Shell, Chevron, Others Look To Play In Ukraine's Shale Gas and Oil Fields

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MetalMiner has focused on energy policy and activity in the energy sector a lot lately and with good reason. Crude oil trends, natural gas, shale oil and shale gas, fuel tax and subsidy activity are all key components of knowing where metal prices will be weeks or months ahead, and knowing the energy landscape is critical for those in charge of their companies’ buys.

As most of us know, the first step in progressing as an economy is actually establishing a long-term energy policy, which the US has yet to satisfactorily accomplish. A clear and strong policy is the key to energy independence. But the US is not the only nation with a fractious relationship between government, Big Oil and energy independence.

We all remember the series of battles and stalemates that resulted from Ukraine and Russia tussling over gas supply, pipelines and prices over the past half decade. Russia has always given Ukraine a relative deal on the oil and gas the latter receives from the former, (since Russia depends on the pipelines that snake through Ukraine to get its fuel to energy-hungry Europe), but then Gazprom began raising prices substantially when the pro-Western President Viktor Yushchenko came to office.

Tomorrow, Ukraine celebrates 20 years of independence from the Soviet Union. As an article from oilprice.com points out, that all may be changing as Ukraine is beginning its arduous journey to energy independence (Incidentally, tomorrow, Ukraine celebrates 20 years of independence from the Soviet Union). Shell, Chevron and others are interested very interested in developing Ukraine’s rich reserves, and they seem to be putting their money where their mouths are.

Shell plans to spend multibillions to develop the Yuzovsky gas field, and is also working out a deal with Ukraine’s state-run Naftogaz to boost oil and gas production on the Black Sea shelf and in the Sea of Azov. Meanwhile, Chevron may try to penetrate western Ukraine with a venture in the Olessky field, a 2,700-square-mile-wide stretch, according to the article.

The head of Ukraine’s state geology and subsurface resource service, Eduard Stavitsky, put the state fund of subsurface resources at about “1.1 trillion cubic meters of gas and about 130-150 million tons of oil with gas condensate.

Shale, however, figures prominently, as TNK-BP is ready and willing to invest $2 billion in shale gas development across Ukraine over the next 10 years, hoping to take advantage of those resources. Recently, the independent consultancy Visiongain released a study that puts the value of the global shale gas market at nearly $27 billion this year.

All of this promised investment notwithstanding, Ukraine’s energy independence faces many obstacles. The leadership, known to drag its feet and accomplish practically nothing while bolstering favored parties and capitalist cronies, could be a hindrance, especially since current president Viktor Yanukovich sits in Russia’s pocket. (For example, the ramshackle concrete sarcophagus that houses Chernobyl’s notorious No. 6 reactor and all its live radioactive fuel sits dormant, leaking, unfixed and underfunded.) Also, the shale gas and oil shale markets face technological and cost hurdles. And it could be years, perhaps decades, before the Shells, BPs and Chevrons actually begin producing the millions of barrels/tons/cubic feet of oil and gas they claim to have an interest in.

While the future for Ukraine’s energy independence may sound robust, they must be aware of the pitfalls that lie ahead. And that is a lesson for everybody including the US.

–Taras Berezowsky

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