperation envisaged under MOU are:

• Shale gas resource assessment.
• Technical studies.
• Regulatory framework consultations.
• Investment promotion through exchange of experiences and best practices.

Under the MOU, USGS experts were to carry out technical studies for shale resource assessment of Indian sedimentary basins based on the data provided by DGH. Technical personnel of DGH and National PSU s (including ONGC) engaged in the field of oil and gas exploration were to interact on behalf of Mo P&NG with different US agencies mainly USGS and US Department of State for this purpose.

Subsequent to signing of MOU, a number of workshops and study tours have been organised facilitating interaction between India and US experts. USGS has already come out with their assessment of shale gas resources in three Indian on-land basins namely Cambay, KG and Cauvery.

As per USGS study, the three basins together, hold 6.1 tcf of technically recoverable gas reserves based on their methodology. ONGC and DGH consider that USGS estimates need to be re-evaluated as the shale gas potential of these basins appears to be much higher as is indicated by the EIA study of four Indian basins which includes the above three basins and Damodar basin that has come out with a figure of 63 tcf of technically recoverable gas reserves.

A pilot project on shale gas was undertaken by ONGC in 2010 to assess the potential of the Barren Measure Shales of Damodar Basin. The pilot project was carried in technical collaboration with Terra Tek Labs (specialised shale gas agency, USA) and executed by M/s Schlumberger Asia Services Ltd. The entire project is to be completed in seven phases. Four wells have been drilled so far and detailed analytical core??log studies have been generated. Interpretation, testing zone selection, ¬frack  design & gas in-place estimation has been carried out by Terra Tek, USA. Two wells each, in the Raniganj and North Karanpura were also drilled in the CBM Blocks of ONGC.

Under the pilot project one well was taken up for customised hydro-fracturing in three stages in the Barren Measures Shale Formation. During testing all the three stages exhibited gas flare at surface for more than 12 hours each separately.

The pilot project was helpful in knowledge transfer through collaborative mode and absorbing the basic expertise in shale gas potential assessment, exploration principle, practices, methodologies, technologies and exploitation concepts besides computing the gas in-Place volumes.

ONGC is further committed to a 10 wells pilot project in two places commencing from June 2013. In the first phase about 20 wells will be drilled. This would also generate substantial data whose interpretation would be helpful in deciphering the genetic shale types, the typical geochemical and petro-physical characteristics to further strategise the exploration plan in long term.

ONGC has also entered into a MoU with an experienced international oil and gas major of USA, M/s Conoco-Phillips as per which a joint pilot project in potential areas would be launched once the initial exercise of technical screening is completed. A draft Shale Gas Policy has been released by the Mo P & NG and is presently under examination by various stakeholders. In order to attract potential bidders from the country and overseas, a comprehensive and attractive policy is needed to be put in-place covering the aspects of MWP, lease period, acreage area, overlap with conventional reservoirs, production sharing, incentives, tax holidays, facilitation regarding smooth land acquisition processes, environmental concerns and appropriate fiscal system. Further, in order to attract quality participation from multinational investors, sufficient technical data and details should be generated on the prospectivity of Indian shale gas reserves for which more studies should be undertaken.

Shale gas monetisation is a narrow margin business and unless gas prices are drastically revised upwards (at USD 6.00/mcf of gas, IRR in Barnett shale is 27 per cent and at USD 4.00 it is 11 per cent); it would be difficult for potential operators to commit large resources. In addition, field operations require a very fast and professional approach toward drilling and completion of wells on a fast cycle basis for which Indian operators will need to acquire the requisite expertise.

Commercial exploitation of shale gas needs very large number of wells at closer space and this could potentially be a problem for India with high population densities. Therefore, in order to reduce the land requirement, pad drilling is recommended wherein multiple horizontal wells can be drilled from a single location.

In addition, a ¬factory approach  is recommended to contain operational costs wherein all the facilities are lined like an assembly line that can be deployed at a short notice, thereby obviating the need to mobilising equipment from a far-off areas. Large pumping capacities, along with water storage, handling and disposal issues, large pool of geoscientists, engineering and operational manpower to support the shale gas development are areas where capacity building is essential.

The shale gas development in USA took a shape in 1980's and gathered momentum around 2000 but actual commercialisation did occur during 2005-06. Thus approximately 25 years elapsed in transforming the Barnett shale gas prospects from infancy to full-fledged commercially viable shape. But the similar progress was attained in Marcellus Shales and other subsequent upfront opportunities in less than seven years.

This could be accomplished because of the existence of infrastructural support and rich experience developed during Barnett development. The lesson for us in this observation is that though our initial endeavours toward development of shale gas may face severe challenges and take relatively larger periods, once we are well positioned on the learning curve, operational efficiencies will inevitably kick-in and help us reduce cost and achieve operational excellence.

It would therefore be worthwhile for Indian operators to commence work toward initial capacity building as well as learning to use technology now, as so far except ONGC no other company has ventured toward acquiring the requisite experience through shale gas pilot projects. Though some Indian companies have acquired shale gas assets overseas, this may not be of much help in operating in India as shales vary across geographies and customised solutions will need to be devised for each location.

Once the shale gas policy is adopted, shale blocks could be offered as early as 2013; however it is hoped that the MWP will provide approximately five-seven years for surveys, data generation and pilot drilling given the paucity of quality data and expertise available within the country on shale reservoirs. Beyond this period, it will further take some more time to consolidate operations before commercial production commences.

In conclusion, the Indian shale gas story is yet in its infancy and though it appears promising, considerable effort needs to be invested now in learning about the new technology and proactively investing in physical and intellectual capacity building.