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ENVIRONMENT, REGULATION | Contributed Content, India
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Jay Cheema

Fractures in India's fracking debate

BY JAY CHEEMA

As the third largest energy consumer in the world, India continues to face serious energy deficiencies. Energy supply has far from kept pace with our needs and 80% of our hydrocarbon needs are currently met by imports, with no alternative solution in sight.

One answer to this challenge could be shale gas extraction. India is estimated to hold 63 trillion cubic feet of recoverable shale gas and tantalising, some think India could emulate the US energy market which has turned around from domestic deficit to surplus by embracing shale gas.

However, the debate continues to rage about the potential good and potential harm so-called fracking could do to India’s economy, environment, and people.

India has been slow to properly explore the fracking option primarily attributed to potential environment degradation and shortage of water resources. But considerations about the viability of shale gas production go well beyond environmental concerns. There is a need to tackle multi-faceted issues that involve both industry players and people living in affected areas.

Lessons learnt from other countries highlight the long list of must-dos. These include ensuring industry-sensible regulations balanced with an environmently conscious framework for development; design and implementation of rehabilitation plans to compensate for human displacement; the development of a robust onshore services sector and extensive gas distribution network; and creation of market-driven gas prices.

First steps

The government has already started the fracking journey. In October last year the Government issued its maiden shale gas policy which prevents participation of private explorers and allows without auction only the National Oil Companies (NOC's) such as Oil India Limited (OIL) and Oil and Natural Gas Corporation, (ONGC), to prospect in non-conventional energy blocks.

This has been a major setback for private explorers and other players such as Cairn India Limited, Gujarat State Petroleum Corporation Limited, and Reliance Industries Limited that had been building expertise elsewhere in expectation of being able to explore shale gas resources along with in India.

The Government's policy stipulates that NOC's can exploit shale resources in 176 identified exploration zones on land where exploration or production of convention energy resources are already taking place. The policy however prohibits prospecting for shale oil and gas in 254 blocks awarded to various public and private sector energy firms over the past 15 years.

Environmental concerns and challenges

After the notification of the policy, environmentalists worldwide raised concerns about shale oil extraction's call on limited resources of clean water. They highlight the potential for increased greenhouse gas emissions and point to pollution risk to water aquifers that could damage ecosystems and public health.

There are also concerns about proper disposal of flow-back water from fracking processess and land acquisition that can lead to displacement of people.

The debate is however heated – and strident on both sides. There have been strong rebuttals of anti-fracking claims by those that see its potential to revolutionise India's energy mix.

For instance, environmentalists have complained that chemicals used in the fracking process pollute the soil and groundwater. But studies from fracking done elsewhere have shown that this is unlikely.

Typically, shale gas extraction is done at 5,000 to 9,000 feet, while underground water bodies usually range between 300 and 500 feet. The recent Report of Public Health England explained that contamination of groundwater from the fracking process is itself unlikely to cause harm because of the depth at which it occurs and provided the drilling well is constructed properly.

Proponents point out that the water used for shale gas extraction can be treated before release and recycled for further extraction of shale gas in such wells. Opponents dispute whether it is entirely possible to cost-effectively recycle shale gas wastewater.

Critics of the critics also posit that claims about fracking increasing earthquakes have been exaggerated; as studies show hydraulic fracturing is likely to be of smaller magnitude than those induced by coal mining.

In fact, a report by The Public Health England, Department of Energy and Climate Change (DECC), said that greenhouse gas emissions intensity for shale gas were said to be similar to those of conventional gas and lower than those of coal and LPG.

They argue that technological advances elsewhere mean that Indian companies could leapfrog to new techniques that minimise environmental impact. These include advanced well designs and equipment, multiple layers of steel casing to prevent water contamination, closed-loop drilling to minimise water usage and discharge of toxic waste, and use of alternative water-free fracking methods.

Regulatory mire

The maze of regulations faced by companies in the shale gas extraction industry also pose a major barrier to moving the industry forward. There is a lack of clarity about whether the Union or the State owns oversight and approval processes for shale gas extraction.

The Supreme Court has held that Natural Gas is a Union subject and as shale gas is a form of it, it is also subject to Union jurisdiction.

However, the argument goes that since fracking is an industrial process of releasing/manufacturing natural gas from shale rock beds, it could be under State jurisdiction.

Irrespective of the actual process being a state or central subject, water is a State subject, so approval to use water in fracking will need to be obtained from the State Government. Various other environment clearances will also be needed before shale extraction processes can commence, including prior approval from the relevant State Pollution Control Board for the treatment and disposal of wastewater.

On the Central Government level, if forest areas need to be cleared, the Central Government will need to grant approval under the Forest Conservation Act. The Government also needs to issue policies to the Petroleum and Natural Gas Regulatory Board (PNGRB) to formulate specific enabling framework for shale gas pipelines and their inter-connection with the closest pipeline system.

Land acquisition may also be a serious issue if it results in people displacement. In the US, the companies engaged in exploration of shale gas can deal directly with the landowner to acquire land. In India, landowners are often reticent to offer land to the government because of fears they will not be fairly compensated.

What next

With increased global demand for energy pushing up natural gas prices and shale gas' potential to act as a subsititue for crude oil, shale gas has undeniably become a more attractive energy source. But to reap the potential benefits, the Government must first address the raft of issues that muddy the economic equation.

Measures must be put in place to ensure shale gas extraction is environmentally sustainable. Displaced people and land owners must be fairly treated and compensated and the opacity of the energy infrastructure and regulatory framework must be overhauled to provide clarity and certainty for industry players.

Getting it wrong could mean a continued divisive debate about the benefits or harm that shale gas can deliver. Getting it right could mean improving domestic economic growth, new employment opportunities, and a solution, in large part, to India’s growing energy demands. At present, the only thing for certain is that the debate will continue.

The views expressed in this column are the author's own and do not necessarily reflect this publication's view, and this article is not edited by Asian Power. The author was not remunerated for this article.

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Jay Cheema

Jay Cheema

Jatinder Cheema (Jay) heads the Projects, Energy, and Natural Resources practice at Clasis law. He is qualified in multiple jurisdictions to practice law i.e. India, Canada, and Africa. In addition to General Corporate law across sectors, has diversified experience in Energy, Infrastructure Transaction and Finance, and Natural Resources Law. Jay is also a visiting faculty at the IIM (Lucknow), Management Development Institute (MDI), (Gurgaon), and the Indian Institute of Corporate Affairs (A Government of India Undertaking), Manesar.

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