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January 24, 2013 - In the next few weeks, the first policy for shale gas drilling in India is scheduled to be placed before the country’s Cabinet for approval. As one of the world’s fastest growing economies, India is the fourth largest consumer of primary energy after China, the United States, and Russia. Further, demand for energy and natural resources have far outpaced domestic production. With limited domestic resources, India now faces immense challenges due to increased risk of fuel shortages.

Hydrocarbons - primarily coal - make up about half of the energy generation mix while natural gas comprises approximately 7 percent. In the past, unconventional gas has remained relatively unexplored but with growing concerns about energy security and the potential economic benefits of shale gas, there is now a significant push towards further exploration.

As of 2011, the Energy Information Administration (EIA) estimates that India has a potential of 63 TCF (trillion cubic feet) of technically recoverable shale gas resources. These shale gas deposits are spread across a number of basins in northern India and amongst coastal areas. Several major Indian companies have already expressed interest in shale gas development including Reliance Industries Limited, who already have significant investments in the Marcellus and Eagle Ford Shale in United States. By acquiring overseas assets for exploration of shale gas, these companies hope to gather technical knowledge and skills that can be transferred to India for future domestic production.

Since 2009, both USA and India have been committed to a US-India Partnership to Advance Clean Energy (PACE), an initiative to enhance energy cooperation. This includes commitment from both countries to promote cleaner sources of energy and a partnership to better understand unconventional sources of fuel through sharing of technical knowledge under the Global Shale Gas Initiative (GSGI).

India’s current exploration policy has so far only allowed conventional oil and gas to be explored. Under this new exploration policy, blocks of production for unconventional gas within six major basins identified by the government will undergo auctions (as has been done traditionally for oil and gas exploration in India).  Additionally, a “production sharing” contract would be signed with the government based on which companies involved will share profits with the government after recovering all their investments in extraction.

Regardless of the Cabinet’s decision, it will still be at least four years before there is any commercial shale gas production in India.  While there has been efforts to increase natural gas with pipelines from neighboring countries, the likelihood of these proposals are limited due to political and economical concerns.

With this new policy in place, there is significant hope that this will lead to a reduced emissions by replacing coal-fired generation and simultaneously increase India’s energy security through reduced dependence on foreign imports. But there will be significant challenges - primarily, the lack of previous technical expertise related to exploration and production within India. There will also be challenges related to inadequate water supply and lack of physical infrastructure and concerns regarding availability of land within densely populated regions.

However, there is no doubt that India will go forward in pursuing shale gas exploration to meet the huge gap between supply and demand. Eventually the success of the policy in meeting domestic demand will be largely dependent on how the country addresses these unique challenges.

Divita Bhandari is a first year MEM candidate at the Yale School of Forestry and Environmental Studies. She hails from Hyderabad, India and is interested in Energy and Environmental Policy. She is part of CBEY’s Shale Gas Research Team.