India Allows State Energy Explorers to Extract From Shale

Oil & Natural Gas Corp. (ONGC) and Oil India Ltd. (OINL), the country’s state exploration companies, won government approval to extract shale oil and gas for the first time as Asia’s second-biggest energy user seeks to curb imports.

ONGC and Oil India will be allowed to tap shale resources in blocks allotted to the companies more than a decade ago, the government said in a statement, citing a new policy aimed at increasing domestic output of fossil fuels. Shale production will be taxed on par with conventional fields, it said after the cabinet cleared the policy today.

India is seeking to cut its energy import bill by 50 percent in seven years and to zero by 2030. Increased purchases of crude oil and coal have led to an unsustainable current account deficit and a slump in the rupee to a record last month.

“It is a good move, but it will take at least three to five years to make any material impact on India’s energy landscape,” said Kamlesh Kotak, head of research at Asian Markets Securities Pvt. in Mumbai.

Shale extraction uses hydraulic fracturing, which involves blasting water, sand and chemicals underground to release fuel. While environmental groups have objected to the technique on concern it may contaminate groundwater, some countries have adopted the method to boost output. The U.S.’s shale boom helped it overtake Russia as the biggest gas-producing nation in 2009.

“We will now review our blocks and seek rights to undertake shale oil and gas exploration and production in those which have good prospects,” said T.K. Ananth Kumar, finance director at Oil India.

Oil import costs in India, Asia’s largest energy user after China, surged to a record $144.3 billion in the year through March, or more than 8 percent of gross domestic product. The country holds 6.1 trillion cubic feet of technically recoverable shale-gas reserves in three basins, the U.S. Geological Survey estimated in a report in January 2012.

To contact the reporter on this story: Debjit Chakraborty in New Delhi at dchakrabor10@bloomberg.net

To contact the editor responsible for this story: Alexander Kwiatkowski at akwiatkowsk2@bloomberg.net

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