Ukraine Signs Landmark Shale Deal
Ukraine signed a watershed shale gas deal with Royal Dutch Shell late Thursday in Davos, Switzerland at the World Economic Forum. The project, slated to cost around $10 billion, is a major step for the country's energy independence as it will boost domestic production, diversify supply and bring energy efficiency to Ukraine's heavy industry.
The deal confirms Ukraine's determination to break its dependence on Russian energy and though it will take some time to begin production, thus posing little short-term threat, Gazprom may be forced to rethink relations with the former Soviet republic.
Last week the Ukrainian prime minister, Mykola Azarov, said the pact, on joint distribution of gas extraction products in his country's Yuziv region.
“Kharkiv and Donetsk regional councils have approved decisions which afford signing of an agreement on joint distribution of the production on January 24,” Azarov said, after some criticism of the time it had taken for the local politicians to reach this point.
Ukraine is trying to wean itself away from costly Russian gas, after two bitter disputes in recent years led to cancellation of supply. Russia wants closer economic and political ties in return for lower prices. Last year Ukraine imported around 32.5 bcm from Russia, paying an average of €321 ($430) per 1,000 cubic meters, a price that officials say is unsustainably high.
Ukraine has Europe's fourth-largest shale gas reserves of about 42 trillion cubic feet (1.2 trillion cubic meters), according to the US Energy Information Administration. Ukraine itself estimates its reserves are bigger than that.
Shell won a tender last year for the Yuzivska deposit in eastern Ukraine, which government officials say holds 2 trillion cubic meters of gas and could produce up to 15 billion cubic meters of gas per year by 2020. In the past Shell has also partnered the Kiev governments in other energy ventures such as retail chains.
Chevron won the rights to develop the slightly smaller Olesska deposit in western Ukraine, where nationalist politicians are opposing the project.
Industrial development of the mentioned gas field can give to Ukraine additional 8-11 billion cubic meters of gas annually, Azarov said last week.
Meanwhile, the Ukrainian energy minister confirmed Ukraine is importing European natural gas via Poland in another move to diversify from Russian gas.
Energy and Coal Industry Minister Eduard Stavitsky said last week the state-owned gas company Naftogaz is still receiving supplies under a contract with German utility RWE via reverse flows from Poland.
"For now we are getting gas via Poland only... and we are working on two more routes," he said, reported by newsagencies. "Something will be known about them very soon."
Naftogaz in November struck a deal with RWE to supply it with 56 million cubic meters of natural gas over a two-month period via Poland through the reversing one of the lines that connecting the two countries' transmission systems at Drozdovychi.