India Plans Shale Gas Blocks Auction by 2013 End

Bangalore: India plans to launch its first auction of shale gas block by 2013-end on terms that are likely to be remarkably different from those offered in bid rounds for oil and gas blocks. The Directorate General of Hydrocarbons (DGH), the oil ministry's technical arm, has proposed to offer areas for exploration of gas trapped in sedimentary rocks -- shale gas on royalty and production-linked payments to the government. The draft policy does not permit cost recovery and hence profit sharing - the two features that came under criticism by the CAG in its audit report on Reliance Industries' KG-D6 block. Bidders would be asked to quote a percentage of output they are willing to share with the government at different production slabs. "This will minimise government intervention and remove complications in accounting, and incentive for gold plating, which may occur while allowing profit sharing, based on cost recovery," the DGH's draft policy said. "Government share of production will be net of all statutory dues". Under New Exploration Licensing Policy, companies share profit with the government only after recovering all their investment, a regime that CAG found was designed to encourage hike capital expenditure by private contractors thereby reducing the government's share. DGH proposed a fiscal regime for shale gas and oil on lines that exist in coal bed methane (CBM) contracts where the government gets royalty and production linked payment (PLP). "Ad-valorem royalty at the prevailing rate for crude oil and natural gas would be applicable to shale oil and gas respectively, and accrue to the state governments, whereas the production liked payment on ad-valorem basis, will be made of the central government," the draft policy said. This is proposed to be linked to different production slabs which will be biddable item. Shale oil and gas are unconventional hydrocarbons reserves found in non-porous rock and requires fracing technology to extract them from shale. "Preliminary estimates suggest that fairly thick sequences with high shale gas potential are extensively present in the oil, gas and coal sedimentary basins such as Cambay, Gondwana, Krisha-Godawari on land and Cauvery on-land," DGH said. Different studies have put recoverable reserves of shale gas between 6 trillion cubic feet and 63 trillion cubic feet. "There will be freedom to market shale gas within India on arm's length basis within the framework of the government policies on marketing and pricing of the gas," the draft said. "Marketing of shale oil will be as per prevailing NELP guidelines for crude oil".