Government takes first steps to open up shale resources

NEW DELHI (Reuters) - The government has approved a policy to allow state-owned companies to start exploration for shale oil and gas as the world's fourth-biggest energy consumer moves slowly to seek alternatives to expensive oil imports.

India and China have struggled to get into the global race for shale resources, which has followed a boom in shale gas output in the United States and has held out the hope of abundant and cheap domestic energy.

While China faces problems of costs and complexity that have stalled progress in exploration, India's government until now has not organised a framework for even initial investigations.

On Tuesday, the government agreed on a policy that will allow national oil companies to search for shale reserves on acreage already awarded to them.

India could be sitting on as much as 96 trillion cubic feet (tcf) of recoverable shale gas reserves, equivalent to about 26 years of its gas demand, according to the U.S. Energy Information Administration.

That would be a treasure trove for Asia's third-largest economy, which is beset by energy shortages that make power cuts common and fetter its industrial growth. Imports account for a large share of its energy supplies and strain its finances.

The policy marks a first step and covers only acreage in the hands of state-run explorers Oil and Natural Gas Corp (ONGC) and Oil India Ltd , which were handed out when India first started a push to produce oil and gas.

Of about 356 blocks held by ONGC and Oil India, India's upstream regulator has said 176 could hold shale resources.

Contracts for these areas were awarded with a broad remit to look for petroleum, which was interpreted to include unconventional resources. The new policy effectively confirms that.

But the wording of contracts for blocks awarded later to companies such as Reliance Industries , BG and Cairn India specifies activity related to natural gas and oil. That has been interpreted as excluding unconventional energy, and the policy does not address these areas.

The oil ministry is proposing a uniform licence for future acreage to cover oil, gas and unconventional resources and has asked for comments from companies before October 15.

While waiting for India to work out a policy on unconventional resources, Indian companies including Oil India, GAIL (India) and privately owned Reliance Industries have bought up shale assets overseas to help obtain the expertise needed for shale deposits back home.

(Reporting by Nigam Prusty; Writing by Jo Winterbottom; editing by Jane Baird)