Shale in India: A Shot in the DARK

With the Indian oil ministry taking measures to comply with the UN on cutting oil imports from Iran by November, India once again faces an uncertain future. The Indian rupee which has long since come to depend on oil prices worldwide is expected to become even more fragile as our oil import bills are set to rise. Even as our government scampers for alternatives for Iranian oil and makes promises to prevent the fiscal deficit from being raised, there is little hesitance in believing that tremors will be felt throughout the Indian economy.

The next few months may well see the Rupee depreciate even further with inflation inevitably affecting everything from petrol prices to vegetable costs. While, for the time being, we can do nothing but batten down the hatches and cope with losses, there is perhaps a future resolution in sight. An emerging alternative to imported crude oil may be our way - shale oil and gas.

When anyone talks of oil prices fluctuating, it, more often than not, is not the hand of God at work but rather the hand of OPEC (Organisation of Petroleum Exporting Countries) that holds over 80 per cent of the planet's proven reserves of crude oil.

A key point of any monopoly is keeping a tight control over all alternate sources of procurement, essentially undermining the competition. OPEC, as an organisation, has achieved this by undercutting any other source of energy in pricing making a large energy switch from crude oil to anything else unprofitable and, thus, impractical.

An emerging contender to crude oil and by relation OPEC monopoly is the shale oil industry. To cut the long explanation short, shale oil is extracted from shale (a type of sedimentary rock) by a somewhat lengthy and resource intensive process. This organic material-rich rock pretty much occurs in most places with even trace amounts of oil. The process of mining these rocks is called fracking and it, in short, involves pumping in a pressurised liquid mix (a majority of which is water) into the rock, which has already been drilled, to drive out oil and gas. The resource-intensive nature of the extraction comes from large water requirements. A shale oil well in its lifetime can use anywhere from two to nine million gallons of water for extraction. The tar-like oil shale thus produced must be further processed before it is usable. It requires a heating process before usable shale oil is produced alongside an enormous quantity of waste. All in all, it makes the average cost per barrel of shale oil easily exceed $100. This makes shale a rather easy product to undercut on price, something that has been attempted with varying degrees of success by OPEC in the past.

All said and done, the US in 2018 has emerged as the largest oil producer, surpassing Saudi Arabia. This meteoritic upswing in oil production has been made possible by two factors – first, the US implemented new technologies that are less resource-intensive in extraction and thus bring down the pricing to around $50 a barrel. Second, the simple fact that the OPEC countries have needs too, growing needs in fact, and they cannot ignore budget shortfalls of their own for too long in trying to compete with the US in price cutting. The US 'success' story has prompted the likes of China, Australia and even long-time OPEC supporter Russia to consider joining the party. And, this is where India comes in.

Avoiding blind bandwagoning, there is no way of knowing if shale oil is a fad, just as OPEC is keen to portray it. Further, there is no guarantee that India can replicate the US success story. The ONGC (Oil and Natural Gas Corporation) in conjunction with US aid has, over the past few years, spent close to Rs 200 crore in establishing shale oil and gas viability within the Indian subcontinent. The survey, which is still underway, has established that India has approximately 80 billion-plus barrels of shale oil and 96 trillion cubic feet of recoverable shale gas reserves.These reserves while nowhere near as impressive as the US and Chinese reserves are still more than enough to establish a degree of immunity against the whims and actions of OPEC.

But as mentioned, the road to such self-sufficiency is difficult. The six locations mentioned for sites of such reserves - Cambay Basin, Gondwana Basin, Krishna Godavari Basin, Cauvery Basin, Indo-Gangetic Basin and Assam-Arakan Basin – are not only fairly populated but also serve to provide a large amount of water to a steadily growing population. In the US, areas with shale mining are large stretches of empty land. Thus, the environmental impacts of fracking, which are as yet not completely explored, will be far more significant. Alongside the obvious risk of air pollution, another prominent fear is that fracking will pollute the groundwater supply in the area.

Fracking is also known to cause tremors. It can measure up to 3.0 on the Richter scale. This also warrants caution. Finally, a question of the resources involved. Simply put, India doesn't have the required amount of water resources to start fracking on a large scale and it doesn't have the technology to cut down on this requirement. As a matter of fact, acquiring the necessary fracking technology will also lead to tricky situations. Who do we acquire our technology from? The Americans would be an obvious answer but there are bound to be strings attached. We could wait for Russia or other friendly nations to develop similar technologies, none of these deals will come without strings – we are after all talking about oil!

All said and done, the potential payoffs make the risks well worth taking. India would first and foremost need to design plenty of new legislations. These legislations must encourage private investment but, at the same time, tie it up with joint government ventures and oversight. The government can offer short-term contracts with a future promise on longer ones to invite technological investment. At the same time, a more efficient system of waste disposal would be a must. No go zones, especially in the case of private investors, must be established with government oversight playing a crucial role in ensuring that ecological zones of vital importance are not polluted and pushed to the extremes. While trying to bridge the gap in resource demand and technologies required, we must reach an optimum solution with regard to how much water would be required to bring up the oil and gas.

As mentioned earlier, investments to develop indigenous technology suited to Indian needs are necessary in the future. Meanwhile, with the expansion of shale industry worldwide, we will to a certain extent be able to avail a wider range of technological solutions in our quest for fracking. Finally, it is important to consider the human cost of such endeavours. The mass relocations, which will inevitably occur, must be carried out as humanely as possible.

All this will take time – but that is to be expected. The best advice in this regard can only be patience and due diligence and to remember that shale oil isn't there to replace our crude oil imports, it's there to supplement it. Even that much would stabilise the rupee and bring down fuel prices.

We can't pull a US on this and keep raising production without limit as it will have significant costs for the nation that will outdo the benefits. The way forward is to extend our hands only as far as we can see in these murky waters.