As the Indian government prepares to release its policy for shale gas development, the economic costs of shale gas exploration and production (E&P) in India must be considered and addressed. Fracking, the process by which shale gas is extracted from low-porosity rocks at depths of as much as 3,000 metres, can create significant environmental and social impacts. These impacts must be taken into account in any government policy on shale.
Whether India is able to meet its growing gas demand from shale, let alone export it, will ultimately depend on whether land is readily available for drilling, and water can be sourced for the fracking process without disruptions in supply, and without imposing costs on local communities by depleting and contaminating drinking water resources.
Fracking technology requires the use of large volumes of water. The water is mixed with chemicals and sand to form a fracking fluid, which is injected into the gas well under high pressure to break up the rock in the shale formation, releasing the trapped gas. Shale gas wells typically are drilled horizontally into the shale formation after an initial vertical section; the horizontal portion can extend for hundreds of metres, and the rock fractures from the fluid can extend several metres away from the wellbore. Fracking can require around 7,000-19,000 cubic metres of water per horizontal well. In the U.S., water is typically sourced from local surface water or groundwater. [1]
In India, using such large quantities of water will impose a burden on already stressed local water resources. Sourcing such water is also likely to create operational risks for companies due to possible interruptions in supply. The per capita availability of water in the country is 1,170 cubic metres. India is already the largest consumer of groundwater in the world with an estimated usage of 230 cubic kilometres per year. Annual replenishable groundwater resources available for industrial, domestic, and purposes other than irrigation were 71 billion cubic metres, according to 2004 estimates. A moderate (0-20%) to severe (20-80%) gap is expected between demand and supply of water by 2030 in most parts of India, including the areas being considered for shale development. For example, the Cambay basin in Gujarat, and the Krishna-Godavari basin in Andhra Pradesh are already highly water-stressed regions. [2]
Furthermore, surface or groundwater can potentially be contaminated at various stages of the fracking process, including chemical mixing, well injection, produced water (explained below), wastewater treatment, and waste disposal, as a result of accidents, leaks, poor well casing, and improper waste management. [3]
In the U.S. there is vigorous debate about the extent to which fracking contaminates water resources. Scientific studies are difficult to conduct due to a lack of baseline data before fracking is initiated in an area. Fracking fluid contains up to 99% water, but some of the chemical additives that may be used, such as benzene and methanol, are known or suspected human carcinogens and hazardous air pollutants. [4]
Determining the nature of contamination through fracking is further complicated by companies withholding information on the chemicals used – the fracking fluid formula is considered a trade secret. Recently, regulations and industry initiatives have been promoting the disclosure of such information (see, for example, FracFocus.org).
Depending on the site, 15% to 80% of the volume of injected fracking fluid flows back to the surface, along with water and naturally occurring, but potentially harmful, materials from the source geological formation such as brines, metals, and hydrocarbons (this is known as “produced water”), and the gas itself. The proper disposal of such waste is essential to prevent contamination of local water resources and drinking water supplies.
In the U.S., disposal often involves re-injecting the waste into underground injection wells, for which companies need permits and have to follow standards set by regulatory agencies. Wastewater could also be treated to remove contaminants and then discharged to surface waters. [5]
In India, where public health concerns are often given secondary importance, the inadequate management of hazardous materials in the absence of regulations could have widespread ramifications for local communities, the government, and companies themselves. Such pollution could worsen the impacts of fracking on water availability.
The fracking process may be repeated several times over the life of the well, to maximise the extraction of trapped shale gas. In 2010, at least 58 rigs were active in the Barnett shale formation in Texas in the U.S., which has a technically recoverable shale gas resource roughly the size of the shale resource in the Krishna-Godavari basin, as estimated by the U.S. Energy Information Administration (EIA) (The number of rigs is likely to be much higher today). While the number of wells, water required per well, and the number of times a well is fracked can vary depending on geology, this provides a rough indication of the overall magnitude of potential water withdrawal and contamination in one basin.
The companies operating in the Barnett shale had leased a total of 2.6 million net acres in 2010, which is approximately 4% of the total land area of Andhra Pradesh. [6] Companies in the U.S. are able to lease land for E&P directly from private landowners, because rights to minerals below the land belong to the landowner in the U.S. This is in contrast to the situation in India and other countries, where governments own mineral resources and companies have to obtain licenses to access the resources. Arguably, individual landowners are compensated adequately for the oil and gas leases in the U.S. – though there are questions about the fairness of these transactions. In India, individuals or communities could be displaced without commensurate compensation.
Inadequate compensation and a lack of participation by communities in the decision-making process, however, create the risk of disruptions to E&P projects. As an August 2013 Gateway House article points out, despite the fact that village councils in India have the right to decide whether companies can access mineral resources on their lands under the Panchayats Extension to Scheduled Areas Act (PESA, 1996), the law has been poorly implemented.
Nevertheless, there are lessons to be learnt for shale E&P from the disruptions and withdrawals that have occurred with mining operations in India due to land acquisition issues in the past few years, including the recent vote by village councils in the Niyamgiri Hills of Odisha against bauxite mining by Vedanta. For shale E&P, which would have to be conducted near densely-populated areas like Ahmedabad, this problem is likely to be much worse.
Not only are shale E&P operations likely to face severe water and land-related challenges without clear and stable government policies, there are also serious concerns about the ecological impacts, seismic events, and air emissions from fracking, which may impose additional, direct or indirect costs on companies involved in E&P. For example, while natural gas could result in about 50% fewer greenhouse gas (GHG) emissions than coal when burned, methane emissions due to leaks during natural gas E&P, processing, and transportation, could negate these benefits from a lifecycle perspective.
Methane is a more potent GHG than carbon dioxide, and with a significant expansion of gas production in the U.S. largely due to fracking, fugitive methane emissions have become a concern, prompting the U.S. Environmental Protection Agency (EPA) recently to issue new rules on reducing such emissions. [7] Any serious GHG emissions reduction policy in India will have to take these emissions into account if shale gas is to become an important component of India’s energy mix, but this could mean additional costs for companies.
The draft shale gas policy of the Government of India, released in 2012, acknowledges the significant water withdrawals and possible contamination of drinking water associated with fracking, but does not offer real solutions to this challenge. It allows for river, rain or non-potable groundwater to be used for fracking, and identifies reuse or recycling of water as a “preferred” method for water management. The draft policy does not deal with land acquisition issues of the kind mentioned above.
The policy divides the contract for shale E&P into two phases – a first phase for exploration and feasibility studies lasting for seven years, and actual development and production taking place only after that. [8] By this time, water, land, and emissions challenges are only likely to worsen, and significant capital expenditures in the meantime may not provide the expected returns.
As a result, actual shale gas production will depend not only on the technical feasibility and shale resources in India, but also on gas prices and the “economic” costs of shale E&P. It is important to incorporate the environmental and social costs that may not otherwise be considered in estimates of recoverable shale gas, but may impact companies through operational disruptions or unexpected or more stringent regulations in the future.
In the U.S., a leader in shale gas technology, and aided by favourable policies and gas prices, net imports of natural gas are falling, and the country is expected to be a net exporter of LNG by 2016. [9] China, estimated to have one of the world’s largest shale gas resources, still faces technological, infrastructure-related and economic hurdles that it would have to overcome to meet domestic demand, and potentially export the gas. These countries are beginning to address the environmental and social concerns related to shale gas development, although haltingly. The U.S. EPA is undertaking a study of the potential impacts of fracking on drinking water resources, and shale E&P companies and others will be watching the results of this study when it is released in 2014. [10] China is releasing its new shale gas policy shortly, and is expected to introduce more stringent environmental regulations. [11]
As the debate on the health and environmental impacts of fracking continues in other countries, India has an opportunity to take the lead through rigorous regulations on best practices in well casing, waste disposal, recycling or reuse of water in closed loop systems, and transparency on the use of chemicals. A strong land acquisition policy, that gains the consent of local communities and provides adequate compensation to affected communities, is another important element of any shale gas policy in India.
A stable investment environment for shale gas through such regulations could provide India a competitive advantage in shale gas development compared to other countries, where regulatory uncertainty and public pressure add risks for the significant capital expenditures that are needed for shale development.
Himani Phadke works at the Sustainability Accounting Standards Board in San Francisco, U.S. She has an MA in International Policy Studies, focusing on Energy and the Environment, from Stanford University, U.S., and an MSc in Economics for Development from Oxford University, UK.
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References
1. United States Environmental Protection Agency. (2010). ‘Hydraulic fracturing research study’. Retrieved from http://www.epa.gov/safewater/uic/pdfs/hfresearchstudyfs.pdf
2. UNICEF, FAO and SaciWATERs. (2013). ‘Water in India: Situation and prospects’. New Delhi: Retrieved from http://www.unicef.org/india/Final_Report.pdf
3. Figure 4 in Batra, R. K. (2013, June). ‘Shale gas in India: Look before you leap’. The Energy and Resources Institute Policy Brief, Retrieved fromhttp://www.teriin.org/policybrief/docs/Shale_gas.pdf
4. Minority Staff. United States House of Representatives, Committee on Energy and Commerce. (2011).’Chemicals used in hydraulic fracturing’. Retrieved from http://democrats.energycommerce.house.gov/sites/default/files/documents/Hydraulic-Fracturing-Chemicals-2011-4-18.pdf
5. United States Environmental Protection Agency. (2010). ‘Hydraulic fracturing research study’. Retrieved from http://www.epa.gov/safewater/uic/pdfs/hfresearchstudyfs.pdf
6. U.S. EIA report (India chapters) and U.S. Department of Energy, U.S. Energy Information Administration. (2011). Review of emerging resources: U.S. shale gas and shale oil plays (pages 51-53). Retrieved from:http://www.eia.gov/analysis/studies/usshalegas/pdf/usshaleplays.pdf and Ministry of Rural Development, Government of India, Department of Land Resources. Retrieved from http://dolr.nic.in/dolr/downloads/spsp/SPSP_Andhra Pradesh.pdf
7. Bradbury, J., Obeiter, M., Draucker, L., Wang, W., & Stevens, A. (2013). ‘Clearing the air: Reducing upstream greenhouse gas emissions from U.S. natural gas systems’. Retrieved from http://www.eia.gov/analysis/studies/usshalegas/pdf/usshaleplays.pdf
8. Batra, R. K. (2013, June). ‘Shale gas in India: Look before you leap’. The Energy and Resources Institute Policy Brief, Retrieved from http://www.teriin.org/policybrief/docs/Shale_gas.pdf
9. United States Environmental Protection Agency. U.S. Department of Energy, United States Environmental Protection Agency. (2012). ‘EPA’s study of hydraulic fracturing and its potential impact on drinking water resources’. Retrieved from http://www2.epa.gov/hfstudy/
10. Ling, S. Y. (2013, March 19). ‘China to release new policies to support shale gas development’. Retrieved from http://www.platts.com/latest-news/natural-gas/Singapore/China-to-release-new-policies-to-support-shale-7640216
11. U.S. Department of Energy, United States Environmental Protection Agency. (2013). ‘Annual energy outlook 2013’. Retrieved from http://www.eia.gov/forecasts/aeo/source_natural_gas_all.cfm