New Delhi, Aug. 25: The government is planning to allow state-owned ONGC and Oil India to explore shale gas in onland blocks held by them under nomination, giving them an edge over rivals who can start the hunt only after auction of blocks, whose date has not been announced yet.

“At the first stage, the state-owned firms will be allowed to carry out exploration for shale gas in onland blocks as the terms of the contracts are quite broad. However, for blocks awarded during the course of the Nelp round, the contract specifies that exploration should be related only to natural gas and oil,” a senior oil ministry official said.

The official said the note for cabinet approval was likely to be taken up early next month.

As many as 176 of the 356 blocks held under nomination may contain shale gas, according to the director-general of hydrocarbons.

The oil ministry in the cabinet note proposed that the state-owned firms would have to pay 10 per cent royalty on shale gas. The royalty on any oil from shale formations will be 20 per cent for nominated blocks.

The ministry has also proposed that the state-owned firms will have to submit a minimum work programme and pay penalty for not meeting their commitment.

Also, they will have to submit a field development plan (FDP) after which they will have to start producing within six months.

The note said “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 a default”.

Shale gas is non-conventional natural gas found in non-porous rocks and requires fracking technology for its extraction, similar to the extraction of gas between coal seams in India. The unconventional gas can help India to bolster its energy security.

Shale gas has proven to be a game-changer in the US energy market, significantly reducing the country’s dependence on imported LNG. Shale gas reserves in the US have been known for a long time. However, drilling technology to facilitate commercial exploitation was developed only recently.

China, which has auctioned the first batch of shale gas blocks, aims to meet 10 per cent of its gas demand through this unconventional source by 2020.

The government plans to tap the unconventional fuel to reduce the country’s energy shortfall and has identified six basins — Cambay, Assam-Arakan, Gondwana, KG onshore, Cauvery onshore and Indo Gangetic basins.

The draft shale gas policy favours market determined pricing, spelt out in clear terms so that operators are aware of the risks before committing themselves to a project.

The policy does not permit cost recovery and, hence, profit sharing — the two features that came under the criticism of the Comptroller and Auditor General of India during its audit of Reliance Industries’ KG-D6 block.

Studies have put recoverable reserves of shale gas in the country between 6 trillion cubic feet (tcf) and 63 tcf. The US Energy Information Administration estimates that the country may have as much as 96 tcf of recoverable reserves.

The demand for natural gas in the country is expected to increase significantly to 473 million metric standard cubic metres per day (mmscmd) by 2016-17 from 286 mmscmd in 2012-13.

Natural gas prices in India are in the range of $4.2-$5.6 per mBtu, while imported gas costs around $14-$15 per mBtu.

OVL move

ONGC Videsh Ltd (OVL) is likely to buy US energy major Anadarko Corp’s 10 per cent stake in a giant Mozambique gasfield for $2.6 billion this week, the fourth acquisition by the state-owned firm in a year, according to PTI.

OVL, which has clinched deals worth over $11 billion since September last year, is likely to announce in a day or two the deal to buy Anadarko’s 10 per cent stake in Mozambique’s offshore Rovuma Area 1, sources said.

The company had on June 25 announced buying Videocon’s 10 per cent stake in the same field, which may hold as much as 65 trillion cubic feet (tcf) of gas resources, along with Oil India Ltd for $2.475 billion.