India's 'shale gas' policy a damp squib?

Thu, 16 May Pre-Open

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Energy security is perhaps one of the biggest challenges that our country is facing. While the energy demand is only going up, the domestic gas reserves are consistently declining. Around 80% of dependence on crude oil imports has further made things worse for Indian economy. In such scenario, the recent discoveries and possibility of shale gas reserves comes as a silver lining.

The shale gas discovery in US has brought a revolution in the energy landscape. It is a matter of comfort that the Government back home has finally woken up to the need to tap this resource. However, before shale gas becomes a game changer in India, we have a long way to go. The new shale gas policy is currently being penned by the government. A key aspect of the policy will be how the newly found shale gas reserves will be auctioned. As an article in Business Standard suggests, the proposed draft of the policy gives the "right of first refusal" to the existing contractor in case where shale gas block overlaps or falls within the existing Oil and Gas/CBM Block. Let us explain what this right of first refusal actually means in this whole context. Then we will see what this means for the companies in general.

Say for example, Oil and Natural Gas Corporation Ltd. (ONGC) holds an oil and gas block which overlaps with a shale block. For such shale gas blocks, once the bids are received, ONGC will be asked to match the bid given by selected bidder. If ONGC agrees to match the bid along with the other terms and conditions, it will retain the right to explore the shale reserves. However, if it refuses to match the bid, a co-development model is proposed. In this model, both ONGC and the selected bidder will jointly explore the reserves.

However, there is a twist here. As per Government officials, this proposal might be applicable only to companies that operate under the New Exploration and Licensing Policy (NELP). Now, it may be noted that quite a few production contracts signed since 1993 fall under the pre-NELP regime. Hence, the companies that are operating blocks given under pre NELP regime might not enjoy this right. As per an article in Business Standard, because of this differential treatment, companies like Cairn India and Reliance are likely to be left out and stand to lose.

We are not sure about the logic of leaving out companies that garnered blocks in the pre-NELP rounds. It may be noted that the right of first refusal clause is still being worked upon and there could be some changes to the initial draft. A lot ventures in the past have gone wrong for the lack of unclear and illogical policies, especially in the energy sector. This has led to huge losses and missed opportunities in every respect. Considering how crucial for the country it can be, we the hope shale gas policy will not meet the same fate. As the final policy is yet to be framed and announced, we hope all aspects and stakeholders will be given due importance and no loop holes will be left.