Moving away from the controversial cost-recovery model, the government has proposed a royalty and production-linked payment for auction of shale gas acreage. Cost recovery in blocks offered under the New Exploration Licensing Policy (Nelp) has been the centre of dispute between the government and Reliance Industries Ltd (RIL).

The draft policy suggests a fiscal regime similar to the regime adopted for coal bed methane (CBM) operations. Ad valorem royalty at the prevailing rate for crude oil and natural gas would be applicable to shale oil and gas, respectively, and accrue to the state governments. Whereas the production-linked payment on ad valorem basis, will be of the central government. "This will minimise government intervention and remove incentive for gold plating", says the draft for which comments have been invited from stake holders by the petroleum ministry

Hydrocarbon found in the form of shale gas has, over the past few years, transformed the energy scenario for the world's biggest energy consumer, the US. Reliance Industries has acquired shale acreages in the US. China will soon launch a second round of shale gas auctions and is targeting 6.5 billion cubic meters of annual production by 2015, from close to none this year.

The country is looking to launch the first shale gas auction by December 2013, R P N Singh, minister of state for petroleum said on Wednesday. Several basins — Cambay (in Gujarat), Assam-Arakan (in the Northeast) and Gondwana (in central India) are known to hold shale gas resources. The country is looking to bridge the gas demand-supply mismatch by encouraging shale gas production.

The offer of acreages under this policy would be made through an open International Competitive Bidding process. The successful bidders would be required to enter into a contract with the Government, which will be negotiated based on the Model Contract, the draft said. Simultaneous exploration and exploitation of hydrocarbons, that is, conventional oil and gas, CBM, tight gas and shale oil and gas from the same contract area by same/different operators will be governed by the relevant policy of the government. "In case of acreage an offer for shale oil/ gas overlaps or falls within an existing oil and gas/CBM block, right of first refusal will be offered to the existing contractor," it said.

Under the policy offer of blocks would be open to different categories of investors, that is, public / private sector and domestic / foreigners. Up to 100 per cent participation by foreign companies and participation through unincorporated Joint ventures would be permitted.

There will be freedom to market shale gas within India on arm's length basis within the framework of the government policies on marketing and pricing of the gas. Marketing of shale oil will be as per prevailing Nelp guidelines for crude oil.