India Signs Accord With U.S. to Assess Shale-Gas Reserves

India signed a preliminary shale-gas accord with the U.S. as the South Asian nation prepares to auction blocks of the unconventional fuel next year.

The agreement is aimed at determining shale-gas reserves in India, Oil Minister Murli Deora said in New Delhi today. The U.S. will also help India prepare for its first shale-gas auction, scheduled to be held by the end of 2011, Oil Secretary S. Sundareshan said.

India intends to join a boom in shale-gas exploration that has fueled more than $39 billion of acquisitions in the U.S. by companies including Exxon Mobil Corp., Royal Dutch Shell Plc and Reliance Industries Ltd. The nation faces an energy shortfall of 55 percent by 2030 as demand more than doubles to the equivalent of 1.3 billion metric tons of oil, according to the Paris-based International Energy Agency.

India, beaten by China in the race for energy assets across the world, plans to offer shale-gas areas for exploration for the first time in 2011, S.K. Srivastava, director general of hydrocarbons, India’s exploration regulator, said June 30.

Preliminary estimates show India’s shale-gas reserves may be larger than its proven conventional gas deposits, according to P.K. Bhowmick, president of the country’s Association of Petroleum Geologists.

China will start appraising the size of its shale-gas reserves in 2011 and the survey will take three years to complete, the Ministry of Land and Resources said Oct. 27.

India will need to change exploration laws to allow for the production of shale gas as current licenses don’t include unconventional sources, Sundareshan, the top bureaucrat in the oil ministry, said last month.

Gas Demand

Supply of natural gas in India lags behind demand as the nation seeks to cut air pollution and as power plants and fertilizer users seek to replace more expensive naphtha and imported liquefied natural gas with cheaper domestic fuel. Gas demand may rise to 120 billion cubic meters a year by 2015 from 62 billion currently, according to B.C. Tripathi, chairman of GAIL India Ltd., the country’s biggest gas distributor.

The U.S. overtook Russia last year as the world’s largest gas producer as output from shale rose. Gas trapped in shale formations will provide 24 percent of all U.S. natural gas consumption in 2035, according to the Department of Energy. Shale-gas accounted for about 10 percent of the country’s total output in 2008.

Reliance Assets

Reliance Industries, India’s biggest company by market value, plans to spend at least $5 billion over the next five years to develop shale-gas areas in the U.S. The explorer paid $943 million to buy three shale-gas assets in the U.S. this year and agreed to spend $2.5 billion in future drilling costs on behalf of its partners.

State-owned energy companies also have plans to buy shale- gas assets. Oil & Natural Gas Corp., India’s biggest energy exploration company, and rival Oil India Ltd. are evaluating offers to buy shale-gas assets in the U.S. Bharat Petroleum Corp., the second-biggest state refiner, plans to buy stakes in two shale-gas blocks operated by Norwest Energy NL in Australia.

Companies use hydraulic fracturing, or fracking, to extract gas from shale, in which water, sand and chemicals are injected deep underground to break up rock and allow gas to flow. The New York-based Natural Resources Defense Council says greater safeguards are needed to ensure that fracking chemicals don’t contaminate drinking water.

To contact the reporter on this story: Rakteem Katakey in New Delhi at rkatakey@bloomberg.net.

To contact the editor responsible for this story: Amit Prakash at aprakash1@bloomberg.net.