Ukraine ramps up shale revolution, signs $10bn gas deal with Chevron
(L-R sit) Chevron's General Manager for Europe Derek Magness , Ministrer of Ecology and Natural Resources of Ukraine Eduard Stavytsky and Viktor Ponomarenko, Chairman of the National Joint Stock Company "Nadra Of Ukraine" sign documents as (L-stay) Geoffrey Pyatt, US Ambassador to Ukraine, and President of Ukraine Viktor Yanukovych (C) and James Jones (R) Process Control Consultant at Chevron attend during the ceremony in Kiev on November 5, 2013. (AFP Photo)
Kiev and Chevron have agreed to jointly develop Ukraine’s shale gas in a joint venture estimated at $10 billion, another step towards Ukraine's 2020 goal of energy independence.
The government signed a 50-year production-sharing agreement (PSA) with Chevron to extract shale gas in western Ukraine, Energy Minister Eduard Stavytsky said at a press interview in Kiev on Tuesday.
"This is one more step towards achieving full energy independence for the state. This will bring cheaper gas prices and the sort of just prices which exist (elsewhere) in the world," Stavytsky said after signing the agreement with Chevron chief Derek Magness.
Ukraine’s is close to signing a EU trade association agreement in Vilnius in late November, a move which could trigger a new series of trade and gas wars with Russia, who in October demanded Kiev 'immediately' pay its $882 million gas debt.
“The cost of gas production will be at least three times lower than what Ukraine is paying for in imports,”Stavytsky told journalists Tuesday.
Chevron will invest $350 million in the first 2 or 3 years to explore shale gas in the Olesska field, which is located across two regions – Lviv, which borders Poland, and Ivano-Frankivsk, which shares a border with Romania to the south.
The 2,000 square mile Olesska oil field is expected to produce 5 billion cubic meters per year, and at full capacity could hit 8-10 billion cubic meters, Stavytsy said.
Together with the Yuzivska shale field located in the eastern Donetsk region, over five years, Ukraine could reap an extra 11 to 16 billion cubic meters of gas, according to government officials. Royal Dutch Shell signed a PSA on January 1 2013 to develop Yuzivska shale reserves.
To compare, Naftogaz, Ukraine’s financially troubled state gas utility in October said 17 billion cubic meters of gas would be ‘enough’ to heat Ukraine through the winter.
European countries hope to match the US shale gas boom, and the energy independence it has brought. However, Europeans have shown much more political dissent towards fracking, and already, Chevron has pulled out of shale exploration deals in Lithuanian and Romania.
Ukraine sees shale gas as a win-win: they can both cut costs and move away from Russian gas.
It’s the end of the year again, which means Ukraine, as it appears to do every year, is scrambling to pay its gas bill to Russia. Ukraine has started to pay off its $882 million debt for Russian gas throughout the year, but not very much, Gazprom spokesperson Sergei Kupriyanov told Interfax on Wednesday, who called it just a ‘drop in the ocean’.
“Ukraine has an extensive non-payment credit history for Russian gas, piling and restructuring debt,”Aleksey Grivach, deputy director of Gas Projects at Russia's National Energy Security Fund, told RT.
“However, after signing the 2009 ‘pre-pay’ contact, Naftogaz has become a more disciplined buyer. Since then, there have been a few minor delays, but they have managed to settle on good terms,” Grivach said.
Since the ‘pre-pay’ contract was established, Ukraine has excessively complained of ‘expensive’ gas prices, which average around $400 per thousand cubic meters for Russian gas.
Ukraine currently imports more than half of its gas from Russia. It is speeding up its effort to diversify its supply, and has looked at different exporters, fracking, new offshore projects in the Black Sea, as well as new LNG terminals and pipes to diversify supply.
“The other alleged Ukrainian projects to diversify supply - an LNG terminal in Odessa, the White Stream pipeline from Azerbaijan, or the new idea of an LNG pipeline in Croatia- none of these are serious,” Grivach said, unconvinced by the feasibility of these plans
At the press conference Stavytsky said his government is discussing other PSAs with Exxon, ENI, and Electricite de France SA, for exploration of the Black Sea shelf.