Published on October 9, 2013
The US shale gas revolution not only helped revitalize the petrochemical sector of US, but will also prove beneficial for the Indian chemical companies. With the help of this ongoing shale gas opportunity Indian chemical companies will have access to gas at cheaper rates and will also be able to invest in integrated complexes and expand their business.
US is expected to become the largest natural gas manufacturer in the world superseding even Russia. By 2015 US is likely to export nearly 8-10 billion cubic feet/ day of gas to countries like China, India, Japan and Korea. Production of unconventional gas in US is said to rise from 42 per cent in 2007 to 64 per cent in 2020. Shale gas has made significant contributions to increasing gas production in the US.
Currently, gas in US is available at $3-4/ cubic feet, which is sold to India at the cost of $10/ cubic feet. As a result, India has to pay a hefty sum for importing gas from the US. A major obstacle that prevents India from acquiring gas at a more viable price is that India has no Free Trade Agreement (FTA) with the US. The Sabine Pass terminal of Cheniere Energy Partners LP is the only one with sanction to export gas to countries that don't possess a FTA with the US.
India’s consumption of gas during 2012-2013 stands at 160 million standard cubic metres per day (mmscmd), out of which 50 mmscmd had been imported. Indian companies that import gas include Petronet LNG, GAIL, Reliance Industries, and GSPC.
The major advantage of shale wells is that even at low pressure its productivity lasts for a long time. Earlier, lack of technological advancements prevented shale gas extraction at large scales. However, with R&D and modern technologies like horizontal drilling, hydraulic fracturing and 3D seismic scan US succeeded in creating shale gas boom. With shale gas extraction becoming more viable, key players are bringing in investments in order to develop more than 1500 shale wells. Many Indian companies have also invested billions of dollars in this venture.
Reliance Industries entered into a partnership with Marcellus and Eagle Ford in 2010. The firm invested nearly $3.5 billion in three deals, an investment which grew to $5.7 billion in the first half of 2013. The rapid growth of their investment has motivated Reliance to invest another $4.5 billion in the next 3 years. This investment will be used to purchase shale gas assets, establish pipeline infrastructure and also boost production at the existing 3 joint venture fields. Reliance also plans to establish a fertiliser or petrochemical plant in US for making use of their share of shale gas.
Another Indian company that has invested in shale gas in US is GAIL. They recently acquired 20 per cent stake from Carizzo Oil & Gas Inc for $95 million. In 2012, Oil India and Indian Oil Corporation (IOC) invested in Niobrara shale fields. They purchased 30 per cent stake from Carizzo for $82.5 million.
Thus, some of the major Indian companies have also joined in on the shale gas bandwagon. Access to low-priced shale gas will also enable fertiliser, power manufacturing and steel companies to rake in the moolah.
With the ethylene and polyethylene industries of North America announcing capacity expansions, Indian companies are looking at a wide array of lucrative opportunities.
However, there continue to be barriers that might prevent India and other countries from reaping large profits from the shale revolution. For instance, every state in the US has varied rules for shale gas. Unlike Texas and Pennsylvania, every state does not encourage investments from foreign investors. Environmentalists are also not in favour of shale gas extraction because of the humongous amounts of water it consumes. In order to frack a well with 6-8 laterals nearly one million gallons of water is required.
The shale gas revolution has been the biggest boost for the US economy. Will this be true for other countries as well?
