SHALE GAS - CHALLENGES AND OPPORTUNITIES

13th November ’2013

Gopal Singh, Alok Kumar Singh

Primary energy consumption per capita 2012 Tonnes oil equivalent

BP Statistical Review of World Energy 2013

Per Capita Energy Consumption *ENERGY CONSUMPTION PER CAPITA 2011 (KGOE)

GDP PER CAPITA ($)

TIMES INDIA'S PER CAPITA INCOME

US

7032

48,113

31

SOUTH KOREA

5232

22,388

15

FRANCE

3868

42,522

28

GERMANY

3811

44,021

29

JAPAN

3610

46,135

30

UK

2997

38,961

25

CHINA

2029

5,442

4

INDIA

614

1,534

1

WORLD

1890

10,112

7

COUNTRY

* World Bank data

3

Primary Energy World Consumption Million tonnes oil equivalent

BP Statistical Review of World Energy 2012

PRIMARY ENERGY CONSUMPTION 2012: MILLION TONS OF OIL EQUIVALENT Country

OIL

NATURAL NUCLER COAL GAS ENERGY

HYDRO ELECTRIC

RENEWABLES

TOTAL

US

819.9

654

437.8

183.2

63.2

50.7

% of Total

37%

30%

20%

8%

3%

2%

171.6

49.1

298.3

7.5

26.2

10.9

30%

9%

53%

1%

5%

2%

2072.8

1433.6

1053.1

444.5

315.6

169.2

5,488.80

% of Total

38%

26%

19%

8%

6%

3%

100%

EU % of Total

611.3 37%

399.5 24%

293.7 18%

199.8 12%

74 4%

95 6%

1,673.30 100%

WORLD % of Total

4130.5 33%

2987.1 24%

3730.1 30%

560.4 4%

831.1 7%

237.4 2%

12,476.60 100%

INDIA % of Total

OECD

2208.8 100% 563.6 100%

5

Trends in Supply of Primary Commercial Energy – INDIA (mtoe)* 130.61 6.43 33.4 25.07 6.4 4.41 0.13

177.24 222.16 8.76 10.64 33.99 39.23 27.71 42.79 9.78 11.22 4.91 8.43 0.87 5.25

2016-17 (Proj.) 308.55 16.8 42.75 76.13 12.9 16.97 10.74

206.45

263.26 339.72

481.84

642

136.64

153.28

174.2

187.66

202.16

343.09

416.54 513.92

669.5

844.16

DOMESTIC PRODUCTION 2000-01 2006-07 2011-12 COAL LIGNITE CRUDE OIL NATURAL GAS HYDRO POWER NUCLEAR POWER RENEWABLE ENERGY TOTAL DOMESTIC COMMERCIAL ENERGY NON COMMERCIAL ENERGY TOTAL

*XII PLAN DOCUMENT, PLANNING COMMISSION

2021-22 (Proj.) 400 29 43 103 17 30 20

6

Trends in Supply of Primary Commercial Energy – INDIA (mtoe) 54 129.86 12.56 0.45 196.87 536.59

2016-1 7 (Proj.) 90 152.44 24.8 0.52 267.76 749.6

2021-22 (Proj.) 150 194 31 0.6 375.6 1017.6

33%

37%

36%

37%

426.1

5.01% 548.58 4.09%

6.25% 710.79 5.28%

6.91% 937.26 5.69%

6.30% 1219.76 5.41%

19%

24%

28%

29%

31%

IMPORTS

2000-01

2006-07 2011-12

COAL PETROLEUM PRODUCTS LNG HYDRO POWER TOTAL NET IMPORTS Total Commercial Energy

11.76 71.25 0 0 83.01 289.46

24.92 98.41 8.45 0.26 132.04 395.3

Commercial Energy requirement met by Imports

29%

CAGR over previous 5 years Total Primary Energy CAGR over previous 5 years Primary Energy requirement met by Imports

7

Shale Gas – An introduction Natural gas (mainly methane) is generally classified under two heads: (a)Conventional Gas: Most of the natural gas that is produced globally comes under the category of conventional gas where, after drilling in a sedimentary basin that is rich in gas, the gas migrates through porous rocks into reservoirs and flows freely to the surface where it is collected, treated, and then piped to various users.and

(b) Unconventional Gas: Shale gas on the other hand is located in rocks of very low permeability and does not easily flow. Therefore, the technique for recovery of shale gas is quite different from that of conventional gas.

8

Natural Gas Resources

9

Natural Gas & Oil Production in India YEAR 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13

CBM (BCM)

0.015 0.02 0.038 0.041 0.084 0.107

CBM as % of Natural Gas

0.05% 0.06% 0.08% 0.08% 0.18% 0.25 %

NATURAL GAS (billion OIL (Million cubic metres) Tonnes)

31.763 32.202 31.747 32.417 32.845 47.496 52.219 47.559 40.68

33.981 32.19 33.988 34.118 33.508 33.69 37.684 38.09 37.86

10

Natural Gas & Oil Production in India

The extent of the increase in energy requirement over the Twelfth Five Year Plan depends on the elasticity of energy demand with respect to GDP, which has been falling over time and is currently around 0.80. Allowing for some further decline in the elasticity, a GDP growth rate of 9.0 per cent per year over the Twelfth Plan will require energy supply to grow at around 6.5 per cent per year. The CAGR for the last 9 years for natural gas and oil production in India is 3.1 and 1.4 % respectively. This is a far cry from the 6.5 % growth required for 9 % GDP growth.

11

Major gas trade movements 2012 Trade flows worldwide (billion cubic metres)

BP Statistical Review of World Energy 2013

Oil and Gas Reserves in India Natural Gas Proved % of Reserves World (TCF) Reserves

47

0.7 %

Oil R/P (Years)

33.1

Proved % of Reserves ( World Billion Reserves Barrels)

5.70

0.3 %

R/P (Years)

17.50

(1.33TCM)

13

STAGES OF DEVELOPMENT OF SHALE GAS

14

STAGES OF DEVELOPMENT OF SHALE GAS

15

DEVELOPMENT PROSPECT OF COUNTRIES COUNTRY

EIA RESOURCE ESTIMATE (TCF)

ARGEN TINA

802

CHINA

SERVICE INDUSTRY

PIPELINE NETWORK

WATER AVAILA BILITY

POPULATION DENSITY

GEOLOGICAL COMPLEXITY

Moderate barrier

Moderate barrier

Low barrier

Low barrier

Low barrier

1115

High barrier

Moderate barrier

Moderat e barrier

High barrier

High barrier

POLAND

148

High barrier

High barrier

Low barrier

Moderate barrier

Moderate barrier

US

665

Low barrier

Low barrier

Low barrier

Low barrier

Low barrier

INDIA

96

High barrier

High barrier

Moderat e barrier

High barrier

Moderate barrier

16

Shale Gas Basins in India

17

Shale Gas Basins in India * Basin

Cambay Basin

Damodar Valley basin

KrishnaGodavari Basin

Cauvery Basin

Gross area (miles2)

7,900

2,270

7,800

9,100

Shale Formation

Cambay shale

Barren measure

Permian - Triassic

SattapadiAndimada m

Geologic age

Upper cretaceous / Tertiary

Permian – Triassic

Permian –Triassic

Cretacious

Prospective area (miles2)

1940

1,080

8,000

1,010

Average Depth (ft)

13,000

5,000

11,600

10,000

Physical Extent

* EIA ,2013 Assessment

18

Shale Gas Basins in India Basin

Cambay Basin

Damodar Valley Basin

KrishnaGodavari Basin

Cauvery Basin

TOTAL

Moderately over pressured

Slightly over pressured

Normal

Normal

2.6 %

3.5 %

6%

2.3 %

1.6

1.2

1.5

1.15

Low /Medium

High

High

High

Gas In Place (Tcf)*

78 (146)

33 (27)

136 (381)

43 (30)

290 (584)

Technically recoverable Gas *(Tcf)

20 (30)

7 (5)

27 (57)

9 (5)

63 (96)

2.7

0.20

0.60

0.20

3.7

Reservoir Properties Reservoir Pressure Average Total Organic Content (wt %) Thermal Maturity (Ro%) Clay Content

Resource

Technically recoverable Oil * (Billion bbl)

* EIA ,2011 Assessment, () EIA 2013 Assessment

19

Other Shale Gas Basins in India 1.Upper Assam Basin 2.Vindhyan Basin 3.South Rewa Basin 4.Pranhita- Godavari Basin 5.Rajasthan Basin Data is not available for the rigorous assessment of reserves of these basins.

20

India’s Shale Gas Policy - 2013
Delay in policy announcement
ONGC and OIL given the right to drill for shale oil and gas in the blocks they have, but fresh auction proposed for all other deposits. India’s first shale gas well drilled and completed by ONGC, north west of Kolkata. ( depth 2000 m)
Private sector not allowed to exploit blocks for shale oil and gas in the blocks they have.
It provides for auction based on simple production sharing between explorer and government
No need to treat shale gas different from conventional natural gas. Traditional oil comes from drilling in porous and permeable rocks like sandstone and limestone
It is possible to have thick limestone / sandstone interspersed with shale layers, all having oil and gas. To have 2 separate companies drill on sandstone and shale layers does not make sense. It will lead to unnecessary litigation. US makes no distinction between the two.

21

Environmental Challenges - Shale gas 1. WATER POLLUTION : Every shale gas well needs 10 -20 million litres water, 500 T sand, 50 T chemicals.60-80 % mixture comes back to the surface, rest stays underground.

Shale play

Depth of acquifer (ft)

Depth of Shale (ft)

Barnett

1200

6500-8500

Fayetteville

500

1000-7000

Marcellus

850

4000-8,500

Woodford

400

6,000-11,000

Haynesville

400

10,500-13,500

MIT research study recorded only 20 cases of groundwater contamination by natural gas / drilling fluid between 2005-09 among thousands of wells drilled. 1 mile = 5280 feet

22

Environmental Challenges - Shale gas 2. POISONING OF SUB-SOIL BY CHEMICALS 3. Release of methane – a potent greenhouse gas( 25 times more polluting than CO2) to atmosphere from shale gas wells University of Texas study indicated total methane escape is 1 million tons annually from shale gas operations. However, containment measures captured 99 % of methane that escaped. Even 3.4 % escape of methane can change its climate change advantage over coal.

4. MINOR EARTHQUAKES US HAD HAD OVER 1 MILLION HYDRAULIC FRACTURING SINCE 1947 WITH FEW ACCIDENTS

US – LEADER IN SHALE GAS 1. 2. 3.

4.

5. 6. 7.

HUGE SHALE GAS / TIGHT OIL RESERVES PRIVATE OWNERSHIP OF MINERAL RIGHTS THOUSANDS OF INDEPENDENT OIL COMPANIES : George P.Mitchell’s ‘Mitchell energy and Development’ was a pioneer, 17 years effort, $ 6 million –”best development money in the field of gas” HUGE AVAILABILITY OF DRILLING RIGS, OTHER EXPLORATION AND PRODUCTION TOOLS- 65 % of oil rigs of the world are in US and Canada. 18,000 DRILL RIGS WITH HORIZONTAL DRILLING FACILITY .US DRILLS 10,000 SHALE WELLS DRILLED EVERY YEAR ACTIVE FINANCIAL MARKET THAT SUPPLY MONEY FOR NEW VENTURES LESS POPULATION DENSITY GOVT. SUPPORT IN TERMS OF TAX CREDITS : for drilling in unconventional natural gas. CARTER’S 1980 LAW TO TAX WINDFALL PROFITS AT OIL FIRMS ALSO INCLUDED TAX CREDITS 24 PROVISIONS.

Ease of Doing Business Index-2013* Economy

Ease of Doing Business Rank

Singapore

1

4

5

Hong Kong

2

6

New Zealand

3

United States

Starting a Getting Getting Business Electricity Credit

Enforci Trading ng Across Contra Borders cts

Protecting Investors

Paying Taxes

12

2

5

1

12

4

4

3

4

2

10

1

32

4

1

21

25

17

4

13

19

4

6

69

22

6

Denmark

5

33

14

23

32

13

4

34

Norway

6

43

14

70

25

19

21

4

United Kingdom

7

19

62

1

10

16

14

21

Korea, Rep.

8

24

3

12

49

30

3

2

Georgia

9

7

50

4

19

33

38

30

Australia

10

2

36

4

70

48

44

15

Finland

11

49

21

40

70

23

6

9

Pakistan

107

98

171

70

32

162

85

155

Nepal

108

105

96

70

82

114

171

137

Bangladesh

129

95

185

83

25

97

119

182

India

132

173

105

23

49

152

127

184 25

*World Bank Data

26

27

28

POLAND – SHALE GAS EXPERIENCE 1. HUGE SHALE GAS / TIGHT OIL RESERVES, WANTED TO BECOME SECOND NORWAY 2. DIFFICULT GEOLOGY 3. CUMBERSOME AND DELAYED REGULATION: TAKES OVER 1 YEAR TO GET PERMITS FOR CHANGED DRILLING PROGRAM, GOVT’S ENHANCED TAX PROGRAM – 40 % OF OPERATOR’S PROFIT, ‘NOKE’ A STATE OWNED COMPANY PROPOSED, TO TAKE STAKES IN ALL FUTURE PRODUCTION CONCESSIONS OUTCOME : 40 WELLS DRILLED , MAXIMUM IN EUROPE WITHOUT ONE PRODUCING COMMERCIAL GAS, EXXON MOBIL, TALISMAN, MARATHAN OIL QUIT THE COUNTRY 29

Qatar’s North Field Vs Iran’s South Pars Field

30

Qatar’s LNG Development 1. Qatar’s North Field discovered by Shell in 1971. Today its reserves are 900 TCF. 2. 1970-80s, there was no market for the gas. 3. Efficient and determined decision making after 1995 when the Sheikh Hamad became the new Emir saw the development of NF gas reserves. 4. Per capita GDP jumped from 16,238 in 1995 to $ 89,736 in 2011.( almost 6 times). LNG production capacity 77 MTPA. 5. Exxon Mobil technology, $ 60 billion investment 6. Iran has not yet been able to export LNG from its South Pars Field. 31

Conclusion 1.Shale gas and tight oil exploration and development is the need of the hour. To start with we should concentrate on one basinCambay basin . 2. Environmental impact of shale gas exploration and production is minimal and manageable. 32

RECOMMENDATIONS 1.Development of unconventional gas resources be given priority by giving it tax credits, single window clearance. 2. Level playing field - private and public sector – in policy matters. 3. Investment in upstream and mid stream infrastructure –drill rigs pipelines – national grid, 33

RECOMMENDATIONS 4. We must encourage innovation and R&D. “Oil and gas lie in the mind of men. R&D R&D Expenditure GDP (2011) Country R&D EXPENDITURE Expenditure as ($ Billions) ($ Billions) PER CAPITA ($) a % of GDP

Israel

4.30%

10

Sweden

3.70%

20

Japan

3.50%

205

South Korea

3.40%

United States Germany

38

243 539 5870 1116

1250.0 2083.3 1614.2 760.0

2.80%

420

14991

1329.1

2.70%

97

3604

1182.9

China

1.50%

108

7204

79.8

India

0.90%

17

1898

14.0

India Vs US- Global Innovation Index

35

12 Disruptive Technologies *

* McKinsey Global Institute

36

Oil is found in the minds of men. Let me conclude by quoting Daniel Yergin from his famous book - The Quest: “…it is essential that the conditions are nurtured so that creativity can flourish. For that resource – creativity- will be critical for meeting the challenges and assuring the security and sustainability of the energy for a prosperous, growing world. That is at the heart of the quest; it is as much about the human spirit as it is about technology, and that is why this is a quest that will never end”. So let me urge you all to be on the trail of that endless ‘Quest’ for knowledge whereby we would be skilled enough to put together all the pieces of the large jigsaw puzzle of energy security, and take the country forward in its quest for prosperity.

37

References 1. XII PLAN DOCUMENT, PLANNING COMMISSION 2. BP Statistical Review of World Energy, June 2013 3. Maugeri, Leonardo. "Oil: The Next Revolution." Discussion Paper ,June 2012 4. Yergin, Daniel “The Quest” 5. Teri – “Shale Gas in India: Look Before You Leap” 38

References 6. Deloitte – Oil & Gas Reality Check 2013 7. U.S. Energy Information Administration (EIA) report- Technically Recoverable Shale Oil and Shale Gas Resources: An Assessment of 137 Shale Formations in 41 Countries Outside the United States- 2013

39

Thank You 40

Economic Impact of Disruptive Technologies

41

Primary Energy Regional Consumption pattern 2012 Percentage

BP Statistical Review of World Energy 2013 © BP 2013

WORLD SHALE GAS MAP – EIA 2011 Study

43