New Delhi, Feb. 20: ONGC Videsh has exited a gas block in Egypt because of fears over viability with the emergence of shale gas.

“The block is not commercially viable now. Shale gas has resulted in gas prices undergoing significant downturn,” company sources said.

ONGC Videsh Ltd (OVL), the overseas arm of ONGC, had acquired a 33 per cent participating interest in the Northeast Mediterranean Deepwater Concession (Nemed) block on Egypt’s Mediterranean Sea in October 2006.

The other partners in the block are Shell, which is the operator with a 51 per cent stake, and Petronas with a 16 per cent stake. OVL has invested about $235 million in Nemed. The operators had initially estimated 1.536 trillion cubic feet of gas.

Various feasibility options were explored to develop the gas and the operator was initially enthusiastic about the project. However, with the discovery of technology to exploit shale gas, the commercial viability of the block has received a blow, sources said.

PennEnergy, a global energy research firm, said in a report that the commercial exploitation of shale gas in the US had hit conventional LNG (liquefied natural gas) prices, globally, for various reasons.

First, the US demand no longer supports very high gas prices. Two, the US may help other nations establish their own production capabilities in shale gas. Three, the business structure of gas-to-liquid projects has been immutably changed. So, while the gas exporting countries will continue to supply the fuel, imports will fall short of their expectations.

Shale, an unconventional gas, has proven to be a game-changer in the US energy market, significantly reducing the country’s dependence on conventional imported LNG. It can also help India to bolster its energy security.

ONGC has tapped shale gas from a 2,000-metre well at Icchapur village near Durgapur in Bengal’s Burdwan district — the first in the country.

With India planning to auction shale gas blocks by the end of this year, pricing norms are also expected to undergo significant changes.

Gas prices vary depending on the source. For instance, gas sourced from the KG basin block operated by Reliance Industries is sold at $4.20 per mBtu (million British thermal unit), while gas from the Panna, Mukta and Tapti fields run by British Gas is priced at $5.73 per mBtu.

Companies pay $5.50 per mBtu for gas from Cairn India’s Ravva field in Andhra Pradesh. Gas from ONGC’s C-series field is priced at $5.25 per mBtu.

Shale gas is natural gas, or methane, trapped between hard rocks called shale thousands of metres below the earth’s surface. Extraction involves horizontal drilling and a process known as hydraulic fracturing, or fracking, which blasts water mixed with chemicals into a well to break the rock and release the gas.

There are concerns that the technology used in extracting the gas can have negative impacts on the environment such as groundwater contamination and air pollution. India has signed a pact with the US to help to identify shale gas reserves in the country and prepare for the auctions.

The United States Geological Survey is providing technical cooperation to India’s director-general of hydrocarbons to prepare the geological data for shale gas in the country.

According to preliminary estimates, shale gas reserves in the country may be larger than the proven conventional gas deposits. India has 1,074 billion cubic metres of natural gas reserves, according to the oil ministry.