Monday, March 25, 2013

India Energy Report- Some Rambling Thoughts

The latest from the U.S. Energy Information Administration. For those who follow the energy sector, nothing terribly new here, but it is a useful document to keep bookmarked for quick reference.

Meanwhile, Swaminathan Aiyar takes an optimistic look at the future of methane hydrate deposits which he thinks can provide significantly to India's energy needs. These deposits are formed when methane is trapped within a crystalline cage of water molecules. They occur in cold deep sea sediments and also onshore in permafrost settings.There are estimates that resources in sediments in India offshore basins on both the west and east coast may be around 1800-1900 trillion cubic meters.

My take is that whatever the estimates, we may be decades away from successfully exploiting them. Of more relevance over the short to medium term is onshore shale gas. Estimates for those vary wildly from an earlier EIA estimate of about 63 trillion cubic feet to a revised USGS estimate of only 6-7 trillion cubic feet to a figure often quoted in the India media of about 500 trillion cubic feet to 300-1200 trillion cubic meters! These disparate estimates only underscores the need for a more detailed exploration of Indian sedimentary basins.



Targeted exploration though is an expensive venture to get into. To enable that, India is promising to put in place a shale gas exploration and exploitation policy by March 2013 and to auction of blocks for exploration by the end of 2013.

Oil Minister M Veerappa Moily is quite gung-ho about India's energy prospects. I came across this passage in an article : India currently imports as much as 79% of its oil needs and the Ministry wants this to be cut to 50% by 2020 through intensive exploration and exploitation of untapped reserves. "I see import dependence coming down by 50% by 2020 and by 75% in 2025. By 2030, we should be self-reliant," 

That was Minister Moily quoted. It's worth parsing through this projection. India currently imports 79% of its oil needs. A large influx of natural gas from Indian basins will not necessarily lead to a reduction in our oil imports. The reason is that oil and natural gas serve different sectors in our economy. Oil is primarily used for transportation and natural gas primarily for power generation (45%) and as feed stock of producing fertilizer (28%) . These two priority allocations for natural gas will impose limits on how much can be allocated for transportation that could potentially displace our oil imports.

Would we be ever self sufficient in natural gas due to some shale gas bonanza? Currently, India consumes about 2.23 trillion cubic feet per year of natural gas and produces about 1.65 trillion cubic feet per year. We import about 25% of our needs. Demand for natural gas is set to double over the next couple of decades. Production from conventional natural gas fields may level off as older fields decline. In fact some Reliance Industry gas fields in the Krishna Godavari offshore have seen marked decline in production over the last couple of years. They have in fact cut their reserve estimates from 10 trillion cubic feet to 3.4 trillion cubic feet. Can shale gas make up the large shortfall in supply expected in the future?

I see some limitations ahead. .

The first relates to the whether a new shale gas policy will be attractive enough to invite foreign capital and expertise. Previous attempts to auction offshore blocks for exploring conventional oil and gas deposits did not invite too much interest from major energy companies.

The second is the actual amount of shale gas in Indian basins. Are the figures for potential resources as high 1200 trillion cubic meters or as low as few tens of trillion cubic feet? Only more detailed exploration will give that answer and that in turn depends upon a business friendly shale gas policy.

The third limitation is related to the second but depends on the actual recoverable amount of shale gas. A basin may contain a very large amount of shale gas, but is it technically and economically recoverable? One reason why the USGS may have revised figures for India from 63 trillion cubic feet of resource to just 6 trillion cubic feet of recoverable resource is the experience of well performance from the U.S. Marcellus and Barnett shales. After a couple of years or so of prolific yield, gas production has declined dramatically. This probably has to do with the petro-physical properties of shale rock.

Gas over millenia has migrated and localized around cracks and fractures. When the shale is hydro-fractured this localized gas gushes out. However, the migration of gas trapped in the matrix of the rock towards these cracks is quite slow. So, once the low hanging fruit have been extracted, further production at that spot slows down. A different well at a different spot may have to be drilled. Even conventional sandstone reservoirs face the problem of decline in production, but the decline is slow, several years to even decades. Production decline seems to be more rapid in the finer grained shale formations. As wells decline, we may need to drill more new wells just to maintain a particular level of production.

That brings us to the fourth limitation. Land acquisition and availability of water. Land will have to be acquired for setting up drilling rigs and supporting infrastructure. India's record of compensation and rehabilitation of displaced people is poor, so expect conflicts. And further, several millions of liters of water per well is required to hydraulically fracture a shale formation at one spot. A gas field may have tens to hundreds of wells. In many sites, this water will be taken up from the same groundwater system farmers use to irrigate their fields. Such a large demand of water by energy companies will strain the already precarious situation of diminishing groundwater resources. Thus water allocation agreements (if necessary arbitrated by Courts) between farmers and energy companies might put the brakes on gas production.

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