The Indian government believes shale gas could be a game-changer for the country. However, we think water shortages and limited land availability could hold back commercialisation.
Half of India’s domestic gas demand is not met. Domestic production last year supplied 37 per cent of total demand and a mere 13 per cent was imported, thereby leaving a 50 per cent gap – 42 billion cubic metres (bcm).
The government is finalising its shale gas exploration policy before auctioning shale blocks. Estimates of India’s technically recoverable shale gas resources vary widely – from 170bcm to 2,700bcm – but a review of existing studies by ICF International concluded that “the mean expected potential for shale gas in India is significantly larger than the US Geological Survey and Energy Information Administration estimates”.
The economic exploitation of shale gas reserves requires continuous well drilling, which entails very large areas of land
We believe further detailed studies are needed to close the gap in the estimates, but once the extent of the shale resource is clearer, regulatory and other factors will need to be overcome before any production can begin. In particular, we believe rising water stress, as well as limited land availability, could constrain development.
According to The Energy and Resources Institute, a shale gas well uses between 2.8 million and 13 million gallons of water for fracturing and well preparation. These are significant volumes for a country that is already water stressed and fast moving towards becoming water scarce.
Eight out of India’s nine major shale basins are in water stressed/scarce regions. In a country seeing increasing water conflicts, we think growth of a water-intensive industry such as shale gas is likely to be challenging. However, the availability of any water entrapped within rocks close to the shale gas reserves could alleviate some of this constraint.
Land could be a problem too. “Conventional” gas fields can hold plateau production (85 per cent or more of peak) for much longer periods that “unconventional” gas wells, which experience production decline rates of 70 per cent or more within months of reaching peak production. The economic exploitation of shale gas reserves thus requires continuous well drilling, which entails very large areas of land.
With its per-capita land availability among the lowest of all G20 countries, India is already seeing increasing land conflicts. Any land acquisition for shale gas exploration is unlikely to be easy because high-power compressors and the potential for aquifer pollution could unsettle local populations.
We thus think shale in India is not a game-changer yet.
This research was first published on 22 July 2013.