Energy security seems to be high on agenda of the Indian government. In the recent years Indian companies have gone on a spree to acquire energy assets across the globe. The Gas Authority of India Limited (GAIL) latest plan to buy shale gas assets in US is just an addition to the list. The company is all set to acquire nearly 20 % stake in two shale gas acreages Eagle Ford shale and Barnett shale, in the US. The deal size could be more than $ 200 million.
GAIL (India) Limited is the largest state-owned gas transportation company in India, integrating all aspects of the natural gas value chain. GAIL is listed by Forbes as one of the world's 2,000 largest public companies in 2007. It is India's flagship Natural Gas Company, integrating all aspects of the natural gas value chain including exploration & production, processing, and transmission, distribution and marketing and its related services. It is spearheading the move to a new era of clean fuel industrialization, creating a quadrilateral of green energy corridors that connect major consumption centres in India with major gas fields, LNG terminals and other cross border gas sourcing points.
GAIL at present is in exploration of coal bed methane, another unconventional gas. Primarily a gas marketing and transport company, with tilt towards petrochemicals, GAIL has two oil and gas blocks in Myanmar. The US acquisition would be its first venture into overseas unconventional gas.
Shale gas is natural gas, primarily methane, which is trapped in the earth’s most common sedimentary rock called shale, which has low permeability. Shale hold large amount of organic matter from which oil and gas can be extracted by destructive distillation. Production of shale gas, which is usually clean and dry, in the US is expected to reach 128 billion cubic meters by 2020, comprising one-quarter of the total.
The Eagle Ford shale is located in more than one destination in South Texas while Barnett is the largest onshore natural gas field in the US. The production of natural gas at the Eagle Ford shale rose from 16 billion cubic feet (bcf) in 2009 to 64 bcf in 2010.
Though GAIL acquisition is a unique proposition for an Indian firm, it’s not the first one. Earlier RIL acquired on the Carrizo Oil and Gas Inc in August 2011.In the deal, RIL bought a 60 percent stake in acreages held by Carrizo and its partner for $392 million. These included the Marcellus shale gas areas in central and northeast Pennsylvania. After the deal, RIL became the first Indian company to own a shale gas asset. The company has invested $3.44 billion in three shale gas assets in the US till date which is capable of producing 25.4 trillion cubic feet (tcf) gas.
Mergers and Acquisitions (M&A) is high on agenda for India and US companies with both the countries trying to enlarge their footprints in each other’s domestic market. This is quite evident from the well diversified M&A activity spread across various sectors. The economic engagement between both the countries is growing stronger and so M&A in future is expected to raise further once the barriers and regulations gets simpler.
The moves by RIL and GAIL will help India to make a start in tapping new source of energy. India has recently signed an agreement with the US to determine shale gas reserves in the country and it is expected that the launch of shale gas auctions will begin by the end of the year. India’s rush for energy sources globally is in line with its aspiration to become a global superpower. It is currently the world's fifth largest oil importer, meeting 75% of its needs from overseas. According to the international energy agency, India is poised to become the third largest importer after US and China by 2025 and while India accounts for 5% of the world's energy consumption the known hydrocarbons in the country are only 0.5% of the global reserves. So in all likelihood India will always remain a net importer of energy and hence global energy sources will remain vital for India.
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