Overcoming Barriers to Project Financing Shale Gas Development in India: How Can the Shale Gas Industry Avoid the Valley of Death?

Abstract

The shale gas industry in India is poised for rapid development after the Oil and Natural Gas Company (ONGC) found an ‘unlimited reserve’ of shale gas at Sarpi spread over an area of 1250-1300 sq km. The Sarpi deposit is Asia’s first shale gas pool and the only tapped shale gas reserve outside the commercial developments in the US and Canada. This has pushed India to identify areas for commercial exploration and exploitation and formulate a policy to attract investors and regulate the industry. However development of such resources could face several roadblocks, if a potential investor chooses project financing as the mechanism to develop the fields. The objective of this paper is to ascertain the barriers to project financing shale gas development and how those barriers could be trounced. To achieve this objective the paper will provide an overview of the fledgling shale gas industry in India and the problems in financing in light of the political, financial and market trends. Five primary barriers have been identified: the regulatory and legal risks, environmental risks, market risk, land acquisition risk and capital availability risk due to the recent global credit crisis. To mitigate these affects, this paper recommends certain strategies for overcoming these barriers.