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It should have been a time to reflect, but Mukesh Ambani wanted to paint the future. It was October 2009. Earlier that year, Reliance Industries had commissioned India’s largest oil refinery at Jamnagar and had started pumping natural gas from the Krishna-Godavari basin, but the chairman was looking ahead. He sunk into the sofa in his fourth-floor office at Maker Chambers IV in downtown Mumbai, and drew the contours of the next big thing for Reliance, one that would catapult it to the next level in the energy space. “It has to be non-conventional and green. It has to be commercial and outside India,” he had told ET then during a 90-minute conversation. Over the past five months, Reliance has articulated Ambani’s vision through a blitz of buys in shale gas — the newest form of natural gas that is gaining currency. The company has spent $2 billion, in three acquisitions, to buy fields of shale gas in the US. In terms of cost per acre, the last of the three deals was the priciest shale-gas deal struck there. Shale gas is the future, agrees David Morrison, chairman, Wood Mackenzie, an Edinburgh-based research and consultancy in energy, mines and metals. “It’s a game changer that has caught most markets by surprise,” he said while speaking at the Asian gas summit in the capital in March. “We do our projections for 5-10 years, but the growth of shale gas could throw even the best of projections out of gear.” The size of global shale-gas reserves is not known. Potentially, every rock formation, above and under the ground, can have shale gas, but only the US has really tapped this resource. China is said to have the second largest deposits of shale, after the US. Geologists have also identified deposits in Poland and Australia. Elsewhere, including India, the work has barely begun. But, says a senior Reliance official: “As a natural resource, it is more democratic and is found in several countries.”
but their need for natural gas from Qatar is reducing. it’s just 90 metres. a substitute for LNG.” says P Dasgupta. Abdullah Bin Hamad Al-Attiyah has been the Qatar minister of energy and industry since 1992 and its deputy prime minister since 2007. Or. another man was pondering the business strategy of the oil and gas state. “The situation is such now that Qatar is being forced to hold some of its LNG in ships. while Qatar has to move gas via ships. shale gas can affect countries. in the decades to come. he is simply sitting tight. bit by bit. Qatar has deep pockets and a low cost of production due to its location. India’s largest LNG company. Qatar has invested about $90 billion in natural gas: on drilling equipment. Qatar’s dominant position in natural gas is being challenged. It was under his watch that Qatar became the second largest producer of natural gas in the world. which it has plenty of. In Europe. at times. who heads ArcelorMittal’s power venture in India and tracks the gas economy closely. He is diverting some LNG ships meant for the US and Europe to Japan. South Korea and China. this is projected to increase to 25-30% in three years. Doha is staring at a lower return on its $90 billion investment. former CEO of Petronet LNG . Rasgas and Qatar Petroleum. against 22 million tonnes in 2004. companies and consumers.” Yet. Al-Attiyah’s gas strategy was oriented around selling to the two big markets: US and Europe. Al-Attiyah is being forced to do things he doesn’t want to. Or. So. These remain big gas markets. it has temporarily stopped production at some wells. the drop in demand is primarily due to Russia and Algeria increasing supplies to Spain and Italy. Says Dasgupta: “While oil wells in the Gulf of Mexico are found at a depth of 2. With every expansion of shale gas. after Russia. shale gas is the spoiler. on ships that transport gas in liquid form (liquefied natural gas. Qatar is waiting for the needle of demand and prices to turn its way. Its two LNG companies. against 77 million tonnes previously.5 billion on 35 ships to ferry gas to these two markets. . In the US. increasing its cost. Gazprom (the Russian gas company) has a pipeline to Europe. or LNG).It’s why. It can change their energy production-patterns: how much tapped at home and how much imported? It can trim the clout of oligarchic oil producers by being a natural counter to rising oil prices. invested another $6-7 billion in re-gasification projects in Europe and US. It can alter the energy consumption-patterns of economies: how much oil and how much gas? In 2009. at times. he is dumping LNG into the spot market. in the Qatar capital of Doha. Its production capacity of gas is projected to increase to 77 million tonnes per year in 2011. The US is beginning to replace LNG with shale gas. in Qatar. lowering its peak capacity to 52 million tonnes. shale gas accounted for 13% of US energy consumption. About the time that Ambani was plotting his move into shale gas.500 metres. Qatar invested $3. and on plants in other countries that convert that liquid gas back into gaseous form.
If it does turn to be the ‘democratic resource’ it is thought to be. increasingly.” former secretary RS Pandey had said in Ap RIL 2009.5 per mmbtu for conventional gas found on land — the price of shale gas will be attractive to consumers only if it is not transported long distances or. At Henry Hub. gas is being substituted. The greater demand for gas. Even as crude has bounced back to $75-80 a barrel. “The glut in the gas market is here to stay. India. and now. this is expected to increase to 25% by 2020. chairman of GAIL India . even futile. wait.” says Morrison. CNG (compressed natural gas) is replacing petrol and diesel. where US gas prices are set. some of which will come at the expense of oil. “The decoupling of the crude oil and gas market is here to stay. when Reliance commissioned its KG basin gas project. especially shale. prices will be determined by the complex interplay of the two resources. The share of gas in India’s energy consumption is 10-12%. more so since oil and gas is a major cost head for economies. That calls for a sweeping pipeline infrastructure. Yet. Most gas guzzling countries — US and Europe. This increases their complexity of operations and cost of production. The fall is due to energy prices cooling off. global gas production increased by 14%. during peak production. Companies. China. liquefied. gas prices remain soft (See graphic: Growing Apart). In industries like petrochemicals. worse. against $1-1. as oil itself is becoming elusive. With growing supply of gas. . have to go far into the sea and drill deep for oil. such price behaviour is in for a change. gas is at $3-4 per mmbtu (million metric British thermal unit) — a far cry from the $10-12 in 2007-08. power and fertilisers. Japan and South Korea — have relatively low reserves of their own and depend on imports. For instance.It might turn out to be a long. between 2004 and 2009. According to the latest edition of the BP Statistical Review. gas is replacing oil-based naphtha as the feedstock. Till early-2009. or $9 billion a year.” says BC Tripathi. irrespective of differences in demand-supply fundamentals. in US and Europe. which India presently does not have. it can do wonders for the energy self-sufficiency of economies. prices of crude oil and natural gas moved in tandem. In most applications where oil is used. at current prices. and sets a floor for oil prices. A lot of the incremental gas will come from Reliance’s fields in the Krishna-Godavari basin. This has major implications on how countries meet their energy needs and how much they pay. the economic slowdown and the spurt in gas finds and production. Into all this comes shale gas. Increasingly. “It will reduce India’s oil import bill by 10%. in automobiles. against 3% in crude. Given its higher cost of production — $2. India’s nodal gas pipeline company. oil prices are unlikely to crash.5-3 per mmbtu. will counter inflationary tendencies in oil prices.
000-12.000 feet for conventional gas. In December 2009. “The US government took some key decisions in the early years. into the ground.” Today. With a difference: they. one can dig a well and cap it for later extraction. Further. the success rate is not too great. the exploration and production of which has become a mainstream activity there. British Petroleum. Big Oil – notably. Rick Bott. Big Oil started getting interested in early-2000. the wells have to be drilled in quick succession to maintain continuous production. not Big Oil. After all this. one drills vertically. In conventional gas. ExxonMobil is the world’s largest producer of shale gas. along with water sprays. With shale gas finding viability and gaining momentum. Shale gas is found in tight reservoirs that have poor permeability. One also has to dig deeper in shale – 8. when it started becoming clear that the era of easy oil was over and non-conventional fuels would be the future. but they knew what XTO was offering.” says RS Butola. and so are either selling stakes or selling out. Many aspects of it are still a work-in-progress in their early stages. It promoted competition by deregulating gas markets. by comparison.” says Butola. Exxon paid $42 billion to buy XTO. But shale throws up its unique challenges. “The idea was to establish a feasible technology and the government went all out to promote such efforts. was at Devon. managing director of ONGC Videsh. 48 of the 50 states in the US have reserves of shale. who were referred to as ‘superindependents’. has gas pipes covering almost every part of the country. captures the challenges that shale gas presents.The US. In the US. compared to 3. The breakthrough came when ‘horizontal drilling’ was established as a commercially feasible technology. a shale gas producer in the US. are the ones driving a hard bargain. the overseas investment arm of ONGC. “The price was stiff. In conventional gas fields. ExxonMobil and Shell — is moving in to grab the baton from the small early-birds. “Exxon has always believed they are the best. “It is like sourcing the gas from the kitchen itself. Butola says shale producers need to have a “manufacturer’s mindset”. who are increasingly finding it difficult to raise capital to expand. Pioneer and Atlas.” says Bott. niche players like Cheasapake. In shale fields. It’s why . when it was the preserve of small. Shale gas requires large number of wells as the volume per well is small. They have been buying super-independents.000 feet.” he adds. the drill first goes down and then sideways. Shale gas was first produced in the US in 1989. a shale gas operator. which are essentially tight rock formations. in a sense. chief operating officer of Cairn India . which helped commercialise shale. it provided generous tax credits for geological and technology efforts.000-5. That. shale gas goes back to the early-eighties. Expertise is not widely shared. 226 of the 389 wells (69%) studied for this paper generated an internal rate of return (IRR) of less than 10%. Today. In a paper by John D Wright of Norwest Corporation titled ‘Economic Evolution of Shale Gas Reserves’.
which we can then bring back to India. the energy landscape will never be the same again. “We have to acquire the technological edge. It pumps in the cash.” If the shale story unfolds the way Reliance is seeing it. an oil sector veteran and a director on RIL board.” says PMS Prasad. The rush by Reliance to corner shale resources shows a keenness to strike early.Reliance. and early evidence suggests it might. . has chosen to buy large stakes in fields in the US. Says Prasad: “Even as we consolidate in conventional sources. we have to move into new areas. but leaves the running to its US partner and watches from up close. Shale gas is one such area that will give us the technological edge if we move in fast. more so when it has abundant cash and gas prices are low. a newcomer to shale.
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