Understanding of Natural Gas Business.

ASSIGNMENT
Topic: Describe the unconventional natural gas resources (Shale gas and CBM) comparing
USA and India and their market potentials

KIRAN THACHARATH

500093804

MBA OIL AND GAS MANAGEMENT

Unconventional Gas Reservoirs
 Conventional reservoirs of oil and natural gas are found in permeable sandstone.
 Unconventional Gas Reservoirs occur in relatively impermeable sandstones, in joints and
fractures or absorbed into the matrix of shales [Shale is a Sedimentary Rock], and in coal.
 Given current economic conditions and state of technology, they are more expensive to
exploit.
 Example: Tight gas, shale gas, and coalbed methane.

Coalbed Methane
 Considerable quantities of methane is trapped within coal seams.
 A significant portion of this gas remains as free gas in the joints and fractures of the coal
seam.
 Large quantities of gas are adsorbed on the internal surfaces of the micropores within the
coal itself.
 This gas can be accessed by drilling wells into the coal seam and pumping large quantities of
water that saturate the seam. [water will occupy the gaps and pores and will push out the
gas]
 It is now becoming an important source of natural gas.
 Unlike much natural gas from conventional reservoirs, coalbed methane contains very little
heavier hydrocarbons such as propane or butane.
 The presence of this gas is well known from its occurrence in underground coal mining,
where it presents a serious safety risk.
 Fire Accidents in Coal Mines are mainly due to Coalbed Methane, and Lignite deposits which
undergo spontaneous combustion.

Coalbed Methane in India

 With one of the largest proven coal reserves, and one of the largest coal producers in the
world, India holds significant prospects for commercial recovery of coalbed methane.
 The country has an estimated 700-950 billion cubic metre of coalbed methane.

Problems in Exploration, Extraction of Coalbed Methane in India

 The state-run firms are holding mines in joint venture with private companies and the latter
do not have rights to explore coalbed methane [private sector companies at present have no
rights to extract unconventional gas reservoirs –– coalbed methane and shale gas].
  CBM extraction falls under Ministry of Petroleum & Natural Gas whereas coal mining falls
under Ministry of Coal. Contractors are not allowed to mine gas from coal seams or coal bed
methane (CBM) and coal in the same block due to the turf war [common feature of Indian
Bureaucracy] between the two ministries and other associated bureaucratic hurdles.
 Extracting unconventional gas is a capital-intensive process and at the present levels of gas
prices, the companies cannot recover their investments.
 The technology required is very advanced and the public sector companies have very weak
organizational setup to efficiently handle such technologies and extract gas economically.
 Private sector companies have necessary financial capabilities and managerial skills but
there is no hope due to restricting laws and low gas prices.
 In India, gas pricing is a contentious issue. It has never been easy satisfying all the
stakeholders involved [consumer, government, gas companies]. Gas pricing will be critical
for private companies before they can invest in unconventional gas projects so that they can
calculate their profit margin.

Shale Gas – Shale Gas Formation

• Shales are fine-grained sedimentary rocks formed of organic-rich mud at the bottom of
ancient seas.
• Subsequent sedimentation and the resultant heat and pressure transformed the mud into
shale and also produced natural gas from the organic matter contained in it.
• Over long spans of geologic time, some of the gas migrated to adjacent sandstones and was
trapped in them, forming conventional gas accumulations.
• The rest of the gas remained locked in the nonporous shale.

Shale Gas Reserves Across the World

Shale Gas Reserves in India

 Basins of preliminary interest identified by Indian geologists are the Cambay Basin in
Gujarat, the Assam-Arakan basin in northeast India, and the Gondwana Basin.
 Indian engineers have gathered experience on fracking – the technology to find shale gas –
by spending time in the US and are now able to hunt for the scarce resource on their own.
 Fracking technology sends high pressure streams of water, sand and chemicals into shale
formations to bring up the oil and gas.
  Environmentalists have objected to fracking because of the damage to forest cover and
possible contamination of ground water.
 One estimate by Indian scientists places potential reserves at as high as 527 tcf.

Problems Associated with Shale Gas Exploitation

 Environmentalists have objected to fracking because of the damage to forest cover and
possible contamination of ground water.
 However, industry officials say that the treated water can be re-used for further fracking and
need not be disposed of at all.
Solutions
 All the water required must be obtained from rain water harvesting.
 Recycling and reusing of water utilized for fracking should be the preferred method for
water management.
 Enforcing clear and practical legislation on environmental and water issues.
 Coal bed methane (CBM), which is extracted from coal beds, is also an unconventional gas
and, in terms of depth, occurs much closer to the land surface than shale gas.

Shale Gas Extraction Issues in India

 India suffers from physical and economic water scarcity whereas the U.S. do not have the
same water worries.
 In the US, the natural gas department is exempt from scrutiny for chemical injection in the
ground (it exempts companies from disclosing the chemicals used during hydraulic
fracturing). There is no such legislation in India.
 In US, the citizen or resident owns the resources that lie beneath the ground. In India, soil
below the land is a public property and the companies must follow all the necessary rules to
acquire it.
 The US has mapped all its shale reserves. In India there is clarity on the exact recoverable
shale reserves.
 The population density is much lower in the US and they can afford to do it.
 Government-issued leases for conventional petroleum exploration do not include
unconventional sources such as shale gas.
  All locations in US is well connected with gas pipelines. Bulk of the reserves in eastern India
lack the necessary network of pipelines to transport the gas–a task that many private
operators are wary about undertaking.

Comparison United States v/s India

The United States now produces nearly all of the natural gas that it uses

U.S. dry natural gas production in 2020 was about 33.5 trillion cubic feet (Tcf), an average of about
91.5 billion cubic feet per day and the second-highest annual amount recorded. Most of the
production increases since 2005 are the result of horizontal drilling and hydraulic fracturing
techniques, notably in shale, sandstone, carbonate, and other tight geologic formations. Natural gas
is produced from onshore and offshore natural gas and oil wells and from coal beds. In 2020, U.S. dry
natural gas production was about 10% greater than U.S. total natural gas consumption.

U.S. dry natural gas production in 2020 was 0.4 Tcf lower than in 2019 because of a decline in drilling
activity related to low natural gas and oil prices, which was largely the result of a drop in demand
resulting from the response to the COVID-19 pandemic, as well as increased recovery of natural gas
plant liquids from marketed natural gas.

Five of the 34 natural gas producing states accounted for about 69% of total U.S. dry natural gas
production in 2020.

a) Coalbed methane and supplemental gaseous fuels

Coalbed methane, which is methane obtained from coal seams, or beds, is a source of methane that
is added to the U.S. natural gas supply. In 2019, U.S. coalbed methane production was equal to
about 3% of total U.S. dry natural gas production.

Additional sources of hydrocarbon gases that are included in U.S. natural gas production and
consumption are supplemental gaseous fuels, which include blast furnace gas, refinery gas, biogas
(sometimes called renewable natural gas), propane-air mixtures, and synthetic natural gas (natural
gas made from petroleum hydrocarbons or from coal). These supplemental gaseous fuels were equal
to about 0.2% of U.S. natural gas consumption in 2020.1 The largest single source of synthetic
natural gas is the Great Plains Synfuels Plant in Beulah, North Dakota, where coal is converted to
pipeline-quality natural gas.

b) Offshore natural gas production

Although most of the natural gas and oil wells in the United States are on land, some wells are
drilled into the ocean floor in waters off the coast of the United States. In 2020, total offshore
production of dry natural gas was about 1 Tcf, of which 71% was from federal waters in the Gulf of
Mexico. Federal Gulf of Mexico production equalled about 0.7 Tcf or 2% of total U.S. dry natural gas
production. Offshore production from ocean waters administered by Alabama, Alaska, California,
Louisiana, and Texas equalled about 0.3% of total U.S. dry natural gas production in 2020.

c) Shale natural gas

Large-scale natural gas production from shale began around 2000, when shale gas production
became a commercial reality in the Barnett Shale located in north-central Texas. The production of
Barnett Shale natural gas was pioneered by the Mitchell Energy and Development Corporation.
During the 1980s and 1990s, Mitchell Energy experimented with alternative methods of hydraulically
fracturing the Barnett Shale. By 2000, the company had developed a hydraulic fracturing technique
that produced commercial volumes of shale gas. As the commercial success of the Barnett Shale
became apparent, other companies started drilling wells in this formation, and by 2005, the Barnett
Shale was producing almost half a trillion cubic feet (Tcf) of natural gas per year. As natural gas
producers gained confidence in their abilities to profitably produce natural gas in the Barnett Shale
and saw confirmed results in the Fayetteville Shale in northern Arkansas, producers started
developing other shale formations. These new formations included the Haynesville in eastern Texas
and north Louisiana, the Woodford in Oklahoma, the Eagle Ford in southern Texas, and the
Marcellus and Utica shales in northern Appalachia.

The US Shale Market versus Indian Shale Market

The shale gas exploration and exploitation in the USA started much early compared to the rest of the
world. The decade of 2000s is said to witness a revolution in shale gas industry of the US. By the year
2015, shale gas production had already started on a commercial scale in the US and Canada with
both of them holding 87% and 13% of world shale production respectively at that time. It is because
of this early head start; the USA has been successful in recovering shale resources much more
effectively than the rest of the world. Current statistics show that in 2018, shale oil production
reached 329 million tonnes and shale gas production reached 607.2 million cubic metres in the
United States (Zou et al., 2014). The US shale revolution has seen a rapid rise in shale oil and shale
gas production and consumption in the nation. The contribution of shale resources in the American
energy mix has increased by 5% in 2000 to 29.2% in 2016. This impressive growth has made the
country a net gas exporter from a net gas importer. Thus, shale gas has effectively reduced the
consumption of natural gas whose production reduced at an average rate of –0.14% per annum.In a
decade long development of shale resources, the US invested heavily in R&D and successfully
devised advanced technologies that increased the efficiency of the operations in the production
process. For instance, the technique of multi-pad drilling helped increase the economies of scale as it
decreased the number of rigs required for drilling a similar number of wells. The US has also come
up with a new extraction method called “anhydrous rupture method” in which a mix of water, sand,
gel and chemical reagents are used along with gas in liquid form. On a demographic perspective, the
US is a huge nation with much less population compared to China and India. Hence, they have a lot
of lands uninhabited by humans. Thus, making a large vacant area available for shale gas
exploration. Even if it is inhabited, the local population can be easily rehabilitated to a different
location. This is a herculean task when it comes to Indian demographical and population situation.
Also, since the US has such low population density, the number of people who are affected by the
activities of shale gas production is much less than that in India, thus reducing the risk of health
issues to a great extent. The mineral rights of the minerals found under the land remain with the
landowner in the US compared to India, where it is not the case. This helps the government to easily
take up the ownership of land and employ it to develop shale gas. This, along with other factors,
contributing to ease of land availability, has helped the US to effectively harness the shale resources.
This, in turn, has dropped the production costs involved in the whole operation. The production
costs in India are much higher than that of the US. The reduction in production costs has ultimately
reduced the prices of wholesale electricity at the consumer side for both residential as well as
industrial sectors. This, in turn, helps in boosting industrialisation and urbanisation on a broader
scale. If shale resource is currently used to feed power into the electricity grid in India, the cost of
electricity is likely to go up as the production cost in shale production in India are still high. The
boom of the shale industry in the USA has also led to job openings and thus has increased
employment in the country. The sector has employed 601,000 people across the shale oil and gas
value chain (Zou et al., 2013).
Some of the factors that set apart the US shale industry from the Indian shale industry are:

• Advancement in hydraulic fracturing technologies

• Advancement in horizontal drilling technologies
 Surge in gas prices in India even if there is a continuous increase in demand for the oil and
gas resources, thus, increasing the cost of the services
 Investment in R&D
 Pipeline infrastructure for oil and gas throughout the country
 Easy leasing framework
 Stable fiscal regimes
• Tax credits.