India to Treat Shale Gas, Oil Same as Conventional Hydrocarbons

India is likely to give exploration of shale gas the same status as traditional hydrocarbons to boost investment in the sector.

However, initial permission would be limited to national oil companies (NOCs) only on onshore blocks held by them under nomination, Indian Express has reported.

"The production of shale gas and oil, if any, in such areas would be treated at par with the production of conventional oil and gas for all purposes of exploration licence and mining lease," Indian Express quoted from petroleum ministry's proposal to the Cabinet Committee on Economic Affairs.

Besides income tax and customs exemptions, the NOCs, ONGC and Oil India, would have to pay a low 10 per cent royalty on shale gas. The royalty on any oil from shale formations would be 20 per cent as available for nominated oil and gas blocks.

 It would also imply that shale oil and gas would get the same price as available to conventional crude oil and natural gas, the newspaper said.

However, unlike the nominated oil and gas blocks where the NOCs do not have to pledge a minimum work programme (MWP), the proposed shale gas and oil exploration policy includes an MWP with a penalty of $0.25 million by the NOCs for not fulfilling it.

It also requires them to submit a field development plan (FDP) after which they have to start producing within six months. "In order to ensure that the FDP is implemented well within the timelines, a stiff penalty of 10 per cent of the royalty has been proposed in case of default," says the note.

The ministry's initial proposal was to extend the exploration rights to the existing 254 blocks being operated under the New Exploration Licensing Policy as well as pre-NELP blocks but it was dropped following objection from the Department of Economic Affairs that since the initial auction did not envisage exploitation of shale gas, giving these rights could lead to legal complaint from the unsuccessful bidders, Indian Express said.