Gas still remains a pipe dream

Shale gas, a little-known form of energy till recently, is bringing about tectonic shifts in the global energy market.

Shale gas, a little-known form of energy till recently, is bringing about tectonic shifts in the global energy market. The new gas, which is set to redraw the energy map globally, is now being championed in the US as the green answer to the carbon-intensive liquid fuels. Although the US has taken the lead in making shale gas a commercial alternative to liquid hydrocarbons, it is beginning to have its impact in other geographies too. The commercialisation of this gas, unlike other new-found expensive gas in deep waters, has come as a boon for the US economy. Shale gas is found on-land and the US, which has been largely dependent on imports, now aims to meet 30-40% of its energy requirements through shale gas.

The question is whether India’s policymakers are taking note of these developments. The reduced dependence of the US on gas or LNG from west Asia is beginning to show: there is a glut in the gas market today. Countries with scaled-up LNG infrastructure facilities that have the geographical advantage of being closer to the gas hotspots will make the best of this situation by striking long-term deals at mouthwatering prices. Energy analysts say that LNG is a less politically-loaded option in Asia than pipelines, given the turbulent political climate in the region.

Pipeline diplomacy requires a high degree of mutual trust, which India and its neighbouring nations in Asia are yet to attain. The Iran-Pakistan-India pipeline remains a pipe dream. Even countries in Europe that have been getting gas from Russia for years have been subject to disruptions. But India and its energy players perhaps have been caught napping. And, it may have already missed the bus for want of adequate infrastructure to capitalise on glut in the gas market.

Shale gas is set to change the geopolitics of the energy world. As the world shifts to cleaner energy forms, countries with large reserves of natural gas will begin to command a higher economic advantage. So, Qatar, Australia or even Iran — if it were to abandon its nuclear expansion plans and emerge as a responsible member of the global community some day — with large reserves of natural gas will be the energy leaders in this century. But the game changer in the energy act is the discovery and commercialisation of shale gas, a non-conventional form of sustainable energy. This is not to say that shale gas did not exist before, but the popular acceptance of this fuel and the high investments by major energy companies only reflect the potential of this fuel.

Not surprising then, that Indian energy companies have also begun their journey and are making efforts to acquire a share of this pie. If Reliance Industries has made the first foray overseas by buying a stake in Atlas, a listed US company having large acreages of shale gas, Cairn India and ONGC are tapping domestic potential. The geological studies in India have shown healthy prospects for shale gas in the western and north-eastern regions of the country.

Plummeting gas prices are putting pressure on gas-rich countries in west Asia such as Qatar that dictated the terms till recently, forcing energy-dependent countries such as India, Japan or China to accept, at times, highly-lopsided term contracts for supplies of liquefied natural gas. This, even as crude oil prices continue to hold firm at close to $80 a barrel.

Some of this price behaviour can be attributed to the global recession that pushed down demand in the US and Europe. What remains a mystery, however, is how oil prices bounced back while gas continues to plummet from the highs of $14-16 per million metric British thermal unit (mmBtu) to about $3-4 per mmBtu. Oil prices that fell sharply from the record high of $147 a barrel in July 2008 to almost $40 a barrel during the downturn, rose sharply, at a much faster pace even as major economies were just about limping out of the slowdown.

The price behaviour of crude oil and natural gas appears to be getting delinked. From being directly proportionate all these years, despite different market fundamentals, the two forms of energy are gradually finding their price index getting delinked from one another. Nymex and Henry Hub, the two indices of crude and natural gas in the US, may show completely divergent price behaviour as consumption patterns change across the globe.

Development of an increasing number of shale gas fields in the US coupled with the recession have left gas-rich countries such as Qatar with shiploads of LNG that they want to contract out to energy-hungry countries in Asia. Both China and India that were at the receiving end till recently, accepting gas prices linked to a crude benchmark known as the Japanese Crude Cocktail, are now beginning to demand better terms. The gas market has shifted from a sellers’ market to one of buyers. This should be good news for India. But as has been proved in many of the infrastructure sectors, India’s large appetite for products is left unmet due to the lack of adequate capacity.

The ability to track the changing dynamics of the gas market, the emergence of new products such as shale gas in the US was completely lost on policymakers and even the industry. Today, India has LNG facilities at three points: Petronet LNG that took the lead and set up a facility at Dahej — soon to be expanded to 10-million-tonne capacity — Shell’s facility at Hazira — that needs to be expanded soon — and Dabhol’s LNG plant, that was the maiden venture still remains to be completed after beginning work almost two decades ago. A missed opportunity!.

Source: Economic Times

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